Investors Seeking to Spark Change at Asian Electricity Utilities

AIGCC highlights five tests to benchmark progress of electricity generators toward decarbonisation.

Asian electric utility companies should factor climate risks more fully into their business strategies to support a smooth transition to net-zero greenhouse gas emissions, according to a new report by the Asia Investor Group on Climate Change (AIGCC).

The report – ‘Investor Expectations of Asian Electric Utilities Companies – Crossover to Net Zero’ – identifies ways in which investors can engage with Asian electricity firms to facilitate change.

Contributing 23% of global greenhouse gas emissions, electricity firms in Asia are of particular concern to investors looking to accelerate transition to renewable energy sources, the report stated. With a young asset age profile of 13 years, they represent over US$200 billion in market capitalisation on Asian stock indices.

The report sets out five key expectations to help investors gauge the progress of each electricity generator on its decarbonisation journey.

First, investors should ask for a clearly defined management process for oversight of climate-related risks and opportunities, as well as detailed plans for a transition. Second, investors should expect companies to have a decarbonisation strategy in place and implement scenario stress tests.

Third, electric energy companies should provide transparent disclosures in line with international frameworks, such as the Task Force for Climate-related Disclosures (TCFD) or the Sustainability Accounting Standards Board (SASB), to help investors make decisions informed by comparable data.

Fourth, investors should seek evidence that physical risks, such as water scarcity, are taken into account by electricity generators when mapping out business strategies to further mitigate such risks.

Lastly, companies should engage with public policymakers and support policies that are geared towards low-carbon investments and the transition to net-zero emissions.

“Asian electric utilities will be critical to the transition to net-zero emissions being targeted by many of the major Asian economies. The electricity generation sector’s integration with others such as heavy industry, transport and real estate makes it essential to achieving decarbonisation,” the report noted.

“Investors are concerned some companies are not sufficiently prepared for the transition to a net-zero emissions economy,” said Rebecca Mikula-Wright, Executive Director of the AIGCC.

Mitigating the risk posed by climate change will be critical to protect the sustainable returns for the beneficiaries on whose behalf institutional investors invest, she noted.

“Business strategies and capital allocations made by Asian electric utilities today will determine their future sustainability and profitability in a carbon-constrained world,” she said.

AIGCC consists of members from 11 markets in Asia and the world, including asset owners and managers with a combined US$10 trillion in assets under management.


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