AIGCC progress report outlines need for increased ambition, importance of multi-stakeholder engagements.
Investors are calling for accelerated climate action and increased transparency from Asia-Pacific (APAC) utilities despite their progress phasing out coal and upscaling their renewables capacity.
The Asia Investor Group on Climate Change (AIGCC) has published the latest results of its Asian Utilities Engagement Programme (AUEP), which involves 19 investors collectively managing more than US$12 trillion in assets engaging with seven of the region’s biggest energy companies.
The second year of the programme, which ran between August 2022 and July 2023, saw Malaysia’s Tenaga and Indonesia’s PT Perusahaan Listrik Negara (PLN) commit to the early retirement of selected coal plants.
Tenaga, a state-owned utility, said it would begin by closing its 1,400 megawatt (MW) coal plant in Selangor by 2028, a year ahead of original plans. PLN’s coal-fired plants have a combined capacity of 10 gigawatts (GW). Additionally, PLN committed to not building any new coal projects.
“Discussions on coal phase-out are still in their early stages in the region,” Monica Bae, Director of Investor Practice at AIGCC, told ESG Investor.
“We welcome early retirement, but we also welcome companies like Tenaga and PLN committing to no new coal plants, which is significant considering the region’s growing overall energy demand.”
Of the seven utilities engaged by investors, only Hong Kong-headquartered CLP Holdings has yet to outline a specific phase-out schedule for its coal-based assets by 2040, the report said, noting that the AUEP cohort will now be pushing for all focus companies to adopt a more accelerated schedule.
Tenaga and PLN have also made progress in their commitments to renewable energy, with Tenaga targeting 14.3 GW of capacity by 2050, which will require US$7 billion in investment, and PLN planning to develop additional renewable energy plants as a means of achieving its 2060 net zero target.
However, focus companies need to ensure that their collective energy generation capacity (360 GW) is aligned with a 1.5°C temperature pathway, the report said, acknowledging that the assessed companies are not on track.
“It is important to recognise the magnitude of investments needed to transition our energy systems and the importance of including Asia-based utilities,” said Bae.
“Asia is systemically important, with the most coal-fired fleet and a much younger average age of plants. We expect global climate initiatives to include Asia-based companies, especially the developing markets.”
The AUEP was launched in 2021 to engage Asia’s major electric utilities, such as Japan’s Chubu Electric and China’s Huaneng Power, on their decarbonisation strategies, governance, policy advocacy, exposure to physical risks, and quality of climate-related disclosures. It aims to complement the engagement efforts of Climate Action 100+ in Asia.
As of 30 June, AUEP has 19 investor members, including BNP Paribas Asset Management, EOS at Federated Hermes, and Nikko Asset Management. Lion Global Investors, abrdn and Sun Life joined the investor group this year.
For a utility’s transition plan from coal to renewables to be robust, Bae said “the sequence is important”.
“Because of just transition and energy security concerns – which are themselves critical for public support – especially in developing markets, additional renewables capacity is a pre-condition for withdrawal of fossil fuel generation,” she said.
The AUEP will continue to engage with PLN on aligning its transition plan with the goals of the Paris Agreement, the AIGCC progress report noted.
“This could include coal phase-out projects and financing options such as the Energy Transition Mechanism (ETM), as well as future investments in renewables and the optimisation of the grid,” it added.
Transitioning away from coal is challenging for Asian utilities. Recent macroeconomic volatility and the energy crisis has prompted many APAC countries to backslide into coal production, despite their net zero commitments.
Last year, China approved new coal mining capacity and coal-fired power plans, despite a commitment to strictly control coal-fired power generation in the country’s five-year plan.
Following a 2022 survey of Asia-based investors, the AIGCC urged investors to pair their engagement efforts with effective escalation strategies when active ownership and engagement is not producing the desired response.
Asia-based investors are also under pressure to transition away from financing coal.
Three NGOs are in the process of suing the South Korean Ministry of Health and Welfare, which oversees the country’s US$700 billion national pension fund, over its refusal to disclose documents relating to the fund’s coal phase-out policy, which was agreed three years ago. South Korea’s National Pension Scheme (NPS) holds US$20.5 billion worth of bonds and shares in domestic coal companies and US$8.3 billion in coal companies overseas.
In June, the Glasgow Financial Alliance for Net Zero’s (GFANZ) APAC Network launched a consultation on voluntary guidance for financing the early retirement of coal-fired power plants across APAC.
2022 research published by the International Energy Agency (IEA) reiterated that every pathway to net zero and the avoidance of severe climate change will require significant coal-related emissions reductions. More than 95% of 2021 global coal consumption came from countries that have net zero pledges, the report said.
“The utility sector is fundamental in an economy’s decarbonisation, given its interrelation with other sectors such as heavy industry, transport and real estate,” the report said, noting that Asian electric utilities contribute over 20% of global greenhouse gas (GHG) emissions.
Everyone at the table
Asia-based investors and companies need to include policymakers in climate-related engagements, according to Bae.
“The most visible lesson is how important multi-stakeholder engagement is; to be effective, investors need to complement their direct engagement with power companies, particularly by continuing dialogue with policymakers.”
The AUEP increased its emphasis on policy engagement in the second year of the programme, with Bae noting that this is set to continue over the next 12 months.
AIGCC further convened a series of policy engagement sessions with regulators across multiple APAC markets in May and June this year.
“These roundtables have facilitated active dialogues among policymakers, institutional investors and corporates in each of these markets on some of the more challenging issues of energy transition,” the report said.
Bae said: “Decarbonisation is a complex process, and many different stakeholders have legitimate interests, and they all need to be considered. So, we run multi-stakeholder discussions that recognise we’re aiming to effect entire systems.”