Mitsubishi Heavy Industries Upcoming Transition Bonds: fossil fuels by another name?
Toxic Bonds | 07 Sep 2022
Mitsubishi Heavy Industries, Ltd. (MHI) will issue its first transition bonds on September 8th, via a public offering in the domestic market.
Whilst MHI would have investors believe such finance is a key part of Japan’s strategy to a decarbonized society, its financing of “blue” hydrogen and ammonia, in fact extends the life of coal and gas assets. Packaging up what are fossil fuels by any other name into so-called transition bonds represents a risk to investors looking to decarbonize their portfolios.
Transition bonds are an emerging market phenomenon and Japan has the world’s largest number of issuers of transition bonds. But some investors are rightly unsure of how to evaluate them.
“Blue” hydrogen and ammonia are risky and polluting technologies; “blue” hydrogen is typically made from fossil gas and its manufacture results in significant greenhouse gas emissions. It’s more emission intensive and costly than renewable energy, whilst the cost-effectiveness and climate credibility of these technologies is being vastly overstated. It is no cleaner than simply burning fossil fuels.
Investors keen to proceed with these bonds therefore face significant potential risks, including lower returns, stranded assets and failing to meet their own net-zero commitments.
There is already precedent for investor scrutiny of the transition bonds coming out of Japan, in the case of JERA - the largest power generation company in Japan.
JERA Finance Manager Makoto Sakabe, who issued the bonds on the same day as Kyushu Electric on 18 May, said that some investors were still unsure how to evaluate transition bonds. "As a result of worrying, there were quite a few investors who decided not to invest".
The Toxic Bonds Coalition demands investors steer clear of dodgy brown bonds in the coming days and across emerging markets.
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