APG lays out strategy of dealing with Asia carbon emitters
Asia’s private and public capital markets are maintaining exponential growth, but asset owners such as €547 billion ($577 billion) Netherlands-based pension fund manager APG can't ignore the reality that Asian companies have outsized carbon footprints for their scale compared to their Western counterparts.
Asia's tapestry of regulatory frameworks is the greatest climate policy challenge in the region, according to Yoo-Kyung Park, head of responsible investment and governance at APG Asset Management Asia.
“When regulation moves, all companies move, and the biggest excuse I hear from Asian companies is that they are waiting for regulatory frameworks before they take climate action,” Park told AsianInvestor.
"There's not really a sense of urgency about climate change among many Asian companies," she said. "A significant proportion of Asia is made up of developing markets that are fundamentally more focused on growth and less on their climate impact – but without Asia, we cannot achieve the global net-zero target by 2050."
OWNERSHIP LEVERAGE
APG is a shareholder of some of Asia's biggest companies, and Park strongly advocates the use of the fund’s position to engage large emitters rather than divest from them.
“Divestment is something that many companies would love to see – they would like to have one less strong voice pushing them to alter their operations and focus on responsibility over growth, [but] in my view, divestment should be the last resort," she said.
ALSO READ: CPP Investments beefs up climate risk guidelines for boards
APG
Japan and South Korea are among the few Organisation for Economic Co-operation and Development member nations in Asia, and are often seen as more attentive than less well-off countries to non-economic development indicators related to such issues as education, healthcare, the environment and sustainable development.
For this reason, APG has focused on those two countries in the first stages of its Climate Focus 10 programme, which aims to persuade their heaviest corporate carbon-emitters to reduce emissions.
SEOUL SEARCHING ISSUE
Although climate issues are on the radar of South Korean companies, business in the country are still not subject to robust climate regulation, and Park has to engage them while remaining sympathetic to their perspectives.
“As a shareholder, we understand their point, but companies like Samsung are competing globally, and they're part of a global supply chain in which the whole ecosystem is globally organised," Park said. "We engage them from the standpoint that maintaining a carbon-heavy position will ultimately make them less competitive.”
ALSO READ: Energy transition schemes: a potential alternative to fossil fuel divestment
Climate concerns are widespread among ordinary South Koreans, and Park has leveraged public awareness of climate issues to put pressure on many companies.
“During the past shareholder season, we rolled out a media campaign to local South Korean and international media, which has helped to contribute to national awareness of CO2 emissions among the general public,” she said.
At the outset of APG's Climate Focus 10 engagement in South Korea last month, Park sent letters to corporate boards just before their annual general meetings. The letters probed the firms' climate policies and requested that they announce emissions reduction targets at subsequent shareholder meetings.
“I was very pleasantly surprised by the response," Park said. "None were climate deniers. While some excuses around regulation were made, the response was mostly 100% positive. A number of them, including Samsung, appeared to have made some progress. Hyundai Steel, for example, did not yet have a long-term target for its emissions reduction. Now it does.”
Although Park says APG cannot take all the credit, as it engaged with companies alongside other large shareholders and civic groups, Samsung Electronics in September announced a new environmental strategy and has since joined the RE100 global corporate energy initiative. Among other improvements, Samsung has committed to achieving net-zero emissions by 2050.
ALL OR NONE
Engagement in Japan has presented some distinct challenges for Park and her team that have slowed their climate efforts.
“Japanese companies are interesting because they think in terms of the entire industry ecosystem,” Park said.
When she was meeting with carmarker Toyota, for example, Park was confronted with the fact that the company didn’t think of itself just as an individual company but as a representative of the entire national auto industry.
“For them to move towards zero emissions, the whole industry must move together, and the supply chain must also move in tandem," she said. "Ultimately, this has meant slow progress. However, the positive side of this way of thinking is that every movement towards lower carbon emissions has a much greater impact on the whole ecosystem within the country.”
EXTENDING EFFORTS
Following APG's engagement in Japan and South Korea, Park wants soon to turn her focus to emerging markets, particularly China and India, as progress on climate action in those two nations will have a significant global impact due to their size.
“Five to seven years down the road, I think India will be emerging even more quickly," she said. "There's a lot of money flowing into India, and one of the reasons is because it already has a very good renewable energy regulatory framework.”
Park added that countries such as Japan and South Korea were looking to India to learn from its approach to regulation and for knowledge on building new infrastructure for renewable energy.
“Building something in Japan means an increase in carbon emissions and carbon footprint, so they're looking for other sources of energy in countries like Australia, which have a lot of green natural energy sources, and the other country they're looking at is India,” she said.