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Climate Change

Zero-carbon ESG investing in Japan wins Nippon Life as big backer

Exclusive: Companies that fail to meet climate goals will be dropped from portfolio

Nippon Life's investment portfolio holdings equate to 12 million tons of carbon dioxide emissions a year.   © Reuters

TOKYO -- Nippon Life Insurance, one of Japan's largest private institutional investors, aims to achieve net-zero emissions for companies in its stock and bond portfolios by 2050, Nikkei has learned.

The insurer will urge targets for reducing carbon dioxide emissions and consider divesting holdings in companies that fail to make sufficient progress on cuts.

Nippon Life becomes the first major Japanese institutional investor to adopt such an investment policy, which aligns with the Japanese government's goal of attaining net-zero emissions by 2050. If other investors follow Nippon Life's lead, it could accelerate decarbonization across the nation's industries.

Nippon Life holds equity or debt in roughly 1,500 Japanese companies. Based on the size of its stakes and other factors, Nippon Life's holdings account for an estimated 12 million tons of carbon dioxide per year.

The insurer will enter discussions separately with portfolio companies to press for stronger decarbonization measures. If there is a lack of responsiveness after a certain period of time, the insurer will sell off that company's shares or bonds. The proceeds of those sales will be reallocated to companies that have taken the lead in carbon reductions.

Nippon Life will also consider adding a decarbonization pledge as a condition for supporting the election of board members at shareholders meetings. This approach would eventually be applied to the insurer's foreign investments as well.

The plan will start being phased in during the next fiscal year beginning in April. Overall carbon emissions by portfolio companies will be reduced by 26% by fiscal 2030.

That threshold matches the government's goals. If the government's official target is ratcheted up, Nippon Life will lift its own goal as well.

The insurer itself aims to attain zero CO2 emissions at its offices and other locations by fiscal 2050.

Worldwide, insurers including Axa of France and Germany's Allianz have set similar goals for net-zero CO2 emissions at invested companies by 2050. Ratings firms have stepped up discussions with investors over investment targets that go against decarbonization ambitions.

Japanese industry has started moving toward carbon reduction. Power plant fuel procurement group JERA looks to achieve net-zero carbon emissions by 2050 by switching to hydrogen, for example.

Also factoring into Nippon Life's green investment plan is the impact the changes will have on its portfolio performance. Amid the global shift toward decarbonization, the stock prices of companies tied to coal-fired electric plants have underperformed.

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