Investors and service providers are seeking to collaboratively engage with Asia’s systematically important electric utilities to increase the effectiveness of climate engagement with a common agenda.

The Asian Utilities Engagement Program complements and runs in parallel with the global Climate Action 100+ initiative.

The Business Case

To increase the effectiveness of climate engagement with focus companies through a common agenda, shared objectives, and collaborative effort with consistent, long-term objectives to send a powerful signal that investors are asking for and expect companies to respond to climate change.

Resources

The Asian electric utility sector is critical to the net zero transition as it contributes to approximately 23 per cent of global carbon dioxide emissions. This sector has a young asset age profile of about 13 years (vs. an average economic lifetime of 40 years) and represents more than $US200 billion of market capitalisation on Asian stock indices. The recent heightened climate ambitions of many Asian governments and the rapid pace of technological progress further creates a positive environment for the net zero transition of the Asian electric utilities sector.

Investors are increasingly recognising their exposure to climate risks and their fiduciary duty to respond. While investors can redirect their investment decisions to favour companies and projects that will accelerate the necessary clean technology translation, they also have a powerful opportunity to affect behaviour change, diversification and transformation among the most carbon-intensive companies through their equity and fixed-income holdings. This is possible through investment stewardship – including direct engagement with public companies to achieve corporate practice consistent with long-term value protection and creation.

The Common Agenda

The program’s participants have agreed on a common engagement agenda based on AIGCC’s Investor Expectations of Asian Electric Utilities Companies and intend to work with the boards and senior management of these companies to:

  • Implement a strong governance framework that clearly articulates the board’s accountability and oversight of climate change risks and opportunities.
  • Take action to reduce greenhouse gas emissions in a way that is aligned with the Paris Agreement. Companies should have clear decarbonisation strategies with short-, medium-, and long-term action plans including a timetable to phase out coal-based emissions in line with 1.5°C temperature scenarios, such as the International Energy Agency (IEA) NZE2050 scenario. The IEA NZE2050 scenario specifies that unabated coal power is phased out in advanced economies by 2030 and at the latest by 2040 in all other regions. Generation using natural gas without carbon capture starts falling by 2030 and is 90 per cent lower by 2040 compared with 2020.
  • Provide enhanced corporate disclosure in line with the final recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
  • Outline physical risks to the company and relevant adaptation strategies to mitigate these risks.
  • Engage with public policy makers and other stakeholders in support of cost-effective policy measures to mitigate climate-related risks and facilitate low carbon investments in line with achieving net zero emissions by 2050 or sooner.

Alongside this high-level agenda, participants are identifying and communicating with companies on more detailed company-specific expectations.

Who’s Involved

The Companies

Focus companies have been chosen as they produce substantial greenhouse gas emissions, have large coal-fired power capacity or have a strategic role in driving the net zero emissions transition. A total of five focus utilities have been identified for engagement in the first year of the initiative, who collectively emitted a total of 285 million tonnes of CO2 in 2019, equivalent to the national emissions of a country like Spain.

Current focus companies include:

Identifying the Asian Utilities Engagement Program focus companies

A four-step process was developed to identify the program’s focus companies:

  1. Start universe: Begin with a company universe of all major listed utility companies in Asia.
  2. Truncate universe: Cut universe to the largest 30 companies by market capitalisation and systematically important unlisted national utilities.
  3. Rank by emissions: Sort the 30 companies according to their Scope 1 and 2 emissions using publicly released 2019 data.
  4. Consultation with investors: To further screen for companies where investors have a meaningful shareholding and a qualitative analysis regarding the readiness of companies to participate.

Benchmarking and tracking progress

The program tracks how each company is performing with respect to the high-level goals of the initiative. There are three main ways that progress is tracked:

  1. Investor updates: The lead investor for each focus company is required to share high-level information on each company’s progress via AIGCC and other program forums.
  2. Annual investor collaborative forum: The lead investor for each focus company and each investor engaging a focus company individually are required to share high-level information on each company’s progress. This includes observed areas of improvement and updated priorities for the next phase of engagement.
  3. High-level public progress statement: AIGCC will produce a public statement detailing the progress observed by the initiative in consultation with participants at regular intervals.

Investors commit to engaging with at least one focus company during each year of the initiative as part of a collaborative group.

Join the Program

The program is open to members of AIGCC. We welcome new investors to join the engagements at any time. Participants may be asset owners, investment managers or engagement service providers who are formally representing assets and who typically engage with companies directly. Prospective investors are required to:

  • Support a public statement outlining the program’s objectives and agenda;
  • Be a member of AIGCC;
  • Commit to engage with at least one focus company during each year of the initiative;
  • Write a letter to the focus company in question outlining the initiative’s five expectations;
  • Decide if they would like to join as a lead and/or collaborating investor;
  • If the participant is a lead investor, provide high-level reports on the progress and priorities of their engagement.

To learn how to become an AIGCC member, click here.

For more information about the Asian Utilities Engagement Program, please contact info@aigcc.net

Disclaimer:
The Asian Utilities Engagement Program does not facilitate or require collective decision-making regarding an investment decision. The initiative will not provide recommendations to investors to divest, vote in a particular way or make any other investment decision – investors continue to make their own independent investment and strategic decisions.