As in the previous year, Resona performed the best in terms of having the lowest financed power emissions at 139 gCO2e/kWh, which is almost aligned with the 1.5 degree Celsius target by 2030. On the other hand, Mizuho’s financed emissions increased from 353gCO2e/kwh (FY2021) to 368gCO2e/kwh (FY2022), and MUFG’s financed emissions increased from 299gCO2e/kWh (FY2021) to 313gCO2e/kWh (FY2022), clearly running against the 1.5 degree Paris target goal.

Additionally, Mizuho, MUFG, and SMBC have newly adopted policies to confirm the environmental and social considerations of combustion materials when financing biomass power generation projects. Notably, SMBC has established a policy to ensure that sustainable combustion materials do not involve the logging of primeval forests and/or human rights violations are recognized to have occurred in the production of the materials (*1). 

With Deep Sea Mining (DSM) as an emerging new frontier for mineral extraction that is already having  significant impact on marine ecosystems and coastal communities, Deutsche Bank announced in September 2024 a new policy banning investment and financing in DSM projects (*2). However, none of the Japanese banks have established any such policies.

SMBC needs to rejoin the Equator Principles, and Mizuho and MUFG must steadily reduce their financed power sector emissions to achieve their 2030 targets. Each financial institution should also strengthen their sector policies on biomass power generation and DSM.

*1: https://www.smfg.co.jp/english/sustainability/group_sustainability/ 
*2: https://www.db.com/news/detail/20240925-deutsche-bank-strengthens-its-ocean-protection-policies-under-backblue-initiative?language_id=1 

To read more, click here.

1. Issues with the framework and decision-making process related to the utilization of ETM for Cirebon Unit 1

“Preliminary Just Transition Assessment” (PJTA) related to the Cirebon Energy Transition Mechanism Pilot Project (ADB Project Number 56294-001) published by ADB on its website at the end of February 2024 made more detailed information about the framework public. The PJTA presented an “Energy Transition Mechanism Activity Timeline” (2024–2035), which predetermined shortening the originally planned Power Purchase Agreement (PPA) duration from August 2042 to December 2035, shortening it by 6 years and 8 months.

The timeline also indicates that the Indonesian government is supposed to analyze the option of repurposing the Cirebon Unit 1 between 2029 and 2031. Civil society has pointed out that this “repurposing” option could involve the use of co-firing technologies with biomass, ammonia, or hydrogen which are criticized as “false climate solutions” due to their lack of meaningful greenhouse gas (GHG) reduction, as well as the economic and technical uncertainties they entail. However, the PJTA’s timeline defers the decision-making on these discussions and analyses, effectively postponing any conclusions on this matter.

Furthermore, according to the PJTA, the ADB is supposed to provide lower-cost ETM funding (a combination of commercial loan, concessional finance, and grant) that will enable the PPA period for Cirebon Unit 1 to be shortened. This funding is supposed to be used for (i) refinancing of the existing debt and (ii) a one-off special dividend distribution to the Sponsors to cover foregone dividend cash flow due to PPA tenor shortening and ETM transaction costs. This means that the ETM funds will be used so that the future profits of CEP and its sponsors, Marubeni, Korea Midland Power, Samtan, and Indika Energy, will not get lost.

It is not an exaggeration to say that one of the biggest issues with the overall framework and decision-making process is that the basic framework and timeline for using the ETM for Cirebon Unit 1 were already provided at the time information was released by the ADB. This is because there was no opportunity for any meaningful participation of residents and civil society in the decision-making process of shortening 6 years and 8 months, leaving open the possibility of repurposing the power plant with the false solutions for climate change measures later, and bailing out the big companies. In response to this situation, some local community organizations and non-government organizations (NGOs) have begun to take an attitude to reject the currently ongoing mechanism and process. If there is no improvement in transparency, information disclosure, and the participation opportunities for residents and civil society in the ETM process, it is seriously questionable whether the early retirement of Cirebon Unit 1 will be carried out appropriately from the perspectives of the climate crisis, environment, society, and human rights.

2. Issues with ADB’s environmental audit regarding the use of ETM for Cirebon Unit 1

In the “Environmental and Social Compliance Audit Report – Draft Report” (Environmental Audit Report) published by ADB at the end of February 2024 on its website, concerning the Cirebon Energy Transition Mechanism Pilot Project (ADB Project Number 56294-001), an assessment was conducted on the compliance status of the existing Cirebon Unit 1 with the 10 Principles of the Equator Principles (EP) and the Performance Standards (PSs) 1-8 of the International Finance Corporation (IFC). The report provides commentary and findings for each requirement. Additionally, for 36 items that were assessed as insufficient in compliance with the IFC PSs, corrective actions were proposed.

In this environmental audit, both the document review and site visits conducted to assess the impacts of Cirebon Unit 1 were heavily reliant on information provided by the project operators and government agencies. It can be noted that there has been limited information from local residents, who have been affected by the environment and social impacts of Cirebon Unit 1, and civil society. This particularly suggests that various impacts on livelihoods, and lack of appropriate compensation as well as livelihood restoration measures may not have been accurately and adequately recognized. In fact, during this environmental audit, compliance with environmental and social requirements related to impacts on livelihoods, and lack of appropriate compensation as well as livelihood restoration measures were not properly determined or corrective  actions were not adequately developed.

1) Insufficient information gathering and lack of meaningful early participation opportunities for residents and civil society in the environmental audit

Of the 741 documents used in the document review for the environmental audit, only 6 documents appear to have been written by residents affected by Cirebon Unit 1 or by NGOs which provide support to them. Additionally, during the site visits conducted for the environmental audit, three focus group discussions (FGDs) were held with residents, as well as meetings with local NGO and community groups. However, if the selection or invitation of participants was conducted through the project operator or village heads, there is a possibility that the information related to the project’s environmental and social impacts, compensation, and livelihood restoration measures would reflect the perspectives of the project company or government agencies rather than critical viewpoints. Furthermore, since all these meetings were held at CEP’s Vocational Training Center or within corporate social responsibility (CSR) complex, it is necessary to examine whether the environment and conditions were adequate to allow participants to speak freely without feeling undue pressure.

2) Inadequate environmental audit regarding impacts on livelihoods and compensation/ livelihood restoration measures

In this environmental audit, despite the reality of insufficient compliance with the requirements of the EP and IFC’s PS, there are items where appropriate analysis is lacking. There are 20 items where compliance analysis was insufficient or inadequate with regards to PS 1 “Assessment and Management of Environmental and Social Risks and Impacts,” PS 4 “Community Health, Safety, and Security,” PS 5 “Land Acquisition and Involuntary Resettlement,” and PS 6 “Biodiversity Conservation and Sustainable Management of Living Natural Resources” concerning the impacts on livelihoods and compensation/ livelihood restoration measures. Among them, 16 items failed to develop any corrective action, despite the reality of insufficient compliance, due to the lack of appropriate analysis of the compliance status. One of the factors contributing to this insufficient analysis of compliance status and the lack of necessary corrective actions is considered to be insufficient information gathering and the lack of perspectives from residents and civil society, as described in the above.

3. Recommendations to the ADB

It is essential to scrap the predetermined framework and timeline concerning the use of ETM for Cirebon Unit 1, which were agreed upon solely by the four parties. Following this, discussions must ensure meaningful participation from a broad range of stakeholders, including residents, who have been affected by the construction and operation of Cirebon Unit 1, and civil society. Additionally, the environmental audit should be conducted again with a Bahasa Indonesian version developed and made public, ensuring early and meaningful participation of the affected residents and civil society. Otherwise, the past and ongoing social and environmental impacts that the local community has suffered for nearly 17 years since the construction of Cirebon Unit 1 began in 2007 will remain unaddressed, even within the “energy transition” process.

To read more, click here.

This study examined whether the Papua LNG project aligns with international standards for environmental and social considerations. The study revealed  non-compliance with 6 ESG standards, in detail the Paris Agreement, the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), the Equator Principles (EPs), the International Finance Corporation’s Performance Standards (IFC PS), the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD Guidelines), and the Japan Bank for International Cooperation’s Guidelines for Confirmation of Environmental and Social Considerations (JBIC Guidelines). 

The summary of these findings is as follows:

Issue 1: Papua LNG runs against Paris 1.5 degree goals. 

The International Energy Agency (IEA), in its 2023 report, titled “Net Zero Roadmap: A Global Pathway to Keep the 1.5 °C Goal in Reach”, reiterated its conclusion from its 2021 report that in order to achieve net-zero greenhouse gas emissions by 2050, no new coal, oil or natural gas projects are needed. Therefore, the currently planned Papua LNG project is not aligned with the 1.5-degree goals of the Paris Agreement.

The G7 Elmau Communique, which the Japanese government committed to in 2022, stated to “commit to end new direct public support for the international unabated fossil fuel energy sector by the end of 2022, except in limited circumstances clearly defined by each country consistent with a 1.5°C warming limit and the goals of the Paris Agreement”, and  since then, this commitment has been carried forward in each annual G7 declaration.Therefore, in applying the exception clause to the project, the energy policy of the recipient country, Papua New Guinea, and major gas consumer countries including Japan needs to be consistent with the 1.5-degree goals of the Paris Agreement. 

To achieve net-zero emissions for the gas extraction project, it is necessary for the forestry sector in the country to reach a net gain state. However, no specific targets or policies have been presented to achieve this net gain. In reality, the loss and degradation of forests in the country have increased by approximately 1.87 million hectares between 2001 and 2023, which is insufficient as a carbon sink to offset emissions from fossil fuel extraction. Although the Papua New Guinea government has set a goal of carbon neutrality by 2050, specific measures aligned with the 1.5-degree target have not been clearly defined. Papua LNG is intended for export, not for domestic use. Up to 95% of the fossil gas produced will be exported. PNG itself has excellent renewable energy prospects. The energy policy of Japan, a major consumer of gas from Papua LNG, is also not aligned with the 1.5-degree goal of the Paris Agreement. If Japan’s public financial institutions, such as the Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI), and Japan Oil, Gas and Metals National Corporation (JOGMEC), support this project, it would be in violation of the G7 Declarations.

Issue 2: The “Free, Prior, and Informed Consent (FPIC)” of affected Indigenous Peoples has not been secured, violating UNDRIP, EPs, IFC PS, OECD Guidelines, and JBIC Guidelines. 

Indigenous Peoples affected by Papua LNG have expressed concerns that the project is proceeding without their consent, and a protest was held in 2023 to block the waterways used by the project. Local authorities, members of Parliament, and Indigenous Peoples also pointed out omissions in the list of landowners released by the government. Fundamental to the ‘consent’ aspects of FPIC is an ability to show that communities have been fully informed of their FPIC rights and received accurate, independent information about the project’s climate, environmental, health and human rights risks before any decisions are made. The project has not shown this. There are also issues such as police presence at consultation meetings with Indigenous Peoples. Clearly, FPIC of affected Indigenous Peoples has not been secured.

Issue 3. Offsetting measures for impacts on biodiversity are insufficient, violating IFC PS and JBIC Guidelines.

The project area includes 48 new-to-formal science species and 15 species undescribed by formal science. This raises questions about the extent of biodiversity risks and impacts, and the ecosystem services that these species provide, that have not been satisfactorily addressed. The operator states that the project will clear 820 hectares of forest (including 662 hectares of primary forest), which is expected to impact biodiversity. To mitigate the impact on biodiversity, the operator intends to offset deforestation by planting 1,000 hectares of forest with zero net deforestation. However, it is unclear whether afforestation with secondary forests, which have a degraded value compared to primary forests, can restore the original biodiversity and hydrological service values, and zero net deforestation does not fully compensate for deforested forests. Thus, the operator’s biodiversity offset measures are inadequate. 

Global banks committing non-financial support and Japanese financial institutions with the potential to provide financing

Non-government organizations (NGOs) from around the world have been conducting global-scale advocacy targeting financial institutions, urging them not to support the Papua LNG project. As a result, to date, the following ten financial institutions have directly stated that they will not support the Papua LNG project or have adopted policies that exclude support for such projects.

10 financial institutions which have ruled out project finance for Papua LNG

However, Japanese financial institutions have not committed their non-financial support for the project, leaving the possibility of support. Japanese financial institutions that are expected to support the Papua LNG project based on their past LNG projects in Papua New Guinea and their involvement in LNG projects in Australia, a neighboring region, are JBIC, MUFG Bank, Mizuho Bank, Sumitomo Mitsui Banking Corporation, Resona Bank, Shinkin Central Bank, SBI Shinsei Bank, Chiba Bank, NEXI, Tokio Marine, MS&AD, SOMPO. In order to protect the environment and uphold rights of communities, especially Indigenous Peoples, Japanese financial institutions should also announce that they will not support Papua LNG.

To read the full report, click here.

An NGO investigation revealed that wood from these troubled companies was being exported to Japan as plywood products through several suppliers, including the aforementioned companies affiliated with the Alas Kusuma Group. Through the implementation of the survey, no Japanese companies were identified that are currently using wood from Mayawana Persada indirectly. In addition, some Japanese companies have begun to take steps to avoid sourcing wood from these problematic companies at the product level by prioritizing FSC-certified wood in their procurement policies and adopting NDPE policies (no deforestation, no peat land development, and no exploitation). However, since these are only confirmations at the product level, we are demanding Japanese companies that have business relationships with companies under the same group as Mayawana Persada and Sumitomo Forestry, which has a relationship with the Aras Kusuma Group through a joint venture, to apply these policies at the corporate group level in order to avoid indirect involvement in these issues.

Financial institutions that provide a large amount of funding to these related Japanese companies include Sumitomo Mitsui Banking Corporation, Sumitomo Mitsui Trust Bank, Mizuho Bank, Norinchukin Bank, and Mitsubishi UFJ Bank. For these financial institutions, we are demanding that client companies who procure timber products from timber companies comply with standards such as the NDPE policy and to confirm that they are not involved in environmental and social issues through their timber (or forest) related sector policies.

To read the full report, click here.

Meanwhile, banks that supported the two companies most involved in the dumping project and construction of the infrastructures to allow it to take place, have been largely silent. The banks were in a position to be able to leverage their finances to foster further dialogue but did not do so despite their public statements seeming to support Indigenous People’s Rights.

To read the full report, click here.

In the current climate change crisis, the realization of a decarbonized society is an urgent task, and companies in Japan and abroad are working to develop and distribute various decarbonization technologies to achieve this goal. This loan is positioned as a part of such efforts. However, research by Fair Finance Guide Japan (FFGJ) and its partner, Friends of the Earth (FoE) Japan has revealed significant human rights problems at the mines from which the nickel material that is highly likely to be used in this supposedly “green” plant will be sourced.

The Sorowako Nickel Mine in Indonesia is a mine that already supplies nickel matte to SMM. The open-pit nickel mining operation there has been negatively impacting the land and traditional lifestyles of Indigenous People, and it has been confirmed that the expansion of the mine is causing material impact on local agriculture while also contaminating the water supply for local residents with carcinogenic heavy metals. In addition, Indigenous Peoples who protest against these issues have been unjustly arrested and detained. (For more information, please refer to the FFGJ case study report published in 2023)

In addition to this, in order to meet the growing demand for nickel, plans to expand the mine into areas that have yet to be mined have been in full swing since early 2022.

To read the full report, click here.

To read the full report, click here.

To read the full report, click here.

This video reveals what deep sea mining is and what the peril of it is.

To watch the video, click here.

C7 Summit was held on April 13-14. Risa Endo, a JACSES staff, played a role of a Coordinator of C7 Working Group on Climate and Environmental Justice and took part in the process of organizing the C7 Communique. This is the specific recommendations on climate and environmental justice, economic justice, global health, humanitarian assistance and nuclear disarmament.

To read the recommendation letter, click here.