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STEWARDSHIP | ARTICLE – 3 Min

Not created equally – Stewardship in Asia

By JANE HO 28.08.2023

In this article:

    Overall, stewardship at BNP Paribas Asset Management centres on the key themes of energy transition, environmental sustainability and equality and inclusive growth. In Asia however, achieving a just transition to a low-carbon and durable economy is a particular focus, not least in areas such as the phased exit from high CO2 emitting coal as an energy source.  

    Handling the resulting sustainability and governance issues means engaging directly, but also collaboratively with stakeholders, and interacting with policymakers. Achieving an inclusive and constructive approach means knowing the county that we are operating in, and understanding its transition plan, how local investee companies fit into that plan and if there are local barriers to its execution.

    The presence of many state-owned companies in Asia means public policy engagement is a key part of our stewardship activities. Participating in policy roundtables complements engaging with companies, regulators, stakeholders including investors and other long-term asset owners, and playing an active role in coalitions such as the Glasgow Financial Alliance for Net Zero (GFANZ, this being a global coalition of financial institutions committed to accelerating the decarbonisation of the economy) APAC (A-sia PAC-ific)  network.

    Working on phasing out coal

    GFANZ APAC is working on voluntary guidance for financing the early retirement of coal-fired power plants in Asia Pacific as part of efforts to mitigate the effects of climate change. We are part of the workstream and look forward to its release at the COP28 meeting towards the end of the year.

    Coal power generation has been found to be the largest source of CO2 emissions globally. Although global coal power usage most likely peaked in 2022, it is expected to continue to rise in Asia for several more years due to the growing energy demand in the region.

    Phasing out coal power while ensuring a supply of affordable and reliable energy requires careful planning to reduce coal dependencies and accelerate investment in renewable energy, grid infrastructure and power storage for intermittent renewable sources.

    A credible phaseout – one that has broad public support as well as bold targets – means working with local communities, alongside governments, multilateral development banks and other public and private sector parties on inclusive transactions.

    Blended finance, which brings together philanthropy, government funding and private sector investors, is one way to fund such critical, ambitious and possibly hard-to-finance transitions.

    Coal policy in practice

    BNPP AM’s stewardship policy tackles environmental, social and governance issues together with our approach to responsible business conduct, that is, the minimum expectations that we have of our portfolio companies.

    In this context, our coal sector policy guides both company engagement and the selection of investments as we gradually bring portfolios into line with the goals of the Paris Agreement.

    The need to transition from high-carbon to low-carbon power is particularly acute in Asia where coal is a dominant energy source for electricity generation and utilities account for 23% of greenhouse gas emissions. Accordingly, Asian utilities is a key focus area for engagement as we encourage and support them to raise the ambition of their decarbonisation strategies.

    As part of the Asia Investor Group on Climate Change, we discussed the climate approach of Hong Kong-listed CLP Holdings, urging this company to phase out coal-fired power generation and adopt a net zero emissions target. As a result, CLP said it would stop using coal by 2040 and aim for net zero emissions by 2050, in what was a critical market signal in Asia’s net zero transition.

    This is just one example of the way we embrace our role as a future maker, using our influence and investments to further the energy transition, environmental sustainability, and equality and inclusive growth. Our commitment to the Net Zero Asset Managers initiative and our Net Zero Roadmap are further illustrations of the work we do to assist in working toward a just transition.

    Disclaimer

    Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
    Environmental, social and governance (ESG) investment risk: The lack of common or harmonised definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may be based on metrics that may share the same name but have different underlying meanings. In evaluating a security based on the ESG and sustainability criteria, the Investment Manager may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may for the time being be incomplete, inaccurate or unavailable. Applying responsible business conduct standards in the investment process may lead to the exclusion of securities of certain issuers. Consequently, (the Sub-Fund's) performance may at times be better or worse than the performance of relatable funds that do not apply such standards.

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