INVESTOR BRIEFING

10 April 2023

marketforces.org.au
kikonet.org
ran.org
Contact: Eri Watanabe
Kentaro Nunokawa
Binbin Mariana
Toyoyuki Kawakami
Yasuko Suzuki

Mitsubishi UFJ Financial Group (TSE: 8306) (MUFG)
Sumitomo Mitsui Banking Corporation Group (TSE: 8316) (SMBC Group)
Mizuho Financial Group (TSE: 8411) (Mizuho) (collectively megabanks)

Failure to set targets, align portfolio exposure and policies withcommitments leaves megabanks at serious financial risk
MUFG, SMBC Group and Mizuho’ climate policies, targets and transition plans lack credibility, as
they fail to align with a net zero emissions by 2050 pathway and global standard-setting initiatives suchas the Net Zero Banking Alliance (NZBA) and the Task Force on Climate-Related Financial Disclosures(TCFD), despite repeated requests from investors. These failures have serious consequences: themegabanks are highly significant to the global and Japanese economy and have been identified by the
Financial Stability Board in consultation with Basel Committee on Banking Supervision as global
systemically important banks. With the IPCC’s latest report demonstrating the drastic and urgent actionneeded to meet the Paris Agreement’s 1.5 degree goal, the banks must disclose Paris-aligned transition
plans to ensure they are adequately managing the immense climate-related financial risks they are
exposed to.
Market Forces, Kiko Network and a representative of Rainforest Action Network (RAN) in Japan
have filed shareholder proposals (full details on pp.11-12), requesting that the megabanks disclose
plans to align their portfolios with a net zero by 2050 pathway. Investors are urged to request these
disclosures through engagement with the megabanks.
At the upcoming megabanks AGMs, investors are urged to vote FOR the ‘Transition Plan (Portfolio
Alignment)’ shareholder proposals (see pp.11-12).
Key Points●

MUFG, SMBC Group and Mizuho’s policies are not in line with their commitments, including
under the NZBA and to achieve net zero emissions by 2050. The megabanks lack key andcredible short and mid-term targets in emissions-intensive sectors such as power, coal mining,and oil and gas, which are required to guide action and for investors to track progress.

The megabanks appear to rely on “transition finance” and unproven technologies to reduce
emissions, without providing sufficient disclosure for investors to be confident in the likely impact ofthese approaches.
The megabanks are falling behind their peers involved in emerging markets, such as HSBC, DBS
and others in target setting, with real world impacts in Indonesia, India and East Africa.
Mizuho, MUFG and SMBC Group have indicated they are engaging with their clients in order tohelp them transition, but without clear metrics and targets aligned with 1.5 degrees ofwarming, investors are unable to assess the effectiveness and progress of this engagement.

●●●

Policies and targets incompatible with NZBA and net zero commitments
As described in the chart below, the megabanks’ current targets and policies have major shortcomings,
failing to align with a globally recognized net zero scenario, or the standards set by the NZBA. As an
example of the impact of these shortcomings, a recent study shows that even after joining the NZBA,
the megabanks ranked among largest financiers of companies expanding fossil fuels among NZBA
banks globally (MUFG: 3rd, Mizuho: 5th, SMBC Group: 9th).
The major gaps in the banks’ policies that allow such significant financing of fossil fuel expansion are:●Lack of portfolio-wide short- and mid-term targets - none of the banks have set and disclosed
lending and investment portfolio targets for 2030 or sooner targets, directly contradicting NZBA
recommendations and similar TCFD guidance, which make it clear that “any medium- andlong-term targets should have interim targets set at appropriate intervals (e.g., 5–10 years) covering
the full medium or long-term target time horizon”.

●

Existing targets out of line with the global 1.5 degree goal, NZBA and IEA Net Zero - themegabanks' existing targets (2030 financed emissions reduction targets for power and energy
sectors) and relevant policies are not aligned with the Paris Agreement 1.5 degree goal, the NZBA
requirements and the widely-referenced Net Zero by 2050 scenario (NZE) published by theInternational Energy Agency (IEA).

During our engagement with the banks, it has become clear that they are using governments’ policies andNationally Determined Contributions (NDCs) that are not aligned with the 1.5 degree goal when assessing
clients’ plans and projects for “alignment with the Paris Agreement”. The IPCC AR6 Synthesis Report has
warned that current policies would lead to global warming of 3.2 degrees by the end of the century, andeven strengthening policies to meet NDCs would see 2.8 degrees of warming.

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The NZBA requirements represent the consensus of an industry-led, UN-convened group of banks,
committed to aligning their lending and investment portfolios with net zero emissions by 2050. All the threemegabanks have joined the alliance (MUFG in June 2021, SMBC Group and Mizuho in October 2021), andtherefore are subject to these requirements.
The IEA NZE scenario is a conservative projection of the energy transition required, as it provides just a
50% chance of limiting global warming to 1.5°C and relies heavily on unproven low emissions fuels andnegative emissions technology. However, it is one of the most widely used scenarios globally and isreferred to in the NZBA guidance as one of the “credible, well-recognized” scenarios. The IPCC AR6
Synthesis Report includes 1.5 degree scenarios that cover sectors beyond energy.

3Chart: Comparison of megabanks’ policies and targets with IEA NZE and NZBA guidance

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Whilst the energy sector accounts for the overwhelming majority of global GHG emissions, the AFOLU(Agriculture, Forestry and Other Land Use) sector is the second largest source.
SMBC, Mizuho and MUFG have been among the fourth biggest lenders to large scale (more than 50MW)
wood pellet biomass-fired power plants in Japan. They release more CO2 than coal plants at the point of
combustion, per unit of energy generated.1 Therefore, use of woody biomass as fuel in large-scale power
generation is not viable as a climate solution (Chatham House, European Commission, Partnership for
Policy Integrity, etc).
Overall, the megabanks’ policies, targets and practices are inconsistent with 1.5-degree pathways,
contradicting the banks’ own commitments to the NZBA and to achieve portfolio-wide net-zero by 2050.

Lack of transparent and effective engagement on clients’ transition plans
Financial institutions are able to leverage their position as a source of capital to influence changes in theeconomy urgently needed to address the climate crisis. None of the Japanese banks have sufficiently
disclosed how they would manage and support the transition of their clients, despite client engagement
appearing to be the basis of the banks’ portfolio emission reduction strategy.
The banks’ current engagement policies lack clear expectations with specific measures for their clients’transition plans, such as timelines, pathways, metrics, and targets. Therefore, it is unclear how banks even
evaluate – let alone ensure – clients’ alignment with climate goals.
In addition, the megabanks’ engagement policies lack escalation plans. There are no explicit conditions forwithdrawing financial support from clients that are lagging behind the transition. These lack of processes
are out of line with recommendations – including by SBTi and the High‑Level Expert Group on Net Zero –that financial institutions have escalation policies to enhance engagement activities. Investor groups such
as TPI, and IIGCC have recommended banks to have explicit criteria for financing to misaligned clients.

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GHG protocol and SBTi’s Net Zero standard require that companies shall report biogenic CO2 emissions including
combustion of biomass. IPCC also mentions ‘When using inventory estimates to assess the CO2 emissions arisingfrom energy use, including wood for energy purposes, it is necessary to consider relevant emissions estimated in the
Energy and AFOLU sectors.’ National Greenhouse Gas Inventory Report of Japan shows that carbon emission
factors for fuel combustion in gross calorific value for coal power generation use is 24.3(t-C/TJ) and woods (biomass)is 29.6(t-C/TJ).

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The following case studies demonstrate the real-world impact of the gaps in the
megabanks’ policies:
Adaro Energy Indonesia (Coal)In April 2021, SMBC participated in a US$400 million loan to Adaro Energy Indonesia, a coal giant withmore than 90% revenue from coal mining. Adaro’s subsidiary is planning to build a new coal power plantfor its aluminium smelter in North Kalimantan, Indonesia.
The scale of new coal power capacity required is staggering. The smelter intends to produce 1.5 million
tonnes per annum at full capacity, at least two-thirds of which would be powered by coal. It would requireat least several gigawatts of new coal-fired power plant capacity to make this possible. The smelter’s
existence depends on building massive new coal-fired power capacity, meaning without a policy to restrict
corporate finance that can be used for a new coal power plant, the megabanks can finance the Adarogroup and enable new coal power at a gargantuan scale.

A woman as she waits to be evacuated in front of her flooded house in South Kalimantan, Indonesia. The flooding has been
linked to massive land clearing for coal mining activities, including Adaro, in South Kalimantan. © Putra / Greenpeace.

Adani Enterprises (Coal)
Mizuho FG, MUFG and SMBC Group are all bond arrangers for Adani Enterprises, the parent Adani groupcompany responsible for the disastrous Carmichael thermal coal project in Australia. The Adani group,
specifically Adani Enterprises, is also now the largest private developer of new coal mines and coal power

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plants in the world. In addition to its massive coal expansion plans, the recent allegations leveled at the
Adani group by Hindenburg Research have caused a massive drop in the share price for the whole groupwith several investors divesting their shares, such as Norges. Despite the allegations, all three banks werenamed in arranging a fixed-income roadshow for the group as recently as late February 2023, as they haveno explicit restrictions around underwriting corporate bonds for companies expanding coal power ormining. Given the massive fossil fuel expansion plans of the Adani group and the Hindenburg allegations,
it is unclear how Mizuho, MUFG and SMBC could be seen as taking climate and ESG concerns seriously
while still arranging bonds for the Adani group.

(Credit: Stop Adani)Without sufficient restriction on corporate financing and clear expectation for client’s transition
strategy, the banks can still finance companies pursuing new coal mines and coal power plants like
Adani and Adaro.
East African Crude Oil Pipeline (Oil and Gas)
One of the most controversial fossil fuel expansion projects in Africa is the US$5 billion, 1443-kilometer
East African Crude Oil Pipeline (EACOP), which would transport 216,000 barrels per day of electricallyheated crude oil extracted from the Tilenga and Kingfisher oilfields in Uganda to the port of Tanga in
Tanzania for export.
SMBC is acting as financial advisor to French oil major TotalEnergies (Total) – the lead developer of the
project – and joint lead arranger for the $3 billion project loan that will provide the majority of the financing

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for the project. 50 global financial institutions and export credit agencies have publicly ruled out
involvement in EACOP already, owing to its unacceptable environmental, social and governance (ESG)
risks. Mizuho has also ruled out financing EACOP as long as the ongoing E&S issues are not resolved.
MUFG has remained silent on its financing plans. None of the megabanks have policies and targets
relating to mid-stream oil and gas.

(Credit: Stop EACOP)

Disclosure on financed emissions trajectories required given reliance on
unproven technologies
As noted above, none of the three megabanks have provided sufficient disclosure of their financed
emissions trajectories to achieve net zero by 2050, which renders investors unable to assess credibility ofbanks’ plans and strategies. It is especially concerning as there is no clarity on how much banks would
rely on unproven technologies such as ammonia/hydrogen co-firing and CCUS (carbon capture, utilisationand storage) in attempting to achieve their net zero goals.
All three megabanks are actively involved in new technology development by funding the Green
Transformation (GX), particularly MUFG and Mizuho. This fund includes the utilization of fuel8

ammonia/hydrogen and CCUS. MUFG's proactive stance on GX is reflected in the formulation of theWhite Paper on Transitions, the first of its kind for a Japanese bank and development of guidelines for“transition finance” to facilities and projects in Southeast Asia and elsewhere to decarbonization. Mizuho
also increased2 the scope of its transition finance to include investments in “highly uncertain seed” and“early-stage technology” development.
The megabanks’ policies allow them to support unreliable co-firing and CCUS technologies, which canprolong coal power use, in the name of “transition to decarbonization” despite their restrictions on newand expansionary coal power projects. There is little evidence suggesting the commercial viability of thesetechnologies to meet a net zero by 2050 outcome or about their lifecycle emission reduction capabilities.
Many studies have pointed out these unproven technologies are not only financially risky but alsoquestionable in reducing emissions and would potentially lock-in ongoing usage of fossil fuels (Transition
Zero, Energy Transitions Commission, ISS, BNEF, IEEFA etc).
NZBA’s guidance states scenarios used “shall be no or low overshoot” and “shall rely conservatively on
negative emissions technologies”. The megabanks must therefore disclose their reliance on thesetechnologies in their financed emissions trajectories.

MUFG, SMBC Group, and Mizuho lagging behind peers
Peer financial institutions are placing more effective restrictions on finance to companies and projects
expanding fossil fuels, leaving MUFG, SMBC Group and Mizuho with clearly ineffective policies andtargets behind.
Examples of progressive policies and disclosure of targets by peer financial institutions
Oil and Gas

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HSBC
December2022

No longer provide new finance (through lending or capital markets) for the
specific purpose of projects pertaining to new oil and gas fields and related
infrastructure when the primary use is in conjunction with new fields.

DBS
2022

DBS’s “absolute emissions targets for the O&G sector cover upstream,
downstream and integrated companies”.

ING
March 2022 &March 2023

Restrict dedicated finance (lending or capital markets) for upstream oil andgas fields (exploration and extraction) approved for development after 31
December 2021, and for midstream (oil and gas infrastructure) activities.

Danske Bank
March 2021

Committed to immediately end direct finance for the expansion of oil andgas exploration and production worldwide.

Available only in Japanese as of April 10.

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Coal

La Banque
PostaleOctober 2021

Committed to immediately “refraining from financing oil and gas energy
projects”, “no longer providing financial services” to upstream andmidstream oil and gas companies, and “a complete withdrawal from fossil
fuels by 2030”.

NordeaAsset
Management
February
2023“Nordea does not provide project financing dedicated to expanding
exploration of new oil and gas fields.”

CIMB
December
2020“Prohibits asset-level or general corporate financing for new thermal coalmines and coal-fired power plants, as well as expansions, except where
there is an existing commitment.”

HSBC
December
2022

Will not provide new finance to any client, or new advisory services inconnection with specific purposes such as new captive thermal coal-fired
power plants or new captive thermal coal mines and new metallurgical coalmines.
Will not start a relationship with a new company in the mining sector withannual thermal coal revenues are ≥10%, or thermal coal production is>5Mt, or thermal coal, as a by-product from the extraction of metallurgicalcoal, is >15% of total production volumes. Same for coal power clientswith operational thermal coal power generating capacity is either ≥10% of
total generating capacity or ≥1GW.

NordeaAsset
Management
February
2023“Nordea does not initiate any new financing relationships with companies
having more than 5% of their revenues coming directly from thermal coal,
covering coal-fired energy production companies and/or mining companies
that are extracting thermal coal. We do not finance or refinance companies
with expansion plans for thermal coal or new and pre-construction phasethermal coal activities.”“Nordea does not invest in companies with substantial and sustained
exposure to coal mining, defined as having a 5% revenue threshold on
thermal coal and 30% revenue threshold on total coal (including
metallurgical coal). By 2025, Nordea will phase out investment incoal-related companies without plans to achieve a full exit from coal
globally by 2040.”

Engagement

HSBC
December
2022“If a transition plan is not produced or if, after repeated engagement, is notconsistent with our targets and commitments, we won’t provide newfinance, and may withdraw existing financing if appropriate.”

Investor action required10In the face of accelerating policy, market and investor commitments towards achieving net zero emissions
by 2050, the ‘Transition Plan (Portfolio Alignment)’ shareholder proposals seek disclosure of credible
measures and targets to align the banks’ activities with this outcome. The co-filers have engaged with
MUFG, SMBC Group and Mizuho on multiple occasions over several years on climate related strategies
and actions, particularly regarding the management and disclosure of their climate-related risks. The
co-filers have also conducted intensive engagement with the banks for the last a few months prior to filingthe shareholder proposals.
While the banks have shown a willingness to engage on these issues, the engagement has not sufficiently
raised hopes that the banks are committed to formulating and disclosing transition plans, including shortand medium-term targets, with credible, well-recognized pathways or trajectories to net zero emissions by
2050 or sooner, including strategic policy commitments and targets for significant GHG-intensive sectors
within their portfolios, considering the full range of Scope 3 value chain emissions.
Investors should be wary that the megabanks’ policies and practices are still far from aligned with theParis Agreement 1.5 degree goal and fall well behind many global peers. Unless there is a significant
strengthening of transition planning, MUFG’s, SMBC Group’s, and Mizuho’s climate-related financial risk
will remain extremely high and inadequately managed.
At the upcoming megabanks AGMs, investors are urged to vote FOR the ‘Transition Plan (Portfolio
Alignment)’ shareholder proposals.

Shareholder Proposal Text
Partial amendment to the Articles of Incorporation (issuing and disclosing a transition plan to alignlending and investment portfolios with the Paris Agreement's 1.5 degree goal requiring net zero
emissions by 2050)
The following clause shall be added to the Articles of Incorporation:
Chapter X: “Transition Plan (Portfolio Alignment)”
Clause Y: “Issuing and disclosing a transition plan to align lending and investment portfolios with theParis Agreement's 1.5 degree goal requiring net zero emissions by 2050”
1. In order to fulfil the Company’s commitment to net zero emissions by 2050 in its lending andinvestment portfolios, the Company shall set and disclose a transition plan to align its
portfolios, in the short-, medium- and long-term, with credible pathways to net zero emissions
by 2050 or sooner, including strategic policy commitments and targets for significant
GHG-intensive sectors within its portfolios, considering the full range of Scope 3 value chain
emissions.
2. The Company shall report on its progress against such a transition plan and targets in its
annual reporting.

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Reasons for proposal
This proposal requests that the Company disclose information required for shareholders to determine
the integrity of the Company’s plans to achieve its net zero emissions by 2050 commitment, and for theCompany to appropriately manage climate change risks, and maintain and increase the Company's
long-term corporate value.
The Company is exposed to substantial financial risk, given its significant involvement incarbon-intensive sectors such as fossil fuels. However, the Company has not set and disclosed
sufficient targets or policy commitments to align its exposures to the most GHG-intensive sectors with a
net zero emissions by 2050 pathway.
It is, therefore, critical for the Company to ensure the integrity of its climate goals and transition plans bysetting and disclosing such targets and strategic policy commitments, which should align with the
trajectories and key conclusions of credible net zero emissions by 2050 scenarios, such as theInternational Energy Agency’s. Global peers of the Company are already disclosing this type of
information.
The disclosure this proposal seeks is commonly expected among investors through the Task Force on
Climate-related Financial Disclosures (TCFD), and international standard setting initiatives such as the
Net Zero Banking Alliance.

Shareholder resolutions in Japan and Amendments to Company Articles of Incorporation●●●

The proposal to amend the company’s articles of incorporation in part is the most commonlyused approach to make shareholder proposals in Japan, and the approach taken in this
proposal. Around two-thirds of the shareholder proposals filed in 2021 took this form.
Under Japanese corporate law, the sole legal pathway for a shareholder proposal on climatechange is via an amendment to a company’s articles of incorporation.
The legal effect of such shareholder proposals is the same as the “special resolutions” onclimate change filed and passed at UK companies including Barclays, BP, Royal Dutch Shell, Rio
Tinto and Anglo American, which take binding effect as part of the companies’ constitutions.
-- Client EarthDISCLAIMER:
Informational purposes only – This communication is provided solely for informational purposes only and is not,and should not be construed as, investment advice or investment recommendations for the purposes of the Financial
Instrument Exchange Act of Japan.
No joint-exercise of voting rights – Nothing in this written communication, nor in any related oral discussion, isintended to be, nor should it be construed as, an offer, an acceptance or a consent, to enter into an agreement forthe joint exercise of voting rights or any other shareholder’ rights for the purposes of the Financial Instrument
Exchange Act and Foreign Exchange and Foreign Trade Act of Japan. If needs be, it is hereby emphasised that eachshareholder exercises its shareholder’s rights independently based upon its own decision and shall not be held liable
for its exercise of its shareholder’s rights in any event or in any result, as a breach of any discussion between theshareholders.
No proxy solicitation – Nothing in this written communication, nor in any related oral discussion, is intended to be,
nor should it be construed as, a “solicitation for proxies” for the purposes of the Financial Instrument Exchange Act
of Japan. The shareholder is not soliciting or seeking any authorization by any other shareholders to exercise theirvoting rights or any other shareholders’ rights on their behalf or as their agent at the annual shareholders’ meeting.
This is a non-commercial product for public dissemination only. Not for sale.

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