New report examines alignment of Japanese equity market with the 2°C climate goal
- Japanese market falling short of Paris Climate Agreement –

28 February 2018

On 28 February 2018, a new report will be launched that analyses the alignment of the Japanese stock market with the Paris Agreement on climate change.

Comparing the Tokyo Stock Price Index (TOPIX) with the International Energy Agency (IEA) 2 degrees Celsius scenario, the report reveals that Japanese listed companies on the TOPIX appear to be inconsistent with the internationally agreed 2℃ target. The methodology was tested for more than 200 institutional investors in Europe and the United States. This is the first time such a study has been conducted in Japan.  The report will be published in partnership with Mr. Yoshihiro Fujii, Representative Director of Research Institute for Environmental Finance (RIEF), Professor Jusen Asuka of Tohoku University, Dr. Michiyo Morisawa, Director of the CDP Japan office and Head of PRI Japan, and Institute for Global Environmental Strategies (IGES).


This report compares the energy and technology exposure of the Tokyo Stock Price Index (TOPIX) with the 2℃ roadmap of the International Energy Agency (IEA). The analysis is based on a translation of this climate scenario into “2℃ benchmarks” for investment portfolios, focusing on a 5-year window: 2016-2021. A 2℃ portfolio for TOPIX represents the relative amount of energy/technology which TOPIX companies should produce/use to achieve the 2℃ target under the IEA 2℃ scenario.

  • Power: The TOPIX overweighs nuclear, gas and coal capacity relative to its 2℃ benchmark, while underweighs renewables capacity. The planned electric capacity of TOPIX companies is thus misaligned with the power capacity in the 2℃ scenario.
  • Automobiles: The TOPIX underweighs low-carbon technologies (hybrid, electric) and overweighs high-carbon technologies (internal combustion engine (ICE), e.g. petrol / diesel car production) relative to the 2℃ reference. The TOPIX is thus misaligned with the 2℃ pathway for automobiles.
  • Fossil fuels: The TOPIX overweighs oil and gas production relative to the 2℃ scenario. It does not contain any coal production. The exposure is thus misaligned with the 2℃ pathway for oil and gas production but is more climate-friendly than the 2℃ scenario for coal production.

The sector coverage represents only 25% of TOPIX market capitalisation, but we estimate that it covers most of its carbon footprint (about 70-90%).
Since the above three sectors are among the most climate change concerned sectors (they typically account for most of the TOPIX carbon footprint), their misalignment with the average production and capacity required by the 2℃ scenario means that the TOPIX index, as a whole, seems to be incompatible with a 2℃ climate goal.
As a consequence, financial institutions that invest in the Japanese economy through Japanese listed companies are not aligned with such goals, and are contributing to driving global climate towards dangerous tipping points by overshooting the 2℃ threshold.


The 2° Investing Initiative [2° ii] is a multi-stakeholder think tank working to align the financial sector with 2℃ climate goals. Their research work seeks to align the investment processes of financial institutions with climate goals; develop the metrics and tools needed to measure the climate friendliness of financial institutions; and mobilise regulatory and policy incentives to shift capital to energy transition financing. The association was founded in 2012 and has offices in Paris, London, Berlin and New York City.
2° ii’s research is provided free of charge and 2° ii does not seek any direct or indirect financial compensation for its research.

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