European funds with $3.4tn of assets have criticised South Korean and Japanese groups over developing a coal-fired power plant in Vietnam, underscoring mounting pressure from investors over climate change.

In a letter to be published on Wednesday, a consortium of 18 investors — including Nordea Asset Management, Danish state fund MP Pension and the Church of Finland — warned the Japanese banks and South Korean industrial companies over their involvement in Vung Ang 2, a multibillion-dollar project in northern Vietnam.

The investors’ objections come as big institutions increasingly restructure their global portfolios away from fossil fuels and sharpen their focus on environmental, social and governance issues. The development also highlights the growing divestment risk for companies that continue to invest in polluting projects.

“Vung Ang 2 is fast becoming the prime exhibit in the case against companies taking on irresponsible transition risk on coal plants, not to mention the obvious conflict with the commitments of those same companies to align with the Paris agreement,” said Eric Pedersen, head of responsible investment at Nordea.

The Finnish fund, which manages €235bn in assets, has about €400m invested across companies involved in the Vietnamese project. Nordea said it was continually evaluating how best to manage the investment risks presented by climate change and how to comply with targets set in the Paris climate accord. “One of those levers is exclusion,” Mr Pedersen added. 

Vung Ang 2, a project environmentalists said will harm nearby residents and farmland, has been financed by Japanese lenders including Japan Bank for International Cooperation, Nippon Export and Investment Insurance, Mizuho Financial, Mitsubishi UFJ Financial and Sumitomo Mitsui Financial.

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South Korea’s involvement comes via state-backed groups Korea Electric Power Corp and Doosan Heavy Industries, as well as Samsung C&T, an affiliate of tech group Samsung Electronics.

The participation of Japanese lenders comes despite a pledge by Tokyo to reduce support for coal power in the developing world and a plan to phase out older plants domestically. 

A new policy adapted by Japan this year sets a higher hurdle for supporting new coal projects overseas. However, it does not apply to those already at the planning stage such as Vung Ang 2, as well as Indramayu in Indonesia and Matarbari Phase 2 in Bangladesh.

South Korean lawmakers are considering similar restrictions on the financing of overseas coal projects. Groups including Kepco and Samsung C&T have also signalled intentions to halt further coal-linked investments beyond their current plans.

The involvement of state-linked South Korean groups in coal projects in regions including south-east Asia has rankled activists, who claim these investments contradict Seoul’s focus on clean energy in its economic stimulus plans.

Via Financial Times