Background:

Corporate Action Japan, together with the Australasian Centre for Corporate Responsibility (ACCR), submitted joint comments on the Draft Revision of the Basic Policies on the Promotion of Procurement of Eco-Friendly Goods and Services under the Green Purchasing Law. The comments call for a review of the definitions and criteria for the application of the mass balance approach, taking into account the perspective of Japanese steel companies’ investors.

Text of proposed revisions (extract):“Definition 1: Note 3 on common criteria for judgment”

Note 3: “Steel with a reduction performance certificate” refers to the steel with reduction performance certificates, which are issued in accordance with the “Guidelines for Green Steel upon the Application of the Mass Balance Approach” set forth by the Japan Iron and Steel Federation (JISF).

Comments by Corporate Action Japan and ACCR:

Possibility in misleading consumers and markets :

Iron and steel products based on the JISF Guidelines for Green Steel with the Application of the Mass Balance Approach may serve as a transitional tool, but unless emission reductions are tied to actual lifecycle data, they risk misleading consumers and markets.

To address these issues, the following measures may be taken:   

• Establish evaluation criteria based on actual emissions data  
• Support globally-recognised standards for green steel   

Reconsideration suggested for definitions and criteria : 

The definition of ‘steel with a reduction performance certificate’ under the JISF Guidelines should be reconsidered in favour of alignment with international standards to ensure global credibility and competitiveness. For example, the JISF Guidelines allow an organisation (the entire company) to be used as a boundary in the calculation of GHG emission reductions. This makes it difficult to link emission reduction measures to the manufacturing process. To ensure greater transparency, reliability, and competitiveness, the calculation of reductions should be based on the same production sites. 

Lack of transparency

The mass balance approach outlined in the JISF Guidelines lacks transparency in critical areas, such as the additionality of emission reduction projects and the management of allocated reductions. For example, major Japanese steel companies’ emission reductions to date have primarily been the result of reduced production output in Japan, rather than systemic decarbonisation efforts. Additionally, third-party certification does not fully address the gaps in the current guidelines. Increased transparency in reduction management and allocation methods is essential to ensure credibility.

Concerns by investors

Investors in Japanese steel companies are concerned that the endorsement of JISF’s mass balance approach in the Government’s procurement policy will cause Japan’s steel makers falling behind global peers while major international steel producers introduce low-carbon products with certified, low lifecycle emissions.