Evaluating Transition Plans in Japan’s High Emission Sectors 2025 Steel Sector
Background and Objective
In 2023, KSI conducted a study to assess the extent to which Japanese high-emitting industries and the banking sector have advanced the formulation of transition plans and published a report “Evaluating Transition Plans in Japan’s High Emission Sectors”. The results showed that while disclosure of historical emission data is progressing, there are challenges in setting 1.5°C-aligned science-based targets, presenting corresponding emission pathways, establishing short-term implementation plans to achieve reduction targets, and defining Scope 3 reduction targets. In the coming years, attention will increasingly focus not only on revising targets to be more ambitious, but also on verifying implementation and actual achievement.
Building on these findings, this study, while following the perspective of the previous one which focused on providing an overview of corporate transition plans, gives greater emphasis on examining the implementation status of transition plans, actual emission reduction performance, and the consistency of business portfolio and capital allocation plans with the stated transition strategies. The study also compares Japanese companies with their international peers to identify current trends and challenges.
Coverage
Nippon Steel Corporation
JFE Holdings, Inc.
Kobe Steel, Ltd.
(Comparative companies)
ArcelorMittal S.A (LUX)
POSCO Co., Ltd. (KOR)
(Reference companies)
Tokyo Steel Manufacturing Co., Ltd.
SSAB AB
Key Findings
Scope 1 & 2 Emission Reduction Target (Indicator 1.1)
Each companies plans to reduce total CO2 emissions by around 30% by 2030
Blast furnace-based steelmakers have largely not set emissions intensity targets
Scope 3 Emission Reduction Target (Indicator 1.2)
Only ArcelorMittal has established a target, while major Japanese steelmakers have yet to do so but are advancing unique initiatives such as avoided emission targets
Level of Ambition of Emission Reduction Target (Indicator 1.3)
To align with the internationally recognized 1.5°C pathway, BF-based steelmakers would need to achieve emissions reductions approximately 1.5–2 times greater than current plans
A multifaceted assessment beyond numerical comparison is also necessary, taking into account progress in technologies that contribute to reducing blast furnace emissions intensity
Business Portfolio Plan beyond 2030 (Indicator 1.4)
JFE, Kobe Steel, and POSCO link executive compensation to emissions reduction targets.
Scope 1 & 2 Absolute Emissions Reduction Performance (Indicator 2.1)
In terms of absolute reductions, ArcelorMittal and Nippon Steel are on track to meet their 2030 targets based on the average annual reduction rates from the base year to the target year.
BF-based steelmakers still show a significant gap between current emissions intensity and the 1.5°C-aligned target level, requiring reductions of 25–35% more.
Scope 3 Absolute Emission Reduction Performance (Indicator 2.2)
All companies cover key categories in the steel sector, including Category 1 and Category 3.
The three Japanese companies have shown a declining trend over the past three years.
Challenges remain in the transparency and accuracy of Scope 3 calculations.
Application of Internal Carbon Pricing (Indicator 2.3)
While ArcelorMittal and POSCO have adopted internal carbon pricing mechanisms, the three Japanese companies use them only for scenario analysis, making their future effective implementation an important point to watch.
Emission Reduction Targets and Executive Compensation Linkage (Indicator 2.4)
JFE, Kobe Steel, and POSCO link executive compensation to emissions reduction targets.
Implementation Plan and Progress (Indicator 3.1) Focus area ① Raw material and fuel procurement
All companies are accelerating vertical integration of scrap procurement networks in anticipation of a shift to EAF.
ArcelorMittal is engaged in direct investments in renewable energy, while Japanese companies are advancing the decarbonization of procured electricity.
To enable the introduction of clean hydrogen, companies are moving forward with the development of large-scale infrastructure such as hydrogen import hubs through public-private partnerships.
Implementation Plan and Progress (Indicator 3.1) Focus area ② Decarbonization of manufacturing processes
The three Japanese companies are promoting multi-track technology development centered on public-private partnerships utilizing the Green Innovation Fund.
Delays in plans due to changes in the external environment remain a common challenge across the industry.
Implementation Plan and Progress (Indicator 3.1) Focus area ③ Demand-side Measures
JFE leads with ambitious green steel sales targets, but the effectiveness of the mass balance method remains under scrutiny
Market creation through transparency and dialogue with customers will be critical
Capital Allocation – Investment in Decarbonization-Related Businesses and Assets (Indicator 3.4)
Nippon Steel and JFE have disclosed decarbonization investments within their medium- to long-term investment plans, while other companies provide limited disclosure on capital deployment plans, leaving challenges in assessing the feasibility of their transition plans
Analysis
Significant innovation remains essential for decarbonizing the steel sector. Technologies such as producing high-grade steel through electric arc furnace (EAF) processes instead of conventional blast furnaces (BF), and hydrogen reduction steelmaking that decarbonizes the blast furnace process itself, still face many challenges before large-scale commercialization can be realized. Moreover, commercialization will require substantial expansion and replacement of facilities, including surrounding infrastructure, resulting in enormous funding needs (*1).
To advance projects of this scale, corporate funds alone are obviously insufficient. It is essential to attract all forms of financing, including government subsidies and tax incentives, as well as loans and investments from financial institutions and institutional investors. The foundation of trust required to attract such ‘transition finance’ is precisely the focus of this study: ambitious target setting and credible transition plans that support those targets. Based on these strategies, companies must engage with governments and investors to support and accelerate implementation, while jointly advancing efforts toward decarbonization.
This study closely examined the emissions reduction targets and transition plans of three major Japanese steelmakers—Nippon Steel, JFE, and Kobe Steel—as well as ArcelorMittal and POSCO. The analysis confirmed that these companies continue to recognize decarbonization as a key management issue despite rapidly changing external conditions, are specifying concrete emissions reduction measures, and are realistically considering implementation structures for those measures. This should be viewed positively. At the same time, however, questions remain in several areas—namely, whether current targets are sufficient from the perspective of emissions reductions, and whether the effectiveness of the measures described in transition plans is adequately assured.
From the perspective of target setting, this study revealed that blast furnace-based steelmakers generally set targets based on total CO2 emissions, while many companies have yet to establish CO2 emissions intensity targets. Based on company statements and disclosures, it can be inferred that the lack of such targets is related to insufficient innovation in decarbonization technologies and the absence of clear prospects for commercialization. Particularly in Japan, there is a strong tendency to emphasize the likelihood of achieving targets through a bottom-up approach—namely, determining how much emissions reduction can realistically be achieved through measures currently in sight. To some extent, this is understandable.
However, as noted in sector-specific guidance from the SBTi and other frameworks, targets based on absolute emissions can be heavily influenced by fluctuations in production volume. As a result, companies may be viewed as having achieved their targets depending on economic conditions, even if actual emissions reductions are insufficient.
In that sense, the more appropriate form of target setting would be to establish emissions intensity targets—which serve as a more direct milestone for reducing emissions from manufacturing processes—through a backcasting approach, and to compare them against annual performance data, which companies are already disclosing.
ArcelorMittal adopted a more backcasting-oriented approach as described above by setting a target to reduce emissions intensity by 25% globally by 2030. Subsequently, however, the company indicated that achieving this target would be difficult due to delays in technology development and deterioration in the business environment (*2). This illustrates that, while a backcasting approach should serve as the foundation for target setting and transition plan development, companies must also continuously analyze actual conditions, make detailed adjustments as needed, and carefully explain those circumstances to investors.
With regard to the effectiveness of emissions reduction measures, this study also highlighted challenges from two perspectives: whether companies can successfully implement the measures outlined in their transition plans, and whether those measures are sufficient to achieve their emissions reduction targets. As discussed in the main text, companies are pursuing measures such as conversion to electric arc furnaces (EAFs) and decarbonization of existing blast furnaces through hydrogen reduction steelmaking. However, ArcelorMittal has already decided to postpone final investment decisions (FID) for some hydrogen reduction steelmaking projects (*3). Similar concerns apply to conversion to EAFs, which is widely viewed as a near-term solution because it builds on existing technologies. For example, in JFE’ planned EAF introduction at its Kurashiki site, no clear solution has yet been presented regarding how the enormous transmission and distribution infrastructure required will be developed.
In addition, hydrogen reduction blast furnace technology—namely COURSE50—which is positioned by Nippon Steel as one option within its multi-pathway approach, is expected to reduce emissions by only around 30%. Furthermore, SUPERCOURSE50, an advanced version of COURSE50 that aims to achieve full decarbonization by injecting external hydrogen, is currently expected to be deployed at scale only in the 2040s (*4). This technology represents one of the few available options for decarbonizing blast furnaces, and although development is technically challenging, it can be positively evaluated for its ability to maximize the use of existing blast furnace facilities, technologies, and operational know-how. Nevertheless, questions remain as to whether it is truly appropriate for the company—given the urgent need for emissions reductions and limited financial resources—to allocate enormous investment to a technology with lower emissions reduction potential compared with other decarbonization technologies such as EAFs and hydrogen-based direct reduced iron (H2-DRI).
This observation applies to all companies covered in this study, but particularly to Japanese steelmakers, which are collectively pursuing multiple decarbonization pathways in parallel. However, it remains necessary to reassess whether all of these measures can deliver sufficient emissions reductions, and whether they truly justify investment at the present stage. For example, with respect to carbon recycling blast furnaces, current disclosures do not clarify how many units companies plan to introduce, by when, what the total costs will be, or how they evaluate CO2 reductions relative to investment amounts. Companies will therefore need to adopt a medium- to long-term perspective and comprehensively evaluate the most appropriate transition pathways from technological, management, and ESG perspectives—including not only emissions reductions, but also issues such as human rights and biodiversity—without becoming overly constrained by the continuation and utilization of existing facilities and resources, or by current financing conditions.
This report analyzes decarbonization initiatives by key players supporting the global steel sector from the perspective of information disclosure. However, actual emissions reduction and decarbonization in the steel sector go beyond merely setting targets and transition plans. In recent years, companies have been compelled to place greater emphasis on responding to regulatory requirements, such as the development and mandatory adoption of Japan’s S1 and S2 standards by the SSBJ, as well as the EU’s Corporate Sustainability Reporting Directive (CSRD). At the same time, as articulated by Muller (2018) in the concept of the “Tyranny of Metrics” (*5), there are concerns that such trends may lead companies to focus their disclosure efforts on improving superficial metrics (*6). While the expansion of carbon credit markets and the advancement of CDR technologies have increased the means to offset CO2 emissions, these alone cannot deliver fundamental solutions without real transformation in underlying business operations. It is strongly hoped that companies will continue to pursue the ideal approach of securing necessary funding through information disclosure while driving real emissions reductions in their core business activities.