Today, Sompo became the first Japanese insurer to adopt a coal policy. However, this policy is the smallest possible step the insurer could take; it only applies to the underwriting of coal projects and is full of loopholes. It will need to be updated quickly to catch up with the best practices in the sector, such as AXA’s.
1. What’s new ?
Earlier today, Sompo published a press release detailing its new sustainability initiatives, including how it addresses climate change and covers the coal sector. The insurer only announced one concrete new measure:
- The end of direct insurance or direct investment in new coal plants in Japan, except for ongoing deals, and some ultra-supercritical coal power plants.
2. Our analysis : below the bare minimum
Sompo’s coal policy is a first in several ways:
- Sompo is the first Japanese insurer to adopt any kind of coal policy. Japanese insurers are among the biggest global players and are very active in the coal sector—especially sector leaders Sompo, Tokio Marine and MS&AD. They are lagging far behind many of their Western peers, 20 of whom have adopted coal policies in Europe, the United States and Australia.
- Sompo is also the first Japanese financial institution to adopt a very weak coal policy when compared to those adopted by the other players. 13 Japanese banks have also adopted a coal policy only restricting their direct project finance for new coal plants. The bare minimum so far was the end of such financing, “in principle,” worldwide, except for ongoing deals and usually coming with varying degrees of potential exceptions following at minimum the OECD guidelines (ultra-supercritical power plants). This time, Sompo exclusion is only limited to Japan, and the possibility to still finance ultra-supercritical power plants is not even presented as exceptions.
This sets a bad precedent and leaves a giant loophole in what is already a very limited coal policy, as it allows for the underwriting of new coal plants outside of Japan, in the global South, where most of the remaining planned new coal plants are located. Sompo could still insure, for instance, the Vung Ang 2 coal power plant in Vietnam. The policy is so weak that it barely makes a change in our Coal Policy Tool, with Sompo score on the project level as an insurer upgrading from 0 to 1, the smallest possible move. And no change at all on the investment side.
Sompo scores in the Coal Policy Tool
This table shows the scores of Sompo coal policy as an insurer on five criteria of the Coal Policy Tool.
Sompo missed the opportunity to become the first Japanese financial institution to adopt any restrictions on coal at the corporate level, whether on the underwriting or the investment side. The insurer had invested $234 million in 10 coal plant developers according to the latest data available from September 2019.
With such a weak policy, Sompo will have to completely overhaul its climate commitments to align itself with the best practice in the sector, set by AXA, which adopted a robust coal policy covering all five criteria in the Coal Policy Tool, with impactful measures.
Sompo must urgently close all its loopholes at the project level to stop underwriting any new coal plants, as well as any other new coal project worldwide, once and for all, without any exceptions. It must also tackle the corporate side of its activities, starting with the exclusion of all coal developers from both its underwriting activities as well as its investments. Lastly, Sompo must exclude the most exposed and biggest players of the coal industry and adopt a comprehensive strategy to phase-out from the sector by 2030 in Japan/OECD and 2040 worldwide.
3. Our conclusion
2020 should mark a turning point in ending coal expansion: from this point forward, financial institutions worldwide must adopt robust coal policies from the get-go. We have run out of time to wait for endless revisions over several years given the urgency of climate breakdown. Sompo decided to go the other way, adopting a first coal policy below the bare minimum. The insurance giant will have to update its policy quickly and profoundly, and other big Japanese insurers such as Tokio Marine and MS&AD must follow suit.
As Yuki Tanabe, Program Director at the Japan Center for a Sustainable Environment and Society (JACSES) puts it:
“The new policy is not applicable for overseas plants including the Vung Ang 2 coal-fired power project in Vietnam, which may be in the pipeline of SOMPO’s underwriting. SOMPO should completely stop its underwritings for coal projects, without any exceptions.”