During a shareholders
meeting in Tokyo last Friday, a group of investors in Nippon Steel asked the
company to improve its decarbonization strategy and reduce harmful emissions in
light of its pending acquisition of U.S. Steel.
Nippon
Steel, the largest steel producer in Japan and the fourth-largest in the world,
is set to purchase U.S. Steel pending regulatory approval by the US government.
The sale is controversial because the United Steelworkers Union strongly
opposes it, and has sparked an international political debate over
whether U.S. Steel should remain “American owned.”
Meanwhile, experts say both
Nippon Steel and U.S. Steel have fallen behind competitors when it comes to green steelmaking,
and communities living near U.S. Steel’s polluting, coal-based manufacturing
sites in places like western Pennsylvania say their concerns about health
harms have been ignored in the debate about the sale.
A
group of concerned investors say that Nippon Steel’s purchase of U.S. Steel,
which still relies heavily on coal-based steel production at its 11 blast furnaces in the Pittsburgh region, is part
of a pattern indicating the company has a “coal addiction.” Nippon Steel has
also been buying up coal mines in
other parts of the world, and recently started construction on two new blast furnaces in
India.
“Steel
does not have a climate problem, it has a coal problem,” Brynn O’Brien,
executive director of the Australasian Centre for
Corporate Responsibility, one of the investment groups calling for
changes at Nippon Steel, told EHN. “Shareholders should note neither U.S. Steel nor
Nippon Steel have Paris-aligned targets, and the potential addition of U.S.
Steel’s 11 blast furnaces to Nippon Steel’s operations will place more pressure
on the company to demonstrate to shareholders it has a credible decarbonization
strategy.”
O’Brien’s
organization, along with the investment groups Corporate Action Japan and Legal
& General Investment Management, filed three shareholder proposals ahead
of last Friday’s meeting. The proposals asked Nippon Steel to set and disclose
short and medium-term greenhouse gas emissions reduction targets aligned with the Paris Agreement,
requested that executive profits be linked to the company’s emissions reduction
targets (something other steel companies have already done) and
asked for increased disclosure of climate-related lobbying activities.
When
the proposals were presented at last Friday’s shareholder meeting, they were
met with applause from other shareholders, according to people who were
present.
“I
think that’s a sign of the times that there’s increasing awareness that Nippon
Steel has a climate problem it needs to get serious about, and that’s the
message these investors sent,” Roger Smith, Asia lead for SteelWatch, an industry watchdog and climate advocacy
group, told EHN.
The
filing of the proposals came after a group of institutional investors
collectively representing nearly $5 trillion of assets informally asked Nippon
Steel for more environmental accountability last year, according to the
Australasian Centre for Corporate Responsibility. The formal proposals were
also supported by the large institutional investment firms Amundi, Nordea Asset
Management and Storebrand Asset Management.
The
proposals didn’t garner enough votes to be adopted at last Friday’s shareholder
meeting, but about 21% of shareholders voted in support of the proposal to
align emission goals with the Paris Agreement, 23% of shareholders voted in
support of the proposal requesting that shareholder profits be linked to the
company’s emission reduction targets and 28% of shareholders voted in favor of
the proposal on improved disclosure of climate-related lobbying.
In
Japan, climate-related shareholder proposals require a majority of two-thirds
of the votes of the shareholders present in order to be adopted, according to
O’Brien.
“Not
meeting this threshold does not mean a company can or will disregard
significant support for a proposal,” he said. “Given the significant
shareholder support for all three proposals, we expect Nippon Steel to respond
to this strong investor feedback… Good corporate governance requires, at a
minimum, the company to analyze the reasons for the vote and consider how its strategy
needs to evolve in line with investor expectations.”
Nippon
Steel did not immediately respond to a request for comment on the shareholder
proposals or its decarbonization strategy.
A
competitive disadvantage
While
the shareholders who filed the proposals raised climate and public health
concerns, their primary concern was financial.
The
support for the climate-related proposals at the shareholders meeting “is
evidence that investors see a strong link between a credible decarbonization
strategy and securing corporate value,” O’Brien said. “Continuing coal
investment risks stranded assets, regulatory penalties and competitive
disadvantages as global markets shift towards green steel production.”
The
Paris Agreement has shifted the steel market dramatically, Smith said.
“It’s
now the expectation of governments and steel buyers that low-emission steel
will soon be available, and ultimately that will either be requested or
required,” Smith said. “Some of Nippon Steel’s biggest rivals have plans to
produce green steel in the next few years, but Nippon Steel has nothing to
compete with that. They have no low-emissions primary steel, nor do they have
any plans to produce it in the near future.”
O’Brien
noted that while U.S. Steel’s Pennsylvania plants are problematic, Nippon
Steel’s decarbonization strategy would benefit from acquiring the company’s electric arc furnace facilities
in Alabama, which have a significantly lower carbon footprint and are necessary
for the production of green steel.
“That
doesn’t resolve shareholder concerns about making continued investments in
coal-based facilities,” Smith said. “Investors need to know, is this just a
dead end? Are you just going to run the blast furnaces into the ground and then
walk away?”
The
steel industry’s critical role in meeting global climate targets
Steel
production is responsible for an estimated 7% of all human-made greenhouse gas
emissions, and is the largest greenhouse gas emitter in the manufacturing
sector. The steel industry’s carbon footprint impacts other major industries,
including construction, transportation and energy production, so shrinking the
industry’s emissions could also “substantially cut emissions for all those
industries dependent on steel,” according to the World Economic Forum.
Both
U.S. Steel and Nippon Steel have set goals of being carbon neutral by 2050, but
both companies have been criticized for
lacking concrete plans to reach that goal, for their continued reliance on coal
when cleaner technologies are available and for that timeline being too slow to
achieve the 1.5°C global warming limit established by the Paris Climate
Agreement.
The MSCI Global Sustainability Index rates Nippon
Steel’s projected emissions as being aligned with more than 3.2°C of
global warming, indicating that the company’s “contribution to catastrophic
climate change is higher than most.”
“It
wouldn’t be a livable planet if every company did that,” Smith told EHN.
U.S.
Steel doesn’t have an MSCI rating, but has been ranked “high
risk” for investors concerned about sustainability by the investment research
firm Morningstar.
“It’s
a little ironic that Nippon Steel is coming to the U.S. and buying a company
that’s facing all the same problems they’re facing in Japan,” Smith said.
The
shareholders plan to continue applying pressure.
“There
are further escalation tools available to shareholders, including voting on
directors, if insufficient progress is made,” O’Brien said. “Investors want
confidence that Nippon Steel is going to remain competitive into the future,
and there is strong commitment to ensuring corporate value is secured.”