Divestment by Japanese Companies in the International Coal Market:Comparative Analysis of Four Key Industries
Gregory Trencher1, Christian Downie2, Koichi Hasegawa3, Jusen Asuka4
1. Graduate School of Environmental Studies, Tohoku University, Miyagi Prefecture, Japan
2. School of Regulation and Global Governance (RegNet), Australian National University,Canberra, Australia.
3. Graduate School of Arts and Letters, Tohoku University, Miyagi Prefecture, Japan
4. Center for Northeast Asian Studies, Tohoku University, Miyagi Prefecture, Japan
Abstract
Continued investments in coal-fired power plants (CFPPs) and coal mining is incompatiblewith efforts to achieve temperature targets under the Paris Agreement. Interest is thus
growing around increasing anti-fossil fuel norms and divestment from governments andprivate market actors. As a major investor both upstream in coal mining and downstreamin CFPP construction, Japanese firms play a large role in sustaining the international coalmarket. While recently announced coal divestment policies from several Japanese firms
have attracted media attention, academic studies remain absent. Similarly, existing
divestment literature has focused overwhelmingly on financial institutions and overlookedroles played by other industry players such as utilities, mining companies and plant
equipment manufactures.
Filling this gap, this paper draws on data from approximately 25 interviews and document
analysis to examine the coal divestment and decarbonisation strategies of four key
industries upholding Japan’s coal market: (i) general trading companies, (ii) electricity
utilities, (iii) equipment manufacturers and (iv) financial/insurance firms. Our study covers
both upstream (i.e. coal mining) and downstream (i.e. CFPP construction) activities andprovides a comparative analysis of sector-specific trends and driving or hampering factors
in each.
Overall, we find that no sector is completely exiting the coal market. For general trading
companies, although most have announced decisions to reduce shares of coal-fired
electricity generation in overseas portfolios while ceasing investments in new thermal coal

mining, all appear likely to continue new CFFPs constructions while focusing mining
investments on coking coal. Meanwhile, utilities and equipment manufacturers also remaincommitted to pursuing new CFPP construction projects. Here, the inability to movebeyond CFPP business models is influenced by a lack of international competitiveness inrenewables manufacturing and project implementation. In the finance/insurance sector,
while all have tightened lending criteria for CFPPs, mega banks appear unlikely tocompletely cease coal-related financing. Barriers include fears of losing large businessclients in reaction to finance rejection as well as expectations—or even organisational
obligations—to support rather than hinder Japanese industry activities. Moreover, banks
problematised a lack of any domestic framework that would justify rejection of coalfinancing on climate grounds since current government policy heavily promotes the exportof Japanese CFPP technologies. This said, international and domestic divestment trends areheavily influencing the finance/insurance sector and creating large concerns about
reputation risk. Conversely, general trading companies, equipment manufacturers andutilities are less affected by reputation risk, with the improving economics of international
renewable energy projects constituting the main driver of strategy shifts. While all sectorsunderstand that thermal coal and coal-fired electricity markets will decrease sharply incoming years, most firms—particularly manufactures and utilities—remain locked-in tocurrent business models that rely on creating new overseas CFPP constructions. Findings
also revealed a genuine dilemma in all sectors whereby the withdrawal of Japanese firms
from an overseas CFPP construction project would not result in its abandonment since
Chinese and Korean utilities, manufacturers and finance institutions are also heavily
engaged in the overseas market. Findings thus highlight the need for improved global
governance to regulate the cross-border behaviour of firms from countries such as Japan inline with global climate mitigation objectives.
Keywords: coal phase-out, coal policy, divestment, carbon lock-in, Japan, fossil fuel,international financing