With Physical Climate Risks Intensifying APAC Companies Are Now Responding to Rising Regulatory Pressure

In its latest analysis titled APAC Climate Action Progress Report, MSCI ESG & Climate Research reveals that climate transition progress among companies based in Asia-Pacific (APAC) is uneven across markets, which might be explained partly by regulatory differences, policy support, shareholder preferences and the industry mix of the respective markets. 

The report covers themes from emissions disclosures to climate target-setting, fuel mix development and trends in green and transition capital flows.

Corporate Progress on Climate Not Uniform

According to the report, disclosure of corporate value chain emissions and climate targets is on the rise in the APAC region, showing progress in climate transparency and accountability. However, progress is not uniform.

New Zealand (71%), Japan (44%) and Australia (41%) led in terms of the percentage of companies that disclosed Scope 1, 2 and 3 emissions.

New Zealand (88%), Japan (73%) and Hong Kong (66%) led in terms of the percentage of companies that have set climate targets for 2024 and beyond.

Small- and mid-cap firms lagged behind large-cap firms, which may indicate they have faced less investor and regulatory pressure than peers on climate disclosure.

Shifting Energy Mix For Utilities

MSCI ESG & Climate Research found that APAC utilities have grown both renewable and coal-fired electricity generation capacity during 2015 and 2022, with energy security and affordability considerations may influence the speed at which APAC utilities transition away from fossil fuel-based electricity. 

Currently, the direct emissions intensities of the largest APAC utilities were well above modelled pathways to net-zero emissions by 2050.

Besides expanding clean electricity capacity, early retirement of coal power plants is therefore increasingly seen as a key step for APAC utilities to align with net-zero pathways. 

Various efforts are underway to explore the role of capital markets in improving the economic viability of coal power phaseout programs in APAC.

In addition to mobilizing private capital through blended finance and high-integrity transition credits, as well as incorporating environmental and social considerations for coal phaseout in sustainable finance taxonomies, MSCI also noted that investor engagement could complement efforts to leverage capital markets to improve the economic viability of coal power phaseout programs in the region.

Innovating and Deploying Clean Tech

Scaling up renewable energy and energy efficiency solutions will be central to a transition away from fossil fuels and APAC corporates have emerged as key players in clean tech innovation. 

Constituents of the MSCI AC Asia Pacific Investable Market Index (IMI) had higher average exposure to advanced battery storage, solar and hydrogen fuel than their global peers in the MSCI World IMI.

In the areas of transport, industry and buildings, where the International Energy Agency has predicted the highest future improvements in energy efficiency, MSCI found that companies in the MSCI AC Asia Pacific IMI had higher average exposure to energy efficiency technologies relative to their global peers.

Commenting on the report findings, Xiaoshu Wang, Head of APAC ESG & Climate Research at MSCI said: “We are seeing climate and temperature records broken one after another globally, intensifying risks – which could be costly and irreversible – across the Asia-Pacific region. Given the economic contribution and emissions growth, climate trajectories in APAC will weigh on global net-zero ambitions. Our research, however, showed evident gaps still exist between current fuel mix development and net-zero pathways. As the shift to a clean-energy economy stands at a crossroads, capital markets’ role in improving the viability of coal phaseout programs becomes increasingly important.” 

“Nonetheless, we see bright spot in APAC companies’ growing prominence in clean tech production and innovation. The accelerating climate regulatory efforts and investor pressure in the region are also expected to drive further action and responses from corporates,” Wang added.

The research paper has been released ahead of MSCI’s Capital for Climate Action APAC Conference, where leaders from across the investment and financial industries will gather to discuss challenges and opportunities that define this moment in the shift to a new era of sustainable growth.