After explaining the intricacies of Hong Kong's political standoff from the frontlines in my last column, I thought I would move on to an easier problem to solve. Climate change.
I want to highlight a handful of stocks in Japan that stand to gain as the world struggles to cut carbon emissions. These holdings would also make solid positions in an environmentally sustainable portfolio. Good stocks you can feel good about holding, in other words.
The brokerage Nomura has analyzed 12 sectors in Japan to pick out the most-innovative corporate minds in Japan in terms of cutting emissions. I've culled 10 of the most-promising companies to highlight here.
Mitsubishi Electric (MIELY) is one such holding. The electrical-equipment manufacturer provides devices and "ingredients" for zero-energy buildings, which reduce the net energy consumption to zero.
It is building a mid-size office building of some 60,000 square feet that will test its capabilities. That structure, the Net Zero Energy Building Test Facility, should open in Kamakura just south of Tokyo in September 2020. The building should use 103% less energy than comparable buildings nearby, thanks to the photovoltaic energy it will produce and the energy-use reduction tools built into it.
Likewise, Fuji Electric (FELTY) manufactures power semiconductors that enable electronic devices to function more efficiently. Its silicon-carbide chips improve on the normal silicon chips because they have higher heat resistance, leading to less energy being wasted in devices such as inverters.
Both Mitsubishi Electric and Fuji Electric also make heavy electrical machinery, which benefits from these power semiconductors. Fuji Electric has its own test facility, the Yamanashi plant, which is designed as a model production center to showcase its energy-management tools, and to show how efficiently it can make them. The plant recently achieved full energy independence (although it lost it again when its energy needs increased).
Electric-power companies are the biggest producers of carbon dioxide in Japan. Kansai Electric Power (KAEPY) and Kyushu Electric Power (KYSEY) are leading the way in cutting their emissions among the Japanese energy giants.
Nuclear power is a highly controversial issue in Japan, after the Fukushima Daiichi disaster in 2011. The earthquake and tsunami killed some 19,000. It triggered partial meltdowns in three reactors, although only two people died in the buildings, and due to floodwater.
Still, nuclear power conjures up images of horrific accidents. Under normal circumstances, though, it is an incredibly efficient and clean way of generating fuel, compared to coal combustion.
Japan was getting 30% of its power from nuclear prior to that tsunami/quake-induced meltdown. It was targeting to cut carbon-dioxide emissions by 54% by 2050, and 90% by the end of this century, which would have seen nuclear contribute 60% of the country's power.
Now the government is operating on the basis that nuclear will contribute around 22% of the country's energy, the same as renewables, with natural gas producing another 27%. Fossil fuels have shot up from 62% to 88% of the energy mix due to the shutdown of all nuclear reactors, and those are now being brought back online. Coal should shrink to 26% of the mix.
Japanese power companies have pledged to reduce emissions to 0.37kg/kWh by 2030, target a non-fossil-fuel ratio of 44% by 2030, and achieve a thermal-efficiency ratio of 44% by 2030.
Kansai Electric Power has already met the first and third requirement. Kyushu Electric Power scores on points one and two. They have largely done so thanks to their higher nuclear weightings in their mix.
Japan's iron and steel industry is already the most-efficient in the world. But it has pledged to become carbon neutral by 2100. Nippon Steel (NISTF) and JFE Holdings (JFEEF) are the leaders on this front, and are building experimental facilities at their main steel operations with features such as hydrogen reduction, and the use of carbon-dioxide recovery technology.
In the auto sector, Toyota Motor (TM) and Honda Motor (HMC) are the leaders in the production of electric and hybrid cars.
Toyota currently has 45% of the global hybrid market, with around 2 million in sales this year. By the year 2025, it looks to sell 5.5 million electrified vehicles each year, or more than half of sales. That's a timeline that it moved forward by five years in June, having been targeting 2030 for that pace of sales.
Honda has a rapid ramp-up plan, too. It is aiming to treble its global hybrid sales from 330,000 in 2018 to 1 million vehicles three years from now. Its new Fit model, a two-motor hybrid, is competitive in terms of cost. That's an issue since the relatively high cost of electrified vehicles has held back their widespread use.
Printer specialist Seiko Epson (SEKEY) is manufacturing inkjet office printers that are twice as fast as conventional copiers. Thanks to that and greater energy efficiency, they consume one-eighth of the energy of similar copiers.
Seiko Epson has also introduced a recycling imitative called PaperLab. This uses no water to recycle paper in the office. No cost to cart recycling away and no worries about getting rid of sensitive documents.
PaperLab looks like a large filing cabinet attached to a photocopier. It shreds documents, breaks the paper down into fibers, then binds them and forms them into new pieces of paper. It is capable of converting waste paper back into 14 sheets of A4 per minute, or 6,720 in a regular eight-hour office day. That saves the equivalent of a eucalyptus tree, which can generate 13,000 sheets of paper after growing for five years, every other day.
Kurary (KURRY) has begun making Plantic, a biodegradable substitute for plastic wrap. Made from starch, the film can also be recycled, and is likely to prove popular for wrapping food, since it is still very good as a barrier layer. The company aims to boost sales by a quantum of five by 2026, to US$100 million on an operating margin of 20%.
