We’re calling on Nippon Steel to become a regional leader on climate-related lobbying disclosures

We believe ambitious climate policy is essential to meeting the goal of the Paris Agreement. We need a supportive policy environment to ensure that all sectors of the economy can undergo an orderly transition to net zero emissions by 2050.

Companies have a significant role to play in determining these policies. Furthermore, it is in a company’s best interests for its climate and decarbonisation-related policy positions and direct and indirect lobbying activities¹ to be aligned with its corporate goals and the achievement of its greenhouse gas emissions reduction targets.

As active owners, we are committed to engaging collectively and individually with companies around the world to highlight and improve their climate lobbying accountability, and to escalate this where required. As part of our climate engagement programme, LGIM’s Climate Impact Pledge, we have developed net zero sector guides to support companies in their transition and to clearly outline our sector-specific expectations. These include a ‘red line’ with potential voting implications for all 20 ‘climate-critical’ sectors on their climate lobbying activities.²

Why Nippon Steel?*

Nippon Steel Corporation is the largest steel maker in Japan³ and one of the largest globally in terms of production.

We define the steel sector as a climate-critical sector because it is one of the largest contributors to global carbon emissions, accounting for approximately 7% of the total in 2022.⁴ In Japan, the steel sector is the leading emitter within the industrial sector and accounts for 13-14% of the nation's total domestic emissions.⁵

Traditional steelmaking processes are highly carbon intensive. A shift to green steel will require a policy environment that supports a sufficient supply of low-carbon alternatives.

We have been engaging with Nippon Steel through our Climate Impact Pledge since early 2022, the same year in which we added the red line related to climate-related lobbying. The company failed to meet this criterion during our first year of engagement, so we made it the focus of our engagement with them for 2023, and also expanded our engagement to work collaboratively with other investors to increase our influence. Despite several meetings with the company on an individual and collaborative basis, the disclosures provided so far have not met our expectations.

Furthermore, assessments undertaken by third-party data providers have demonstrated that Nippon Steel lags its peers on climate policy engagement disclosures,⁶ and in 2022 Influence Map named Nippon Steel as one of the most influential companies blocking climate policy action globally.⁷

We believe that appropriate climate- and decarbonisation-related disclosure and reporting of these positions and activities and their alignment to the company’s goals are required for good governance and are essential to long-term value creation.

It is our view that the current level of Nippon Steel’s disclosures in these regards means shareholders cannot properly assess if the company has a good command of the policy environment. We also believe the current level of disclosures makes it impossible to accurately assess whether its lobbying activities are sufficiently coordinated and optimised to increase company value and meet its strategic goals and decarbonisation objectives in line with the Paris Agreement.

What’s next?

The year ahead is pivotal for Japan as the country is scheduled to update its key climate and energy policies. The choices made in the very near future will determine the direction of its mid-term decarbonisation strategy.

Given the significant role that Nippon Steel Corporation has in influencing Japanese policy, as well as LGIM’s intention to increase focus on demand-side engagement, we have co-filed⁸ a shareholder proposal asking the company to:

Disclose annually, climate-related and decarbonisation-related policy positions and lobbying activities globally, including its own direct lobbying and industry association memberships, and review these for alignment with the Company’s goal of carbon neutrality by 2050 and explain the actions it will take if these activities are determined to be misaligned.

More information on our expectations for corporate climate lobbying can be found here. You can read more about our climate policy engagement with Japan here.

*For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.

Sources

1. When we say lobbying, we mean both direct and indirect lobbying through trade associations.

2. Does the company disclose its climate-related lobbying activities, including trade association memberships, and explain the action it will take if the lobbying activities of these associations are not in line with the Paris Agreement?

3. https://www.nipponsteel.com/en/company/whoweare/#:~:text=With%20manufacturing%20bases%20in%20Japan,the%20world's%20leading%20steel%20producers 

4. World Energy Outlook 2023, IEA, 2023 [p.268].

5. National Institute for Environmental Studies (NIES), Japan and Ministry of Environment , Japan

6. https://www.climateaction100.org/company/nippon-steel-corporation/

7. https://influencemap.org/report/Japanese-and-South-Korean-Steel-Sector-Climate-Policy-18077

8. We have co-filed the resolution with the Australasian Centre for Corporate Responsibility (ACCR).