Testing the Japanese Listed Equity Market Alignment with the 2°C Climate Goal

This report compares the energy and technology exposure of the Tokyo Stock Price Index (TOPIX) stock market index with the 2°C roadmap of the International Energy Agency (IEA).

Key Findings


Power: The TOPIX overweights nuclear, gas and coal capacity relative to its 2°C benchmark, while underweighting renewables capacity. The planned electric capacity of TOPIX companies is thus misaligned with the power capacity in the 2°C scenario.


Automobiles: The TOPIX underweights low-carbon technologies (hybrid, electric) and overweights high-carbon technologies (internal combustion engine (ICE) e.g. petrol / diesel car production) relative to the 2°C reference. The TOPIX is thus misaligned with the 2°C pathway for automobiles.


Fossil fuels: The TOPIX overweights oil and gas production relative to the 2°C scenario. It does not contain any coal production. The exposure is thus misaligned with the 2°C pathway for oil and gas production but is more climate-friendly than the 2°C scenario for coal production.

The analysis is based on a translation of this climate scenario into “2°C benchmarks” for investment portfolios, focusing on a 5-year window: 2016-2021. Such a 2°C benchmark for the TOPIX represents the relative amount of energy/technology which TOPIX companies should produce/use to achieve the 2°C target under the IEA 2°C scenario. If the TOPIX index, based on its current composition, follows this production and capacity benchmark, it would then be “2°C-aligned”.

TOPIX was chosen for this analysis because it is the largest index in Japan, encompassing the popular ‘Nikkei 225’ stock market index. Therefore, the TOPIX index provides financial institutions with a relevant proxy of the investing universe in Japan. The assessment is performed on three main sectors that represent most of the full index exposure to climate change issues: Power production, Automobiles, and Fossil fuels. The output of the assessment is the discovery and explanation of an energy and technology gap. The gap quantifies the over and under exposure of those three TOPIX sectors to energy and technology under a 2°C trajectory.