Shareholders warn Nippon Steel faces higher decarbonisation costs with U.S. Steel takeover

By Katya Golubkova

TOKYO (Reuters) -Nippon Steel's proposed acquisition of U.S. Steel risks raising decarbonisation costs for Japan's top steelmaker, an activist shareholder group said, urging the company to address the takeover's impact on its climate goals.

Nippon Steel, the world's fourth biggest steelmaker, last year announced a $15 billion takeover offer for U.S. Steel, which backed the bid, but has faced resistance from a powerful labour union and the White House.

"The potential addition of U.S. Steel's 11 blast furnaces to Nippon Steel's operations will almost certainly increase the cost of decarbonisation for the company," Brynn O'Brien, executive director of the Australasian Centre for Corporate Responsibility (ACCR), said.

ACCR, which has less than 1% of Nippon Steel's shares, has filed shareholder proposals with two other stakeholders, Corporate Action Japan (CAJ) and Legal & General Investment Management (LGIM), calling on the company to improve its decarbonisation strategy.

Asked about ACCR's concerns, Nippon Steel said in a statement to Reuters it planned to share technologies related to decarbonisation, including hydrogen injection into blast furnaces, with U.S. Steel should the deal close.

"The combination of the technologies developed by Nippon Steel and U.S. Steel to accelerate efforts to become carbon neutral by 2050," Nippon Steel said without giving details.

The companies plan to close transaction before year-end.

Nippon Steel holds its annual general meeting on June 21.

Not-for-profit organisation CAJ wants more information on the company's carbon emission targets "so that investors including ourselves can make appropriate assessments of risks, including the total cost of decarbonisation as a whole group," Yasunori Takeuchi, CAJ's chief executive, said in an e-mail.

LGIM did not reply to a Reuters request for a comment.

Shareholder activism on climate change has gained momentum in Japan over the past few years, but has not necessarily led to changes in policy at companies that have already set out emissions reduction plans.

Under plans announced in 2021, before the U.S. Steel bid, Nippon Steel estimated that decarbonisation may cost it up to 5.5 trillion yen ($34.8 billion) in capital spending, including research and development, by 2050, with some of the costs to be covered by state support.

"Nippon Steel needs to consider how the acquisition impacts its decarbonisation plans, and transparently communicate this," said O'Brien.

As part of the takeover proposal, Nippon Steel pledged to spend at least $1.4 billion on technology at U.S. Steel's mills to "produce more advanced and environmentally sustainable steel".

To help decarbonise, Nippon Steel wants to feed hydrogen into its coking coal-exposed blast furnaces, a process it is testing at a steel site near Tokyo. It also plans to use carbon capture, utilisation and storage and add more electric arc furnaces.

($1 = 158.0800 yen)

(Reporting by Katya Golubkova; Editing by Sonali Paul and Miral Fahmy)