Transition Asia is actively working on steel decarbonisation In Japan. Since shareholder activism is focusing on JFE Holdings, Inc. and Nippon Steel as the two major steel producers in Japan, we provide this one-stop guide to their climate ambition and climate action following the publication of their 2022 sustainability reports.

We have previously modelled Nippon Steel’s trajectory to 2030 and provide an investor brief. [1] In the comparison table below we have developed the same framework for JFE and note that JFE Holdings / JFE Steel are also a significant climate risk to investors and are moving further away from a 1.5°C pathway, faster than Nippon Steel.

Table 1 – 2030 Emissions Pathway Comparison [2]

Both corporations need to raise climate ambition and action towards 2030. Crucially this pathway is based on emissions reduction from a 2010 base year. Both of these companies use a base year of 2013 which only results in higher emissions reductions because it was an abnormally high year for steel production. When measured against 2010 emissions forecast emissions reduction by 2030 is highly insufficient.

The prospect of investment in greenfield BF-BOF by Japanese steel producers is a clear signal about lack of climate ambition

Figure 1 shows that neither company is aligned to a 1.5°C pathway. Here we show the relative gap in emissions to a 1.5°C pathway from 2020 to 2030 using a 2010 base year.

Figure 1 – Ambition Gap to 1.5°C Pathway by 2030 (2010 base year)

Our analysis suggests that without this they will both fail to revert to a 1.5°C pathway by the end of this decade, resulting in increased climate-related commercial risk and financed emissions for investors.

This points to the absence of near term solutions for decarbonisation (which are explored in Table 2). These should be driven by increasing investment and production in EAFs using RE feedstocks. For EAF steel production, scrap inventories are an opportunity in Japan while the other key feedstock, RE will have to be delivered at speed and scale from government and utilities.

This is the easiest and quickest way to move away from coal intensive BF-BOF routes where efficiencies have flat lined, meaning switches in production methods from BFBOF to EAF. As a consequence, the prospect of investment in greenfield BF-BOF by Japanese steel producers, either in Japan or overseas, is a clear signal about lack of climate ambition in general, not least because greenfield plant lifetimes would stretch beyond any net zero target date.

To reduce emissions as fast as possible, both companies need the procurement of renewable electricity and green hydrogen – either from PPAs or from the grid – and to “double down” on lower carbon EAF production, without which progress on decarbonisation by 2030 will be limited.

We present an overview of Nippon Steel and JFE Holdings following the release of Nippon Steel’s Sustainability Report 2022 (Sep 2022). Data is taken from key sources given at the end unless otherwise stated:

Table 2 – Comparison of Climate Commitments of Nippon Steel and JFE

H₂-DRI-EAF is a medium term solution. Given the vast emissions reduction needed, an unofficial announcement of a possible joint venture between Nippon Steel and JFE Holdings on H₂-DRIEAF technology is welcome news from the Japan steel sector, but will not impact either of the 2030 emissions pathways significantly. [21] Indeed a target of “pre 2050” for commercial H₂-DRI is underwhelming compared to the European pilots of the same technology including steel leader ArcelorMittal which has trialled part hydrogen use in DRI [22] or SSAB which has produced 100% green steel in a pilot, from the same method. [23]

Below we compare the roadmaps of the two corporations: [24] [25]

Figure 2a – Nippon Steel’s Decarbonisation Roadmap

Figure 2b – JFE Holdings’ Decarbonisation Roadmap

The analysis is developed using Nippon Steel and JFE sustainability report data. This analysis is for informational purposes only and does not constitute investment advice, and should not be relied upon to make any investment decision. The briefing represents the authors’ views and interpretations of publicly available information that is selfreported by the companies assessed. References are provided for company reporting but the authors did not seek to validate the public self-reported information provided by those companies. Therefore, the authors cannot guarantee the factual accuracy of all information presented in this briefing. The authors and Transition Asia expressly assume no liability for information used or published by third parties with reference to this report.

1. https://transitionasia.org/wp-content/uploads/2022/09/Nippon-Steel-Emissions-Pathway-Analysis_EN.pdf
2. From Transition Asia analysis
3. https://worldsteel.org/wp-content/uploads/2020_2021-top-steel-producers_tonnage.pdf is used for comparison.
   Company reporing has different values.
4. https://www.jfe-holdings.co.jp/en/release/2022/02/220208.html
5. https://www.nipponsteel.com/en/csr/env/warming/zerocarbon.html
6. https://sciencebasedtargets.org/companies-taking-action
7. https://www.nipponsteel.com/csr/report/pdf/report2022.pdf
8. https://www.jfe-holdings.co.jp/csr/pdf/csr_2022_j.pdf (Japanese)
9. https://www.nipponsteel.com/en/news/20220914_100.html
10. https://www.jfe-steel.co.jp/en/company/pdf/carbon-neutral-strategy_220901_1.pdf
11. Above and beyond EAF upgrades
12. https://www.asiafinancial.com/japans-jfe-may-build-electric-arc-furnace-to-slash-emissions
13. https://www.nikkei.com/article/DGXZQOUC158N50V10C22A8000000/
14. https://www.nipponsteel.com/en/news/20220214_100.html
15. https://www.msci.com/our-solutions/esg-investing/esg-ratings-climate-search-tool
16. https://www.cdp.net/en/scores
17. https://www.nipponsteel.com/csr/report/pdf/report2022.pdf
18. https://www.nipponsteel.com/en/ir/library/pdf/20210330_ZC.pdf
19. https://www.jfe-holdings.co.jp/csr/pdf/csr_2022_j.pdf
20. https://www.jfe-holdings.co.jp/en/investor/zaimu/g-data/2020/May2021-210525-release01.pdf
21. https://www.nikkei.com/article/DGXZQOUC158N50V10C22A8000000/
22. https://corporate.arcelormittal.com/media/news-articles/arcelormittal-successfully-tests-partial-replacement-of-natural-gas-with-green-hydrogen-to-produce-dri
23. https://www.ssab.com/en-gb/news/2021/08/the-worlds-first-fossilfree-steel-ready-for-delivery
24. https://www.nipponsteel.com/en/csr/report/pdf/report2022en.pdf
25. https://www.jfe-steel.co.jp/en/company/pdf/carbon-neutral-strategy_220901_1.pdf

Bonnie Zuo, Research Lead

Kenta Kubokawa, Japan Analyst

Lauren Huleatt, Programme Manager & Investor Lead