The Asia Investor Group on Climate Change has released the second-year results for its Asian Utilities Engagement Program (AUEP), which sees investors who collectively manage more than US$12 trillion engage with seven of the region’s systemically important energy companies.
Despite some welcome progress towards phasing out coal and expanding renewables investment, investors are calling for accelerated climate action, and detailed transition plans.
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Transition Away From Coal.
In the second year of the Program (August 2022 to July 2023), the participating investors continue to push the seven focus companies for a just transition away from coal, with some success. This year, more focus companies, Malaysia’s Tenaga and Indonesia’s PT Perusahaan Listrik Negara (PLN), committed to early retirement of selected coal plants, while considering the feasibility of climate technologies and financing options. PLN has also committed to not building any new coal projects.
To date, only Hong Kong headquartered CLP Holdings has outlined a specific phase-out schedule for all coal-based assets by 2040. The Program will continue to push for an accelerated phase-out schedule for coal from all focus companies.
Expanding Renewables Energy Portfolios.
The participating investors have increased their calls for focus companies to expand their renewable energy portfolios, including developing more solar energy, offshore wind, and battery storage options. Once again, AIGCC has seen progress from Tenaga and PLN over the year, with Tenaga targeting 14.3 GW of capacity by 2050, requiring US$7 billion of equity investment. PLN has announced plans to develop additional renewable energy plants as a means of achieving its goal of net zero by 2060.
However, to help protect local and global economies from the risks of climate change, the focus energy companies must ultimately ensure their entire current generation capacity of 360GW combined becomes aligned with a 1.5° pathway, which includes vastly increasing renewable energy capacity and having a credible transition plan. The focus companies are not yet on track for that.
Governance
In the Program’s second year, investors are increasingly looking for a strong governance framework at a company’s board that clearly articulates the board’s accountability and oversight of climate change risks and opportunities.
More focus companies in the Program have started to consider linking executive remuneration to climate metrics. This year, Japanese utilities Chubu Electric, JERA and J-POWER stated that they are considering linking their directors’ compensation to environmental, social and governance (ESG) indicators. Similarly, Tenaga Nasional announced that the key performance indicator (KPI) of their top management is linked with ESG metrics.
Complementary Policy Engagement
Beyond company engagement, AIGCC convened a series of closed-door policy roundtables from May to June 2023 with key stakeholders in Indonesia, Japan, and Malaysia. Participants included policymakers, investors and regulators that are critical to the discussion on policies related to energy transition, domestic and international investors, and corporate groups. Takeaways from these sessions include:
The Asian Utilities Engagement Program Expands
The Program welcomed three new participating investors during the year – abrdn, Lion Global Investors, and Sun Life. The investor participants – all AIGCC members – are collectively responsible for $12 trillion in assets under management and advice.
In the coming year, investors working through the program will continue to strengthen dialogues with focus companies on their decarbonisation strategies. AIGCC will continue to facilitate engagements with focus companies in climate governance, physical resilience and public policy related to the company’s lobbying activities. AIGCC will also continue to facilitate ongoing dialogue with policymakers as a critical plank to companies’ transition. This will ensure the investment conditions are created to support the transition at the speed and scale required.
The Program will continue to complement the current engagement efforts of Climate Action 100+ in Asia and assist investors to increase the effectiveness of their work with Asian utility companies to manage and mitigate climate risk.
AIGCC Chief Executive Officer, Rebecca Mikula-Wright, said:
“Since AIGCC launched the Asian Utilities Engagement Program in 2021, collaborative engagements between investors and focus companies have been progressing well, and yielding some promising results on coal phase-out, and expanded renewables capacity.
“However, investors expect companies to accelerate their work to decarbonise their operations. Investors would like to see more of the focus companies’ climate transition plans, including setting short-term science-based targets and immediate emissions reductions with demonstrable progress towards coal phase out.
“For transition plans to be credible, companies looking to explore alternative renewable technologies, such as hydrogen, should ensure they are truly zero-emissions throughout the supply chain, and make sure they have a genuine advantage over more mature clean energy options.
“Policy engagement will continue to be an important, complementary element to our ongoing engagements with energy companies, ensuring the right incentives exist in the overall economy.
“We expect to keep expanding the program to include more participating investors in the coming years. Interested parties should get in touch.”
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Background on the Asian Utilities Engagement Program (AUEP)
In June 2021 The Asia Investor Group on Climate Change launched the program with the support of 13 institutional investors and stewardship service providers. As of June 30 2023 19 investors, representing over 12 trillion in AUM and advice, were part of the AUEP.
The Program, an investor-led initiative, was set up to engage Asia’s systemically important electric utilities on cutting emissions across the value chain, strengthening climate-related financial disclosure and improving governance of climate-related risks that may affect companies.
Investors selected the seven focus companies because they produce substantial greenhouse gas emissions, have large coal-fired power capacity or have a strategic role in driving the net zero emissions transition. Investors engaging with these companies will continue to push for greater ambition and action on climate change.
Notes to editors:
The investors and stewardship service providers (all AIGCC members) set to participate in the third year of the program are:
- abrdn
- Amundi
- BNP Paribas Asset Management
- Cathay Financial Holdings
- Eastspring Investments
- EOS at Federated Hermes
- Fidelity International
- Fullerton Fund Management
- Lion Global Investors
- GIC
- Income Partners Asset Management
- J.P. Morgan Asset Management
- Manulife Investment Management
- Nikko Asset Management
- Resona Asset Management Co., Ltd.
- Sumitomo Mitsui Trust Asset Management
- Sun Life
- UOB Asset Management
Through a common agenda, these investors will collaboratively engage with seven utility companies:
- China Resources Power Holdings (China)
- CLP Holdings (Hong Kong)
- Chubu Electric Power Co. (Japan)
- Electric Power Development Co. (J-POWER) (Japan)
- Huaneng Power (China)
- PT Perusahaan Listrik Negara (Persero) (PLN) (Indonesia)
- Tenaga Nasional Berhad (Malaysia)
The program is coordinated by AIGCC and will complement and run in parallel with the global Climate Action 100+ initiative.Asian electric utility companies that are currently the focus of Climate Action 100+ were excluded from consideration.
The 2022 joining statement from the three additional participating investors can be found here. The 2021 launch statement can be found here.
In December 2020, AIGCC released an investor guide for climate change engagement with Asian utilities, which can be found at the following in English, Simplified Chinese, Traditional Chinese, Japanese, and Korean.
Read more about the AUEP.