Nippon Steel: shareholders back climate proposals

“The strongest steel has to go through the hottest fire”, goes the old adage. The phrase, popularised by former US President Richard Nixon, captures the idea that tough conditions develop strong character. In the world of steelmaking, the fiery challenge of the energy transition is heating up.

To survive and thrive, incumbents must demonstrate both willingness and ability to remain competitive while pushing emissions lower and being receptive towards investor demands.

The recently concluded annual general meeting at Nippon Steel – the world’s fourth largest steel manufacturer – offers a glimpse into what investors are looking for.

Green steel

Steel, the world’s most widely used material, is hard-to-abate and a significant economic force. It employs some six million people across the world, accounts for a 3.8% of global GDP in value-added terms and 7% of global carbon emissions.

It is no surprise then that investors have been engaging with steelmakers particularly in Asia - home to 70% of the world’s steel production - to address the industry’s emissions footprint. Decarbonising steel, however, is a challenging proposition to say the least.

It relies on an uncertain mix of solutions including carbon capture and storage, renewable energy and hydrogen. According to ACCR, a shareholder advocacy group, Nippon’s case is no exception. The group views the company’s transition plan as one that “relies heavily on technologies unproven to reduce material emissions at scale”.

For several years, investors have pushed for feasibility reports to assess the technological readiness of the wider green steel transition. Climate Action 100+, a global investor coalition, first published a steel sector strategy back in 2021.

At the time, Adam Mathews – the chief responsible investment officer at the Church of England Pensions Board said, “steel companies face a challenging transition and the prize will be investors that not only remain as shareholders but also provide the needed transition finance”.

When Japan’s largest producer of crude steel held its AGM on June 21, the prize was up for grabs.

Investor demands at Nippon

Shareholder advocacy groups Corporate Action Japan (CAJ) and the Australasian Centre for Corporate Responsibility (ACCR) filed two climate-related resolutions. The first resolution asked the company to set short and medium-term emissions reduction targets. The resolution demanded that these targets be aligned with the Paris Agreement and cover scope 1,2 and 3 emissions. In addition, the resolution also sought disclosures on the capital expenditures associated with Nippon’s transition plan.

The second resolution called on the company to link remuneration with GHG emissions reduction targets.

A third resolution, focused on climate lobbying disclosures was filed by Legal & General Investment Management (LGIM) and ACCR.

The proposals, filed after institutional investors managing over 4.8 trillion in assets engaged with company management, made three key demands: detailed targets, internal incentives and political agency.

The proposals were supported by Amundi, Nordea Asset Management and Storebrand Asset Management.

“We believe that the scale and substance of Nippon Steel’s growing global business, significant emissions footprint, and powerful policy influence place the company squarely in the spotlight for investors and other stakeholders”, said Aina Fukuda, head of Japan investment stewardship at LGIM.

At the AGM, shareholders supported the proposals, a result that signals what shareholders expect from Nippon.

Yasunori Takeuchi, CAJ’s chief executive said, “the result reflects investors’ concerns and expectations for the decarbonization plan of Nippon Steel. A delay in decarbonization is a risk to corporate value”.

ACCR’s executive director Brynn O’Brien agreed. “The support for these shareholder proposals reflects that investors want to see greater ambition from Nippon Steel in seizing the opportunities of the green steel transformation”, said Brynn.

Going forward, the company could win investor confidence by being receptive towards their demands. As shareholders turn up the heat on Nippon to address its emissions footprint, the company is under pressure to show that its steel can withstand the fire.