Investors Want Companies to Accelerate Decarbonisation Efforts, Report

The Asia Investor Group on Climate Change (AIGCC) 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.

The results revealed that despite some welcome progress towards phasing out coal and expanding renewables investment, investors are calling for accelerated climate action and detailed transition plans.

Transition Away From Coal

In the second year of the Program (August 2022 to July 2023), the participating investors continued 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, however, 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

AIGCC said 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.

They have 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, while 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, AIGCC said 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, with CLP Holdings being the only focus company demonstrating material outcomes.

CLP’s Sustainability Executive Committee (SEC) remuneration is linked to climate change, with members receiving between 5% to 13% of total remuneration for participating in the SEC.

Commenting on the findings 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.”