Translating to Action
Net Zero Investment in Asia
(4th Edition)

AIGCC Translating to Action: Net Zero Investment in Asia

About AIGCC
The Asia Investor Group on Climate Change (AIGCC) is an initiative to create awareness and encourage action
among Asia’s asset owners and financial institutions about the risks and opportunities associated with climatechange and low-carbon investing.
AIGCC provides the capacity for investors to share best practices and to collaborate on investment activity, credit
analysis, risk management, engagement, and policy. With a strong international profile and significant network,
AIGCC represents the Asian investor perspective in the evolving global discussions on climate change and thetransition to a greener economy. AIGCC has over 67 members from 11 markets, representing over USD 39 trillion
in assets under management.
www.aigcc.net

Acknowledgments
AIGCC would like to thank all the institutional investors who responded to our annual Net Zero Investment
Survey and the AIGCC members who helped develop this report. We would like to thank BNP Paribas AssetManagement, Dynam Capital, GIC, Invesco, and Sustainable Fitch for providing case studies that form an integral
part of the report. Appreciation also goes to AIGCC members and broader stakeholder groups who have helped
to make aggregated data from our survey robust and insightful and provided additional input over the courseof developing the final report.

December 2022

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AIGCC Translating to Action: Net Zero Investment in Asia

Table of Contents
Glossary............................................................................................................................................................4
Headline Insights...........................................................................................................................................6
Summary..........................................................................................................................................................9
Chapter 1: Background Information...........................................................................................................................10
Chapter 2: Climate Targets, Metrics, and Measurement.................................................................................. 11
Chapter 3: Climate Governance and Strategy......................................................................................................40
Chapter 4: Investing in Opportunities..................................................................................................................... 56
Chapter 5: Barriers to Investment...............................................................................................................................57
Disclaimers of this Report......................................................................................................................... 61

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AIGCC Translating to Action: Net Zero Investment in Asia

Glossary
AIGCC

Asia Investor Group on Climate Change

AIM-CGE

Asia-Pacific Integrated Model

AM

Asset management/asset manager

AO

Asset owners

ASEAN

Association of Southeast Asian NationsAUEP

AIGCC’s Asian Utilities Engagement Program

AUM

Assets under management

BNPP AMBNP Paribas Asset Management

CA100+

Climate Action 100+

CDP

Climate Disclosure Project

CGT

Common Ground Taxonomy

COP

United Nations Climate Change Conference of the Parties

CO2

Carbon dioxide

CPS

Current Policies Scenario

CREEM

Carbon Risk Real Estate Monitor

DAC

Direct air capture

EM

Emerging market

ETF

Exchange traded fund

ESG

Environment, social and governance

EU

European Union

EUR

European EuroEVElectric vehicle

FI

Financial institution

GHG

Greenhouse gas

GP

General partners

IA

The Investor Agenda

ICAP

Investor Climate Action Plans

ICMA

The International Capital Market Association

IEA

International Energy Agency

IGCC

Investor Group on Climate Change

IIGCC

Institutional Investor Group on Climate Change

IPCC

Intergovernmental Panel on Climate Change

IPR-FPS

Inevitable Policy Response Forecast Policy Scenario

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AIGCC Translating to Action: Net Zero Investment in Asia

LP

Limited Partners

NDC

Nationally Determined Contributions

NGFS

Network for Greening the Financial System

NZAM

Net Zero Asset Managers Initiative

NZIF

Net Zero Investment Framework

PAII

Paris Aligned Investment Initiative

PAAO

Paris Aligned Asset Owner

PCAF

Partnership for Carbon Accounting Financials

RBC

Responsible business conduct

RCP

Representative Concentration Pathway

RTZ

Race to Zero

SBTi

Science Based Targets initiative

SDG

United Nations Sustainable Development Goals

SDS

Sustainable Development Scenario

SFDR

EU’s Sustainable Finance Disclosure Regulation

SIF

Sustainable Investment Fund

SSP

Shared Socioeconomic Pathway

STEPS

Stated Policies Scenario

TCFD

Task Force for Climate-Related Financial Disclosures

TNFD

Task Force for Nature Related Financial Disclosures

UNAOA

United Nations Asset Owner Alliance

UNEP FIThe United Nations Environment Programme Finance Initiative

UN PRI

Principles for Responsible Investment

USD

United States Dollar

VNAS

Vietnam All Share Index

VNH

Vietnam Holding

WACI

Weighted average carbon intensity

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AIGCC Translating to Action: Net Zero Investment in Asia

Headline Insights
AIGCC has surveyed a group of climate focused investors in Asia. The results from this cohort, with
USD 7.9 trillion in assets under management, provide an important insight into how leading investors in Asia
are acting on climate and incorporating climate opportunities and challenges into their investment process.

Climate Targets, Metrics, and Measurement••

Net zero by 2050 targets – A large percentage of leading Asian investors (41%) are still working toward setting
net-zero targets or are unable to do so due to caution around the details and implementation. Some are
actively taking steps, such as joining global net-zero initiatives.
•

Asset owners have not included requirements on portfolio decarbonization in their mandates to asset
managers, but they have asked most or all their managers to report on their climate engagements
and outcomes.

•

Most respondents use emission intensity to present their net-zero targets.

Net-zero alignment methodologies – Survey respondents continue using asset-specific methodologies tomeasure alignment to net-zero targets at the asset level, with the Science Based Targets initiative (SBTi)being the current methodology of choice to set targets and devise a net-zero strategy.
•••

Respondents are also using a combination of various frameworks and methodologies, including the Paris
Aligned Investment Initiative’s (PAII) Net Zero Investment Framework (NZIF) and Partnership for Carbon
Accounting Financials (PCAF).

Interim targets (2025 or 2030) – A large percentage of survey respondents (41%) have yet to set an interim
target (by 2025 or 2030) to reach net zero by 2050, but they are actively considering it.
•

Consequently, most respondents have not yet assessed the percentage of their portfolios aligned oraligning with net zero by 2050.

•

Most are determining or looking to calculate their baseline for interim decarbonization targets, climate
solutions targets, interim portfolio coverage targets, and interim engagement thresholds.

Carbon footprint measurement – Asian investors continue to increase the coverage of carbon measurement
across their portfolios. Most respondents (41%) have measured carbon across their whole portfolio, withan overwhelming majority measuring their carbon footprint across their listed equities and fixed income(including green bonds) asset classes.
•

Emissions measurement across other asset classes, such as private equity, is lagging due to challenges in
obtaining data or a lack of tools and standard methodologies.

•

Asset owners are generally not specifying in mandates to managers the requirement for carbon emissions
reporting, but they are actively considering requesting external managers to do so in coming years.

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AIGCC Translating to Action: Net Zero Investment in Asia•

Climate metrics – Metrics related to overall emissions are the main disclosures observed, with mostdisclosing weighted average carbon intensity (WACI) and absolute emissions. However, other metrics linking
to asset level or portfolio level are still emerging.

•

Data aggregation –•For emissions data, most respondents use outsourced data, depending on the asset class.

•

For net-zero alignments, some are conducting this assessment in-house, using a range of indicators anddata points sourced.

•

Scenario analysis – Only 25% of Asian investors surveyed have undertaken climate scenario analysis acrosstheir whole portfolios, but 41% are actively considering an analysis.

•

Physical risk and resilience – Physical risk assessment and investment lag behind investor responses toclimate mitigation. Only 6% have undertaken an analysis and think their portfolio is resilient, but 53% areactively considering undertaking an analysis.

•

Investor engagement and stewardship – Despite investment stewardship and corporate engagement
being a favored investment strategy among Asian investors surveyed, many have not yet determined abaseline for their financed emissions in material sectors, subject to direct or collective climate engagement/
stewardship actions.

•

Climate solutions investments – Asian investors who responded to our survey recognize the need to set
climate solution targets and invest in climate solutions, with 29% having a public target for investment inclimate solutions and 41% actively considering this.
•Asian investors (59%) use internal frameworks to determine climate solution investments. Many investors
also use a combination of methodologies, depending on their asset class.

•

Only 25% or less of asset owner mandates relate to climate solution investing.

•

Investments in climate solutions will be spread across a variety of asset classes, with the majority focusingon public and private equities.

Climate Governance and Strategy•

Climate policy and fossil fuel investment policy – Asian investors who responded to our survey now havepolicies regarding climate investments, and some also have investment policies addressing fossil fuels.
••

Most respondents have included fossil fuel divestment and exclusions as part of investment strategies,
with most applying it toward thermal coal.

Net-zero investment strategy –•Corporate engagement and shareholder action continue to be the most popular net-zero
investment strategy.

•

Investing in the transition to net zero is an integral part of net-zero investment strategies, with 47%
investing in transition.

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AIGCC Translating to Action: Net Zero Investment in Asia•

Disclosure on climate change – TCFD-aligned reporting is widely adopted among our respondents, with
69% saying that they had produced TCFD-aligned reporting, and 25% are planning to do so within the next
12 months.

•

Climate Action Plans – respondents recognize the need to publish Climate Action Plans, with 50% respondingthat they have published a climate action plan and 29% actively considering it.

•

Executive remuneration on climate – Most of these leading Asian investors have started to link executive
remuneration to delivering climate targets and transitions, with 31% of respondents having already done soand 19% actively considering this matter.

•

Just Transition – Nearly half of the investors (44%) are materially integrating transition as part of theirportfolio management and investment strategies, and another nearly half (44%) are actively considering so.

•

Biodiversity and deforestation – Many respondents have not yet conducted an assessment or integrated
response, with only 13% conducting a detailed assessment of nature and biodiversity risks.

Barriers to Investment•

Barriers to investment – Close to half of the respondents (47%) have identified a lack of data as a key barrier
to investment, signaling increased demand for nuanced and more granular data and a knowledge gap thatneeds to be closed.

•

Investor approach to managing policy and regulatory uncertainties – Most investors (87%) opt to undertakecompany engagement directly through a third-party provider or collaborative engagement programs, suchas the Climate Action 100+ and AIGCC’s member-based Asian Utilities Engagement Program (AUEP). These
programs effectively align investor expectations in a common agenda and shared objectives, including inclimate policy engagements.

•

Policy advocacy undertaken by investors – 80% of respondents is working collaboratively through supporting
investor-backed statements, letters, and calls for climate action.

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AIGCC Translating to Action: Net Zero Investment in Asia

SummaryAIGCC has conducted this survey for four years, providing a snapshot of leading investors’ progress and theirapproaches to climate-aligned investment, including where they are allocating capital and what barriers orchallenges they face when investing in climate solutions in Asia.
It is clear in the 2022 survey that these leading Asian investors have shown aspirations for their portfolios toreach net zero by 2050. Although most Asian investors surveyed have not yet set a public net-zero emission
target by 2050 or an interim target by 2025 or 2030, most investors stated that they are actively considering
doing so. Most investors have measured their carbon footprint across their portfolios, however, this is often
conducted internally, resulting in little publicly available and comparable data to ascertain the readiness ofAsian investors to implement climate action plans and transition to net zero.
With growing interest among investors in Asia to commit to reduced emissions and to reach a net-zero economy
by 2050, work is needed to develop and implement asset alignment methodologies, such as for private equity
and infrastructure where investors have indicated their near-term implementation intentions. These leading
Asian investors also recognize the need to invest in climate solutions. Despite investment stewardship andcorporate engagement being a favorable investment strategy among Asian investors, many have not set abaseline for engagement targets.
A lack of more specific data is now the main barrier to investment for most Asian investors surveyed, compared
to previous years where investors noted a lack of tools and methodologies as the main barrier. However,this also signals an increased sophistication among investors in their interpretation of available data andthe increasing demand for more granular data at company and asset levels. More investors are undertaking
carbon footprint measurements across their whole portfolios and asset classes and investors have stated the
difficulties in obtaining Scope 3 emission data and are currently relying on estimates.
AIGCC will continue to support the growing appetite among Asian investors for tools, frameworks, and resources
to assist implementation and acceleration of the transition to net zero through climate-aligned investments.
We look forward to working with our members to develop investable solutions to facilitate the transition to a
resilient, net-zero emissions economy.

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AIGCC Translating to Action: Net Zero Investment in Asia

Chapter 1: Background Information
This report provides crucial information on the investment practices of companies investing across Asia.
It aims to provide deeper insight into the preferences for current and future investment in climate-aligned
solutions and perceived barriers to investment by asset owners and fund managers in the region.
In its fourth year, the survey identifies emerging trends and offers further insights into net-zero investments in Asia.
This report primarily uses the AIGCC’s net-zero investment survey conducted in October 2022. The AIGCC
surveyed institutional investors regarding current and future appetites for net-zero, low-carbon, and climatechange-aligned investments. The survey structure is in line with the key goals of the PAII NZIF and Investor
Climate Action Plans framework. Investors that have made good progress against the key points in this survey
can be more confident that they are keeping up with other leading institutional investors in portfolio climate
integration.
We have introduced a new structure to our survey this year by dividing it into four main categories:•

Climate metrics, targets, and measurement: net-zero methodologies, targets (2050 and interim), carbon
footprint, scenario analysis, physical risk and resilience, engagement targets, and climate solutions targets•

Governance and strategy: climate action plans, executive remuneration on climate, fossil fuel policies/
divestment/exclusions, biodiversity and just transition, and investment mandates•

Investing in opportunities•

Barriers to investments

This year, 17 investors1 with over USD 7.9 trillion in global assets under management (AUM) responded to thesurvey. The respondents included a mix of asset owners and asset managers active in Asia. Many respondents
were large investors (the mean AUM was approximately USD 460 billion), and it is reasonable to characterize
the group as well-resourced. Due to being within AIGCC’s network, it is also reasonable to expect that they areamong the more advanced and progressive tiers of investors in Asia in terms of climate-aligned investment
practice. Additional qualitative information was sought, enabling participants to provide further depth to their
responses.

1

The term ‘investors’ used throughout the survey refers to the collective respondents from all asset owners and managers combined. In some instances,the data are aggregated together for asset owners and managers, and in other instances, are split out. Please note that respondents to our survey also
include international investors who have significant assets under management (AUM) in Asia. Although our survey respondents represent a small sample
of investors in Asia, they comprise of USD 7.9 trillion global AUM, which we believe to be significant in shaping the trends among investors in Asia.

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AIGCC Translating to Action: Net Zero Investment in Asia

Chapter 2: Climate Targets, Metrics, and Measurement
Net-zero Pledges and Targets
More Asian investors are actively considering setting portfolio-wide 2050 net-zeroemission targets and complementing them with a public interim target by 2030 or
2025 to reduce emissions.
Based on the survey, most respondents had not yet made a net-zero public pledge. Only 29% of respondents
had set a 2050 net-zero target for their whole portfolio, and 18% have net-zero targets on some asset classes.
Despite this, the growing international net-zero alliance trend has influenced most Asian investors to actively
consider net-zero pledges and set targets to align their investment portfolio with the Paris Agreement.
We introduced questions related to setting interim targets to reduce emissions across portfolios in our survey
last year, and we continued to include question regarding interim targets in our survey this year as part ofinvestors’ net-zero pledges and targets. Similar to net-zero public pledges, most Asian investors (41%) who
responded to our survey have not yet set net-zero interim targets to be achieved by 2025 or 2030, but they are
actively considering it, with 29% having set targets for some asset classes and only 18% for their whole portfolio.

Exhibit 1: P ercentage of investors that have set a 2050 net-zero emission target and public interim
target in 2030
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Yes, we have set
a whole-of-portfolio target

Yes, but only on someasset classes
2050 net zero target

No, but actively
considering

No target

2030 interim target

Most respondents have set net-zero targets and have made net-zero pledges through the Net Zero AssetManagers (NZAM) initiative (73%). In comparison, 18% made net-zero pledges via SBTi. Others, especially asset
owners, made net-zero pledges via PAII Paris Aligned Asset Owners and the UN Asset Owner Alliance. Investors
now have more options on methodologies to determine climate-aligned investment solutions compared toprevious years, where investors had relied on third-party Environmental, Social, and Governance (ESG) dataservice providers and other globally available standards, such as the EU Taxonomy.

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AIGCC Translating to Action: Net Zero Investment in Asia

Exhibit 2: Alliances where investors made net-zero pledges

9%
9%

18%
73%

Net Zero Asset Managers

Science Based Target Initiative (SBTi)

PAII Paris Aligned Asset Owners

UN Asset Owner Alliance

Investors are setting net-zero targets by intensity levels and in absolute terms.
This year, our survey included questions about how investors in the region set their net-zero targets. More thanhalf of the respondents (56%) had chosen emission intensity to present their net-zero targets, and 33% had
selected absolute emissions. The remaining 11% had opted for both metrics.

Exhibit 3: Investors presenting their net-zero target

11%

33%

56%

Absolute emissions

Emissions intensity

Both absolute emissions and emissions intensity

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AIGCC Translating to Action: Net Zero Investment in Asia

Case Study 1: BNP Paribas Asset Management’s
Net Zero Roadmap – Spotlight on Asia
BNP Paribas Asset Management (BNPP AM) has been working on sustainable investing for 20 years. In
2021, BNPP AM joined the Net Zero Asset Managers (NZAM) Initiative and committed to achieving net
zero portfolio emissions by 2050 or sooner and have set out a roadmap that frames their commitments
and the actions they will take.
Initially, BNPP AM will focus on 50% of their assets under management – some EUR 250 billion(USD 524 billion2, as of Oct 2022). BNPP AM believes that they have the tools and the data to achieve net
zero emissions by 2050 for these listed equities and corporate bond holdings and intend to expand
this scope to 100% over time. Assets which have not been included in the initial NZ commitment
scope include mandates where clients have not yet adopted the responsible business conduct (RBC)
policy, advisory business, some affiliate businesses, and some sub-advised funds. Additionally, BNPPAM has removed from the AUM of in-scope assets any investments in sovereign bonds, agency debt,
derivatives and private assets to focus only on its holdings of publicly-traded corporate debt atthis stage.
BNPP AM’s Net Zero Roadmap formally introduces the net zero commitments, grouped into three
categories: Investments, stewardship, and operations. Each area consists of individual components
totalling ten key commitments. The roadmap will continue to guide BNPP AM activities in Asia toensure that their investments, stewardship and operations are net-zero aligned.

Investments: Investing in Climate Solutions
BNPP AM believes that sustainable thematic investing can contribute to the net zero transition by
investing in companies that facilitate it. Today, BNPP AM is one of the leaders in sustainable thematicinvestment, with more than EUR 21.4 billion (USD 22.43billion, as of Oct 2022) in sustainable thematic
funds that focus on environmental, climate and social themes. Among BNPP AM’s strategies insustainable thematic investment include:•

Sustainable Asian Cities strategy launched in May 2022 – the first sustainable fixed-income strategy
with an Asia focus. The strategy targets opportunities for enhancing urban mobility, incorporating
low-carbon elements, improving basic infrastructure to help cities operate and thrive, andimproving their resilience to extreme weather events.

2

Exchange rate as of 30/6/2022. The scope in USD equivalent is subject to change based on exchange rates between EUR and USD. Our net

3

Exchange rate as of 30/6/2022. The scope in USD equivalent is subject to change based on exchange rates between EUR and USD. BNPP

zero commitment will be based on figures in EUR.
AM’s net zero commitment will be based on figures in EUR.

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AIGCC Translating to Action: Net Zero Investment in Asia

1. “Scope 1” refers to the direct emissions from sources that are owned or controlled by the company. “Scope 2” refers to the indirect emissions
linked to the company’s purchased or acquired electricity, heat, steam and cooling. “Scope 3” refers to all other indirect emissions, including
those related to the use of its products. Scope 3 emissions are not included in the calculation since the measurement of these emissions is notstandardised or considered sufficiently reliable yet to be used in reporting. Given the importance of scope 3 emissions in most sectors, we are
evolving our approach to calculating scope 3 emissions with the aim of including it in our approach in the future.

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AIGCC Translating to Action: Net Zero Investment in Asia•

Green Hydrogen ETF – targets companies that produce green hydrogen or renewable energy thatpower the production of green hydrogen.

•

BNP Paribas Emerging Climate Solutions – a newly launched equities strategy investing incompanies providing environmental solutions for the sustainable management of land, water,energy, manufacturing and transport in emerging economies, including many in Asia.

BNPP AM will continue to increase our climate and environmentally-themed investments to drive
capital toward building a net-zero-aligned economy in Asia.

Stewardship: Engaging with Companies on Net Zero
BNPP AM is implementing an engagement strategy that is consistent with their ambition for all assets
under management to achieve net zero emissions by 2050 or sooner. Believing strongly in investors’
duty and power to enact change – BNPP AM is engaging with 52 Asian companies in 2021 alone, andare members of 10 public policy-related groups in Asia4, advocating for strong government policy toensure that capital markets are allocating capital towards a sustainable future.
As a member of the AIGCC since 2018, BNPP AM has actively been involved in investors’ collaborative
engagement such as:•

Climate Action 100+ (CA100+): core element of BNPP AM’s plan to engage with the highest emittersglobally on net zero alignments. BNPP AM leads or co-leads ten CA100+ engagements, with threein Asia – Sinopec, PTT Public Co. Ltd. and Power Assets Holdings Ltd.

•AIGCC Asian Utilities Engagement Program (AUEP): co-led the engagement with CLP because thecompany may be in breach of BNPP AM’s coal policy. During Q3 2021, BNPP AM held detailed
discussions with the company and its board to support its target review process. In September
2021, CLP Holdings announced its commitment to net zero emissions by 2050 and coal exit by2040, setting new science-based targets to align with the goal of limiting global warming to well
below 2°C, and announced its ambition to further strengthen its approach to align with 1.5°C,
demonstrating leadership in the transition away from coal and towards net zero power generation.

BNPP AM maintains a strong belief that engagement is generally more effective than exclusion, butdivestment can be effective as a last resort. BNPP AM also recognizes that without stewardship, theinvestible universe for net zero investors will shrink.

4

Jane Ambachtsheer, BNPP AM’s Global Head of Sustainability, was named an inaugural member of the Monetary Authority of Singapore’s(MAS) new Sustainable Finance Advisory Panel, which will guide MAS’s sustainability agenda and initiatives in the region.

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AIGCC Translating to Action: Net Zero Investment in Asia

Net-zero-aligned Methodologies
Investors use asset-specific methodologies to measure alignment to net zeroat the asset level.
Nearly half of the respondents (47%) chose Science Based Targets initiative for Financial Institutions (SBTi-FI)
as a methodology for net-zero or climate-aligned investments. However, 33% stated that they are using a
combination of several methodologies, including PAII’s NZIF and PCAF.

Exhibit 4: Net-zero or climate-aligned investments methodologies used by investors
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Science basedtargets forfinancial
institutions(SBTi-FI)

Others1

Impliedtemperature
rise

Third party
ESG data
serviceprovidersParis aligned
investment
initiative

UN netzero asset
ownersalliance

Bespokemethodologies
for asset
classes2

EUtaxonomy

Notes:
1.

Such as PCAF and a combination of various methodologies.

2.

Examples include Germanwatch Climate Change Performance Index (Sovereign Bonds) and Carbon Risk Real Estate Monitor (CREEM) (Real Estate).

SBTi is one of the recommended methodologies proposed for NZAM initiative signatories to set their net-zerotargets, in addition to the PAII’s NZIF. Our survey structure focuses on how Asian investors formulated their netzero targets and is thus in line with the key goals of the PAII NZIF, such as setting portfolio coverage targets andengagement thresholds in portfolio and asset levels.
Please refer below for setting and disclosing targets using the NZIF.

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AIGCC Translating to Action: Net Zero Investment in Asia

Targets: Setting and Disclosing
Setting and Disclosing Targets
To set and disclose targets and objectives, investors can draw on the Net Zero Investment Framework.
There are four targets recommended in the Net Zero Investment Framework 1.0, as follows:

Portfolio-level Targets•

Portfolio reference target – A <10-year CO2e emissions reduction target.

•

Climate solutions target – A <10-year goal for increasing allocation to climate solutions.

Asset-level Targets•

Portfolio coverage target – A 5-year portfolio coverage target for increasing the percentage of
AUM in material sectors5 that are i) achieving net zero, or meeting the criteria to be consideredii) ‘aligned’ to net zero, or iii) ‘aligning’ to net zero. This target should increase toward the goal of
100% of assets to be i) net zero or ii) aligned to net zero, by 20406.

•

Engagement threshold target – An engagement threshold that ensures that at least 70% of
financed emissions in material sectors are either assessed as net zero, aligned with a net zero
pathway, or the subject of direct or collective engagement and stewardship actions.

For further explanation of the four recommended target types, see the NZIF Supplementary Target
Setting Guidance.

5

Material sectors is defined as those in NACE code categories A-H and J-L.

6

NZIF portfolio coverage targets are comparable to SBTi portfolio coverage metrics. The target should involve linear portfolio coverageincreases year on year to the extent possible. The 2040 date to reach 100% recognizes that, in order to be consistent with net zero by 2050,
companies and assets will have to have set targets and made plans to achieve the transition well in advance of the 2050 date.

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AIGCC Translating to Action: Net Zero Investment in Asia

Asset-level Alignment and Portfolio Coverage Targets
The majority of investors surveyed have not yet assessed the percentage of theirportfolios aligned or aligning with net zero by 2050.
Portfolio alignment measures how aligned a company or portfolio is to the goals of the Paris Agreement.
In recent years, ESG-related portfolio metrics have evolved beyond typical risk and return objectives – investors
now believe that limiting the global temperature rise will have a positive impact and, at the same time, create
resilient portfolios. Some examples of portfolio alignment metrics include PAII’s NZIF and SBTi (please refer tothe previous section ‘Net-zero-aligned methodologies’ for more details on which methodologies are used by
Asian investors).
Our survey showed that most Asian investors have not yet assessed their portfolios. Thus, a baseline has yet to
be determined. A small percentage of respondents (18%) stated that more than half of their AUM are aligned oraligning with net zero, and only 6% stated that 90–100% of their AUM are aligned.
However, there are differences in how investors classify ‘aligned’ and ‘aligning.’ This is mainly related tomethodologies, data points, and indicators available. PAII’s NZIF sets out the approach investors should takewhen assessing the alignment of assets and setting targets to increase the proportion of assets aligned to net
zero. This approach assesses the companies in the portfolio, whether they are Paris aligned through 10 criteria,
and further classifies these to four thresholds: net zero, aligned, aligning, and committed to aligning (refer toAsset-Level Alignment Guidance box for asset-level alignment guidance based on NZIF)7.

Exhibit 5: Percentage of total AUM currently considered net zero, aligned or aligning to net zero
70%
60%
50%
40%
30%
20%
10%
0%

Baseline not yet
determined

50–59.9%

30–39.9%

20–29.9%

90–100%Note: The range of percentage that was not chosen by the respondents are not displayed in the exhibit.

7

Please refer to the NZIF Target Setting Guidance (pages 9–10) for more details of company alignment.

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AIGCC Translating to Action: Net Zero Investment in Asia

Asset-Level Alignment Guidance
The PAII (a global collaboration between AIGCC and peer investor networks: IGCC, IIGCC and Ceres)
published the PAII Net Zero Investment Framework 1.0 (‘NZIF’) in March 2021.
NZIF aims to provide a consistent basis for asset owners and asset managers to measure and manage
portfolios, working toward achieving global net zero emissions by 2050 or sooner.
It seeks to provide recommendations for methodologies and approaches for alignment which a broad
range of investors can utilize.
NZIF 1.0 covers four asset classes: listed equity, corporate fixed income, sovereign bonds, and real estate.
Throughout 2022, consultations have been held to incorporate the following asset classes into NZIF:•

Derivatives and hedge funds•

Infrastructure•

Private Equity – The private equity components proposed for the framework are intended to be
relevant to both Limited Partners (LP) and General Partners (GP).

These guidance pieces aim to clarify, in each asset class, the:•scope of that asset class in scope for net zero alignments•

metrics and targets to measure alignment over time•

implementation actions to achieve alignment targets and decarbonization of the real economy.

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AIGCC Translating to Action: Net Zero Investment in Asia

Carbon Footprint of Portfolios
Asian investors continue to increase the coverage of carbon measurement
across portfolios.
Carbon emission measurements continue to be an important area of focus for investors to track portfolioalignment against their emission reduction targets. Investors continue to work to measure portfolio Scope 1 and2 emissions and, where possible, material portfolio Scope 3 emissions.
To set net-zero targets and measure progress against them in the investment portfolios, investors continue to
track portfolio alignment regardless of their type of asset classes.
Many investors (41%) are measuring the carbon footprint for their whole portfolio, and another 35% are actively
considering doing so.

Exhibit 6: Percentage of investors that have measured carbon footprint for their whole portfolio
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Yes

No, but actively considering

No

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AIGCC Translating to Action: Net Zero Investment in Asia

A large percentage (94% and 93%) of respondents answered ‘Yes’ to listed equity and fixed income (including green
bonds) asset classes, respectively. The result differed from other asset classes such as real estate, infrastructure,
private equity, timber, forestry, and agriculture. 50% of respondents are actively consider measuring the carbon
footprint for the private equity asset class; however, some commented that obtaining data or a lack of tools andstandard methodologies has been challenging.

Exhibit 7: Asset classes where investors have measured the carbon footprint
100%

6%

7%

14%

90%

25%
38%

80%

29%

70%

80%

60%
50%

94%

50%

93%

40%
63%

30%

57%

20%

25%

10%
0%

Listed equity

Fixed income(including green bonds)
Yes

Real estate

Infrastructure(including sustainabletransportation)

No, but actively considering

Private equity

20%

Timber, forestry
and agriculture

No

21

AIGCC Translating to Action: Net Zero Investment in Asia

Case Study 2: Dynam Capital – Assessing
Climate-related Risks for Better Net-zero
Alignment
Dynam Capital (noted as Dynam below) is the fund manager of Vietnam Holding (noted as VNH below)– a closed-end fund listed on the London Stock Exchange. VNH invests in high-growth companies inVietnam, focusing on domestic consumption, industrialisation, and urbanisation.
Vietnam is one of the top five countries most vulnerable to climate change, but also has great
conditions for renewable energy development with its long coastline and tropical climate8. Within
the Vietnamese context, Dynam has identified the key areas for VNH to progress over the period
2021–2024 to support the country’s preparation for a net-zero transition:•

Measure and track the portfolio’s carbon footprint to identify carbon-intensive sectors andintegrate climate risks and opportunities into VNH’s broader risk management framework•

Integrate the UN’s 17 SDGs into the ESG analysis and seek opportunities to focus capital on thosecompanies that show they are aligning their business activities, strategy, and operations moreclosely with achieving the SDGs•

Seek ways to improve the evolving guidelines and best practices from peers and industry, and•Advocate the adoption of internationally accepted ESG standards and best practices among theVietnamese business community, with a strong focus on improving corporate governance and ESG
reporting.

Measuring VNH Portfolio’s Carbon Footprint
Among the Vietnamese business community, carbon reporting is still new, with less than ten listedcompanies disclosing emissions data in their annual reports9.
VNH has been leading the ESG focus in Vietnam’s investment management community. VNH becamea signatory of the UNPRI back in 2009 and its fund manager Dynam Capital became a member ofthe AIGCC since early 2021. As part of its sustainability objectives, VNH intends to keep the estimatedportfolio emissions10 at 20% below that of its benchmark, Vietnam All Share Index (VNAS), and overthe past three years, the average carbon footprint of VNH has in fact been 30% lower than VNAS. Thishas been a result of an active management style in sector allocation and stock picking – the selectionof low-emission sectors and best-in-class companies that have invested in new technology and other
innovations designed to reduce their GHG emissions.

8

In November 2021, Vietnam Prime Minister Pham Minh Chinh announced at COP26 that Vietnam would make efforts to achieve its net-zero

9

It is expected that there will be greater interest in and willingness to do so from companies in the next few years.

10

The methodology for calculating the portfolio carbon emissions is based on the guidelines of IPCC and the GHG Protocol. Data are collected

targets in 2050.

using both top-down sectoral and bottom-up company-based approach, with a certain level of uncertainty. Also, we could only estimate
Scope 3 emissions using top-down approximation.

22

AIGCC Translating to Action: Net Zero Investment in Asia

Comparison between VNH portfolio vs. VNAS in average carbon footprint(tCO2e per $M invested, 2019–2021)
VNH

VNAS

Difference between

Year

Portfolio

Index

VNH and VNAS benchmark

2021

58.19

176.31

–67%

2020

153.1

224.6

–32%

2019

127.6

215.5

–41%

First Climate-related Risk Assessment Report for VNH
In 2022, Dynam worked with its consultant to provide the very first climate-related risk assessment
report for VNH. This assessment:•

was conducted in the context of drastic changes in the national policies towards controlling andmitigating GHG emissions in Vietnam as well as the strong international incentives on financial
and climate risk disclosure•

includes both assessments of the transition and physical risks of climate change exposed to all
the companies in the VNH portfolio11, and TCFD-aligned•

provides a comprehensive assessment of VNH’s portfolio from a climate perspective and helped
Dynam’s investment team to understand the climate risks and sensitivity by sector and industry,and how sector allocation together with stock selection can help Dynam to outperform the indexes
in terms of climate risk exposure•

results have been leveraged by Dynam for deeper engagement with investee companies overclimate change topics, with a focus on measurement and disclosure of carbon footprint.

For transition risks, both qualitative and quantitative approaches were used. Recommended metrics
such as the Weighted Average Carbon Intensity (WACI), Implied Temperature Rise, and the potential
financial loss due to carbon offset by policy risks was calculated and compared to global indexes. The
Transition risk exposure heat map developed by the UNEP FI was used as a framework to understandhow climate-sensitive sectors may be impacted during a low-carbon transition.

11

As of 31 December 2022.

23

AIGCC Translating to Action: Net Zero Investment in Asia

VNH portfolio’s WACI in comparison with other indexes
Weighted Average Carbon Intensity
350

322.90300

tCO2/$M sales

250
200
150

154.00132.10122.13120.50129.10

100
50
0

VNH

MSCI ACWI
index

MSCI world
index

MSCI emerging
market index

MSCI Pacificindex

MSCI Europe
index

For physical risk assessment, the approach was tailor-made for Vietnam that considered the mostfrequent natural disasters (storms, floods, droughts), vulnerability, and domestic cost norms and used
the historical statistical data collected from and synthesized by the Viet Nam Disaster Management
Authority. The calculation also examined the future climate scenario (RCP 4.5 and RCP 8.5) introducedin the IPPC 5th Assessment Report to estimate the potential future financial impacts on VNH’s
portfolio in 2050, with the assumption that the companies in the portfolio remained unchangedby that time. The results include the potential monetary loss of each investee and VNH’s total loss
due to its investment, analysis of the vulnerability of each investee, and each sector to each type ofnatural disaster.

24

AIGCC Translating to Action: Net Zero Investment in Asia

Climate-related Metrics
Metrics related to overall emissions are the main disclosures observed,
but other metrics linking to asset level or portfolio level are emerging.
With the growing demand for publicly disclosed climate metrics and the availability of tools to measureprogress, investors were asked how they are shaping and presenting their net-zero targets. More than halfof the respondents are disclosing primarily WACI (tons CO2e/USD million revenue) (65%), absolute emissions(tons CO2e) (presumably based on PCAF standard), and investment intensity (tons CO2e/USD million invested)(both at 53%).
All other respondents (24%) also disclosed other metrics, such as carbon efficiency (tons CO2e/USD million
revenue), exposure to carbon-related assets (USD or % of carbon-related assets in the portfolio), portfolio
coverage (% of AUM), and implied temperature rise/rating.

Exhibit 8: Types of climate metrics that investors disclose publicly
70%
60%
50%
40%
30%
20%
10%
0%

Weighted averagecarbon intensity(WACI) (tons CO2e/
USD mil revenue1

Absolute
emissions(tons CO2e)

Investment
Carbonintensity
efficiency(tons CO2e/(tons CO2e/USD
USD mil invested) mil revenue)

Exposure tocarbon related
assets (USD or% of carbonrelated assets inthe portfolio)

Portfolio
coverage(% of AUM
considered‘aligned’ or‘aligning’)2

Impliedtemperaturerise/temperature
ratingNotes:
1.

Weighted by the proportion of each constituent in the index.

2.

Refer to PAII’s NZIF.

25

AIGCC Translating to Action: Net Zero Investment in Asia

Most investors use outsourced emissions data, depending on their asset class.
For net-zero alignment, some investors are conducting this assessment in-houseusing a range of indicators and data points sourced.
From our survey results, most Asian investors (53%) outsource their emission data. Few investors gather climate
data in-house (12%), and some use a mix of in-house and outsourcing emission data (35%).
Many investors stated that they rely on information provided by companies and outsource other emissions data
to service providers, such as Trucost, MSCI, Emitwise, and Bloomberg. More data is needed, as stated in Chapter
5: Barriers to Investment, especially for Scope 3 emissions, where many respondents stated that they are basedon estimated datasets.

Exhibit 9: Sourcing of emissions data used by investors
60%
50%
40%
30%
20%
10%
0%

Mostly outsourced

Mixed

Mostly in-house

Scenario Analysis
Many investors are undertaking scenario analyses across their whole portfolios,
primarily in listed equities.
Investors recognize the importance of undertaking scenario analyses against 1.5°C, 2°C, and 4°C scenarios andare testing portfolios to understand the transition risk and to obtain a probability-weighted portfolio return.
Some investors are doing this for the interim (2030) and longer term (to 2040) periods.
Only 25% of respondents have undertaken climate scenario analyses of their whole portfolio, but 44% areactively considering undertaking analyses. With more Asian investors reporting their climate disclosure basedon TCFD recommendations (please refer to the ‘Disclosure on Climate Change’ section), there may be a rapid
uptake in tools, service providers, and available scenarios for investors to conduct scenario analyses in the
coming years.

26

AIGCC Translating to Action: Net Zero Investment in Asia

Exhibit 10: Percentage of investors that have undertaken climate scenario analyses for their whole portfolio
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Yes

No, but actively consideringNo

In terms of asset classes, listed equities and fixed income continue to be strong performers (87% and 79%
of investors, respectively), which is likely a reflection of the number and longevity of existing tools to assess
this asset class. Some investors (50%) are actively considering undertaking climate scenario analyses on theirinfrastructure (including sustainable transportation) asset class.

Exhibit 11: Asset classes where investors have undertaken climate scenario analyses
100%
90%

13%

21%

29%

80%

25%

33%

33%

45%

70%
60%

29%

50%
40%

87%

50%

79%

75%
45%

30%
43%

20%
10%
0%

67%

17%
Listed equity

Fixed income(including
green bonds)

Real estate

Yes

Infrastructure(including
sustainabletransportation)

9%
Private equity

No, but actively considering

Timber, forestry
and agriculture

Other

No

27

AIGCC Translating to Action: Net Zero Investment in Asia

Respondents stated some examples of climate scenarios they had used in their analyses:
•

•

•

•

Network for Greening the Financial System (NGFS) with six scenarios:•

Net Zero 2050•

Below 2°C•

Divergent Net Zero•

Delayed Transition•

Nationally Determined Contributions (NDCs)•

Current Policies

International Energy Agency (IEA) Climate scenarios:•

Sustainable Development Scenario (SDS)•Stated Policies Scenario (STEPS)•

Current Policies Scenario (CPS)

IPCC Scenarios•

Representative Concentration Pathways (RCPs) – RCP2.6, RCP4.5, RCP6.0, RCP8.5•

Shared Socioeconomic Pathways (SSP)

Asia-Pacific Integrated Model (AIM-CGE)

28

AIGCC Translating to Action: Net Zero Investment in Asia

Case Study 3: Sustainable Fitch – Managing
Climate Transition Risks Within Portfolios with
Fitch’s Corporates Climate Vulnerability Scores
Fitch launched its Corporates Climate Vulnerability Scores (Climate.VS) in early 2022 to address
challenges that investor face in translating broad climate scenario assumptions to sector and entitylevel forward-looking impacts on their portfolios. The scores provide a long-term assessment of thevulnerability of corporate sectors and entities to transition risk and specifically to changes in climaterelated policies and regulations resulting from the transition to a low-carbon economy.
Fitch has released Climate.VS for 13 corporate sectors and over 130 individual sub-sector scores,
including regional granularity for relevant sectors.

Forward-Looking Scores that Show Relative Vulnerability
to Transition Risk
Fitch’s analysis provides forward-looking assessments from 2025 to 2050 in five-year intervals, toidentify risks in investors’ portfolios, allowing relative vulnerability comparison at different stages
in the transition over a longer term.

The scores range from 10 to 90; the higher the score at a particular point in time, the greater thevulnerability under the scenario.

29

AIGCC Translating to Action: Net Zero Investment in Asia

Use Case: Portfolio Analysis to Identify Risk Exposureand Inflection Points
Climate.VS’s sectoral and regional granularity and their forward-looking, long-term nature can beused for security selection, portfolio construction and screening, risk management and monitoring
and reporting. They can also stress key inflection points, when the vulnerability of certain entities
to transition risk increases significantly.
Using Bloomberg’s EM Asia Credit Index as a proxy for an investors’ portfolio focused on Asia illustrates
how Fitch’s Climate.VS allow investors to identify areas of risk and potentially adjust exposure12.

Bloomberg EM Asia Credit Index & Fitch’s Climate.VS
Mapping the Index’s Sector Exposure with Climate.VS
Increment in Sectors’ Climate.VS from 2025 to 2050
60
50
Low absolute scorein 2050 and limited
increment over
2025–2050

40
30
20

Chemicals

Metalsmanufacturing

Coal mining

Food manufacturing
Gambling

Ore Mining

Information services

Electricity, gas,steam supply

100Land transport, pipelines
Machinery manufacturing

Manufactureof computers,
electronics
20

30

Highestvulnerability

Manufacture ofautos, trailers

Retail10

Oil & Gas Extraction

Warehousing

Real estate-10

Manufacture of cokeand oil refining

Hidden risks: absolute scoreabove 40 in 2050 and noticeable
increment over 2025–2050

40

50

60

70

80

90

100

Sectors’ Absolute Climate.VS in 2050
Bubble size represents the sector's weighting in the index. Higher scores denote greater vulnerability to transition risks.
Some categories have been removed for legibility. Source: Fitch Ratings, Sustainable Fitch.

12

The index’s constituents are mapped with the Climate.VS based on their main business activity classification, excluding financial institutions,financial services, sovereign and public finance entities, which represented 49% of the index’s weightings. As of the end October 2022.

30

AIGCC Translating to Action: Net Zero Investment in Asia

The analysis shows a portfolio’s weighted exposure to relatively more vulnerable sectors. For example,
sectors related to fossil fuels overall have the highest absolute Climate.VS in 2050 and the highest
incremental increase in scores from 2025 to 2050, corporates in oil and gas extraction are weighted
much more heavily in the Bloomberg Index than coal mining and so could present a bigger source ofrisk. The tool also allows the identification of ‘hidden risk’ in the portfolio, with significant exposure tosectors facing a notable increment in their score to 2050. Real estate (6% index weight), warehousing(3%), chemicals (2%) metals manufacturing (1%) fall into this category and could require closer
monitoring and entity-by-entity analysis.

Fitch’s Climate.VS also allow investors to compare portfolios and benchmarks’ relative vulnerability totransition risk. As the table below highlights, using indices are proxies, different portfolio compositiontranslates into distinct climate transition risk exposure.

31

AIGCC Translating to Action: Net Zero Investment in Asia

Physical Risk and Resilience
Physical risk assessments and investment lag behind investors’
responses to climate mitigation.
More than half of the respondents have not yet undertaken climate-related physical risks and resilience
analyses, but they are actively considering doing so. Only 6% have undertaken studies and think their portfolio
is resilient, but 53% are actively considering undertaking analyses. As temperatures rise, there is clear evidence
that climate hazards affect their portfolios and assets. This could be through disruption to operations andsupply chains or indirectly through shocks to broader economic, human, or natural systems. Managing theimpacts of physical climate risks is becoming an important part of investors’ fiduciary duties to protect theirclients’ and beneficiaries’ assets.

Exhibit 12: P ercentage of investors that have undertaken climate-related physical risks and resilience
analyses for their whole portfolio
60%
50%
40%
30%
20%
10%
0%

Yes, and we have
implemented a
response toincrease resilience

Yes, but we havenot implemented a
response to increase
resilience yet

Yes, and the portfolio
is resilient (we do notthink we need to
implement a response
to increase resilienceat this stage)No, but actively
consideringNo

In terms of asset classes, 25% of respondents mentioned that they have implemented physical risks analysis andhave implemented a response to increase resilience in private equity, but none responded to have a resilient
portfolio in this asset class. Many Asian investors also stated that although no physical risks and resilience
analysis have been implemented for timber, forestry and agriculture asset class, they are actively considering it.

32

AIGCC Translating to Action: Net Zero Investment in Asia

Exhibit 13: A sset classes where investors have implemented climate-related physical risks
or resilience analyses
100%
90%
80%

25%

19%

40%

42%

50%

70%

31%

60%

40%

38%
43%

50%
40%

13%

33%
13%

30%

0%

25%

Private equity

25%

Real estate

13%

19%

20%
10%

20%

29%

19%
Listed equity

14%

13%

14%

13%

Infrastructure(including
sustainabletransportation)

Fixed income(including
green bonds)

60%

Timber, forestry
and agriculture

50%

Other

Yes, and we have implemented a response to increase resilience
Yes, but we have not implemented a response to increase resilience yet
Yes, and the portfolio is resilient

No, but actively considering

No

Investor Engagement and Stewardship
Investors increasingly recognize their exposure to climate risks and their fiduciary duty to respond. While investors
can redirect their investment decisions to favor companies and projects that will accelerate the necessary clean
technology transition, they also have a powerful opportunity to affect behavior change, diversification, andtransformation among the most carbon-intensive companies through their portfolio holdings. This is possible
through investment stewardship – including direct and collaborative engagement with companies to achieve
corporate practice consistent with long-term value protection and creation.
To achieve ambitious 2030 targets in investor portfolios across the globe, investors need to drive rapid changes
in the real economy. They must be active stewards, ensuring companies take necessary actions and produce
net-zero transition plans to deliver 1.5°C-aligned short-, medium-, and long-term targets. Portfolio alignment
tools, such as the NZIF, have emphasized the crucial role stewardship plays.

33

AIGCC Translating to Action: Net Zero Investment in Asia

Investors are already using stewardship actions, including various voting tools, such as votes against management
on climate grounds and ‘Say on Climate’13 votes. Where active ownership and engagement are being used overdivestment, the approach to engagement must be specific, time-bound, and paired with effective escalation
strategies. AIGCC has recently worked with ClientEarth to release guidance for investors in Asia to consider
shareholder resolutions as part of effective engagement with companies on climate-related matters, an area
in which there is increasing investor and regulatory interest. The contributors to the guide are corporate andclimate law experts that include leaders and senior partners of top law firms from across Asia. They provide
insights on the legal landscape for shareholder climate resolutions in 11 key Asian jurisdictions: Japan, South
Korea, the People’s Republic of China, Hong Kong SAR, India, Thailand, Vietnam, the Philippines, Malaysia,
Singapore, and Indonesia.

Despite investment stewardship and corporate engagement being a favorable
investment strategy among Asian investors, many have not set a baseline forengagement targets.
Most Asian investors continue to choose corporate engagement and shareholder action as their net-zero
investment strategy. This finding, however, has yet to translate to their climate targets, as 53% stated they have
yet to determine a baseline for their financed emissions in material sectors, which are subject to direct orcollective climate engagement or stewardship actions. This indicates that Asian investors have yet to link theirstewardship actions to net-zero pledges and targets.

Exhibit 14: A pproximate proportion of financed emissions in material sectors subject to direct or collective
climate engagement/stewardship actions
60%
50%
40%
30%
20%
10%
0%

Baseline not yet
determined

0–9.9%

40–49.9%

20–29.9%

60–69.9%

90–100%Note: The range of percentage that was not chosen by the respondents are not displayed in the exhibit.

13

Although not specific on Asia but more on global level, the Say on Climate initiative works with companies to establish robust net zero transition plans
with shareholder feedback in an annual advisory vote.

34

AIGCC Translating to Action: Net Zero Investment in Asia

Climate Solutions Investments
Asian investors recognize the need to set climate solution targets
and invest in climate solutions.
Alongside the imperative of decarbonizing portfolios, investors must increase their capital allocation to climate
solutions. This offers investment opportunities or can be used in the decarbonization of portfolio companies.
Investment in climate solutions (and associated targets) can support real economy decarbonization. This also
increases the proportion of assets readily classified as aligned to a net zero by 2050.
Institutional investors have an important role in financing the net-zero transition. It will require an investment ofnearly USD 130 trillion from now to 2050 in activities that support emissions reductions14. A report by McKinsey
Global Institute published in early 2022 stated that the investment required for the transformation of the global
economy to achieve a net-zero world by 2050 would be significant, requiring USD 9.2 trillion in annual averagespending on low-emission assets alone, including in emerging technologies15.
While Asia is most exposed to climate risks, the region also has the most to gain specifically in energy transition.
Referencing studies conducted by the International Energy Agency (IEA), Tsinghua University and six integrated
assessment models (IAM), AIGCC estimates that the investment opportunity for Asia’s energy supply to achieve
net zero to be in the region of USD26 trillion (2°C scenario) to USD37 trillion (1.5°C scenario) cumulatively from2020 to 2050 (equivalent to 1.7 per cent to 2.0 per cent of Asia’s GDP)16.

14

Liz Alderman and Eshe Nelson, “Global finance industry says it has $130 trillion to invest in efforts to tackle climate change,” New York Times, 3

15

McKinsey Sustainability, “The net-zero transition: What it would cost, what it could bring,” January 2022.

16

AIGCC, Asia’s Net Zero Energy Investment Potential, March 2021.

November 2021.

35

AIGCC Translating to Action: Net Zero Investment in Asia

What is a Climate Solution?
A climate solution is an investment in economic activities, goods, or services that contributes
substantially to emissions reductions required by a 1.5°C pathway.
A climate solution can be classified as:•‘Low-carbon’ climate solution – refers to activities with close to zero emissions that alreadycontribute substantially to achieving net zero (e.g. the leasing of passenger vehicles with zero
tailpipe CO2 emissions).

•‘Transitional’ climate solution – refers to activities that make a substantial contribution to thetransition to net zero by reducing their emissions, even if they are not yet low-carbon (e.g. themanufacture of cement with CO2 emissions intensity below a specific threshold, and the leasing ofvessels with a significant % of energy from zero-carbon fuels).

•‘Enabling’ climate solution – refers to activities enabling emissions reductions on the broader
economy (e.g., the manufacture of energy-efficient equipment for buildings and infrastructure forlow-carbon road transport, such as EV charging points).

From the Climate Investment Roadmap report that includes guidance to help investors determine
climate solution metrics, their applications, and measurement methods.
Source: Institutional Investor Group on Climate Change (IIGCC), “Climate Investment Roadmap,” 2022, p. 81.

Some investors (29%) have now set public climate solution investment targets,with 41% indicating they are actively considering setting targets.
Some Asian investors (29%) have a public target for investment in climate solutions, and 41% are actively
considering doing so. Climate solution targets are more commonly expressed as a proportion of AUM, with somesetting financial figure targets (e.g., USD millions invested by 2025). Some investors indicated they have yet toset public targets despite having assessed the baseline proportion of their AUM invested in renewable andlow-carbon asset solutions. In contrast, others have now dedicated funds investing only in this theme. Other
investors have a public statement to increase allocations but have not publicly published a quantitative number.

36

AIGCC Translating to Action: Net Zero Investment in Asia

Exhibit 15: Percentage of investors that have a public target for investment in climate solutions
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Yes

No, but actively consideringNo

The methodologies investors use to define and measure climate solution
investments vary and lack standardization. Despite this, investors are moving
forward with measuring baselines and investing in climate solutions.
There are a range of methodologies and service providers that investors are using to classify climate solution
investments. Over half of Asian investors (59%) use internal frameworks (or their own proprietary methodology)
to determine a climate solution investment. Many investors also use a combination of methodologies dependingon their asset class.

Exhibit 16: Methodology for determining a climate solution investment
60%
50%
40%
30%
20%
10%
0%

Internal
framework

Third party ESG Green bond
EU taxonomy Certified green
data service
principles & for sustainable buildings orprovidersgreen labelled activities orinfrastructure
products or other national (such as GRESB,
projects
taxonomy
GreenStar)
taxonomy
frameworks

Not yetdetermined

Climate bondinitiative
taxonomy &standards

Sustainable
development
goals

Other
(e.g. contact
sponsored
projects
directly toobtain ESG info)

37

AIGCC Translating to Action: Net Zero Investment in Asia

Case Study 4: GIC Private Limited – Investing
to Support Decarbonization at Scale
GIC is committed to enabling the global transition to a net-zero economy through its investments andoperations. GIC believes that it is critical to focus on making a positive impact on the real economy
and does so in two ways:•

Invest in companies that develop solutions to decarbonize the economy, including batteries, longduration energy storage, hydrogen, carbon capture and storage, and nuclear fusion. Some of thesetechnologies are nascent and have been developed by start-ups that will need capital to scale.

•Engage portfolio companies by conducting dialogues with company management to ensure
they recognize and address climate risks and opportunities. When opportunities arise, GIC willfund the investments needed to support the company’s transition toward more climate-resilientbusiness models.

To accelerate its investments in green solutions and other sustainability-related opportunities, GIC
established an internal Sustainable Investment Fund (SIF) in 2020 to catalyze the integration ofsustainability across all asset classes. SIF is a multi-asset portfolio that allows members to cross-share
their best sustainable investment ideas for the fund. SIF’s formation has helped to catalyze othergreen investment efforts across several asset classes. For instance, the Public Equities department
started an Asia Sustainability portfolio. The Private Equity department set up Electron Innoport, aglobal portfolio of funds and direct and co-investments focused on early-stage energy transition
opportunities.
GIC has also deviated from its typical investment approach in nascent technologies. GIC typicallyinvests later in a company’s lifecycle when larger pools of capital are needed. However, it recognizes
that in climate technology, many emerging technologies need to be supported during their earlystages to enable them to scale their impact. GIC sources companies with promising technologies anda workable business model, ensuring that it generates returns for the portfolio.
GIC has supported several companies focused on carbon reduction and removal. Direct air capture(DAC) is a vital technology to tackle climate change by removing CO2 from the air. The captured CO2
is then stored underground safely for millions of years or upcycled into climate-friendly products,
such as carbon-neutral fuels and materials. Since its foundation in 2009, Climeworks – one of GIC’s
recent investee firms – has pioneered DAC and launched the world’s largest commercial DAC andstorage plant. Its Orca plant in Iceland has a nominal capacity of pulling 4,000 tons of CO2 from theatmosphere every year. Climeworks exclusively uses renewable energy, or energy from waste, andremoves the carbon emitted in the building process of its plants. GIC’s funding will support thescaling of Climeworks’ plants to a multi-million-ton capacity.

38

AIGCC Translating to Action: Net Zero Investment in Asia

GIC has also deployed capital to support the development of breakthrough technologies that could
decarbonize carbon-intensive industries. For example, Houston-based specialty chemicals firm
Solugen has developed a breakthrough chemoenzymatic-based system that can drastically reduceor eliminate CO2 emissions from the chemical production process while remaining cost-competitive.
This would help address one of today’s most significant climate problems, given that the chemical
sector is one of the largest industrial sources of CO2 emissions. The company has three environmental
goals for 2030:•

First, remove the CO2 equivalent of taking two million cars off the road, sequestering 10 million
tons of CO2.

•

Second, replace five billion bottles worth of non-degradable plastic by becoming a major producerof bio-plastic monomers.

•

Third, have the capability of making 90% of all chemicals; this involves developing resins,
surfactants, and other important chemicals.

To support Solugen’s efforts to bring its solutions to market at scale, GIC backed one of the company’s
funding rounds in 2021. This funding will be used to expand Solugen’s BioForge – the world’s firstcarbon-negative molecular manufacturing platform – and the reach of its product portfolio.
GIC expects this space to grow in the coming years and will continue to actively look for partners withthe potential to significantly and positively impact the world’s demand for decarbonization solutions.
It will also continue to step up dialogues with portfolio companies on issues material to their longterm economic prospects, including their transition toward more climate-resilient business models.

39

AIGCC Translating to Action: Net Zero Investment in Asia

Chapter 3: Climate Governance and Strategy
Climate Policy and Fossil Fuel Investment Policy
Many of these leading Asian investors now have policies regarding climate
investments, and some also have policies on fossil fuel investments.
A climate change policy is formal documentation of the organization’s position and principles on climate change.
It may be a standalone policy or a comprehensive climate section embedded in the investors’ responsible
investment, ESG, or stewardship policy.
Over one-third of respondents (38%) have a policy about climate change in their investments, with another 38%
having a policy on fossil fuel investments. In contrast, 13% have no policy for climate or fossil fuel investments
but are actively considering doing so.

Exhibit 17: Percentage of investors that have climate policy and fossil fuel investment policy
40%
35%
30%
25%
20%
15%
10%
5%
0%

Yes, we havepolicy regarding
climate change
on our investments

Yes, we havepolicy regarding climatechange and also fossil
fuels on our investments

Yes, we have apolicy on fossil fuels
on our investments

No, but actively
considering

On the global stage, the NZAM initiative expects signatories to adopt and disclose a robust and science-based
policy to phase out fossil fuels17. The policy should recognize the need for a just transition and reflect regional
differences in speed and phase-outs consistent with IPCC 1.5°C scenarios.

17

NZAM initiative, “Net Zero Asset Managers initiative: Network Partners’ expectation of signatories with regard to fossil fuel investment policy,” December 2021.

40

AIGCC Translating to Action: Net Zero Investment in Asia

Further, the PAII’s NZIF recommends that investors “should not allocate additional capital to companies planningor constructing new thermal coal projects, associated infrastructure, or new exploitation of tar sands. Where
relevant, investors should use active and escalating engagement with the aim of ensuring no new thermal coal
generation is developed and no further tar sand resources are exploited, and also that phase out of existing
unabated capacity and activity is undertaken in line with net zero pathways”18.
The UN recently published the updated 2022 Race to Zero (RTZ) criteria, asking investors to pledge to adopt thepolicies needed to achieve the “…phasing down and out all unabated fossil fuels…”19. The RTZ criteria recognize
the necessity of phasing out all unabated fossil fuels to achieve a 1.5°C scenario with low or no overshoot.
According to the latest RTZ Interpretation Guide document, each RTZ member “shall phase out its development,
financing, and facilitation of new unabated fossil fuel assets, including coal, in line with appropriate global,
science-based scenarios”20.

Most of these leading Asian investors have included fossil fuel divestment
and exclusions as part of their investment strategies.
Also included in our survey this year is whether the respondents have a policy or strategy to divest or exclude
fossil fuel-related stocks from their portfolio, either as part of a risk management strategy or to achieve progress
toward net-zero, low-carbon, or climate-aligned investment targets. Half of the respondents have climaterelated exclusions or divestment targets, and 25% only have targets for their sustainable investment products.
This is despite the increasing interest among Asian investors in aligning their investments to net zero. There is
active discussion about whether outright divestment or active engagement leads to better real-world outcomes,
with investments needing evaluation on a case-by-case basis.

Exhibit 18: Percentage of investors that have climate-related exclusions or divestment targets
60%
50%
40%
30%
20%
10%
0%

Yes, for all our products(with revenue threshold)Yes, only for our sustainable
investment products

No, but actively
considering

18

PAII, “Net Zero Investment Framework Implementation Guide, on selective divestment,” March 2021, p. 19 (selective disinvestment).

19

Race to Zero Expert Peer Review Group Interpretation Guide, June 2022, p. 3.

20

Race to Zero Expert Peer Review Group Interpretation Guide, June 2022, p. 8.

No

41

AIGCC Translating to Action: Net Zero Investment in Asia

Climate exclusions are applied to companies that derive material revenues
from thermal coal.
Most respondents (81%) apply climate exclusions or divestments toward thermal coal, followed by 56% explicitly
targeting thermal coal power generation. Some investors indicated that the exclusions apply to new oil and gas,
metallurgical coal, and tar sands.

Exhibit 19: Areas where investors apply climate exclusions or divestment
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Thermal coalPowergeneration
using
thermal coal

Unconventionaloil & gas(oil sands/
tarsands)

Power
generation
using allfossil fuels

Conventionaloil & gas

Metallurgical(met) coalSuppliers tofossil fuelindustry

It will be challenging for Asian investors to consider exclusion and divestment as their investment strategy
towards decarbonisation in Asia. This is particularly relevant when considering investing in new fossil fuelactivities, following the recommendations of the most recent IEA Net Zero by 2050 report, which highlighted
that there should be no investments in new fossil fuel supply projects if we are to meet our collective 2050
net-zero goal.

42

AIGCC Translating to Action: Net Zero Investment in Asia

Net-zero Investment Strategy
Corporate engagement and shareholder action continue to be the most popular
net-zero investment strategy for Asian investors.
When net-zero – originally known as ‘low carbon, green’ – investment surveys first started in 2019 to understandthe trend among investors in the Asian region, the majority of respondents had chosen positive/best-in-classscreening as their net-zero investment strategies of choice. The investors that responded in 2021 were morestrategic in their net-zero investment strategies and actively put net-zero investment into practice throughcorporate engagement and shareholder action. This year’s respondents displayed a stronger preference forstewardship, with 80% of respondents opting for that option. Voting policies on climate were more popular thisyear, with 60% of respondents implementing these, similar to the adoption of negative screening in investors’
strategies. While this increasing trend to engage on climate issues in the region Is welcomed and necessary,
the approach to engagement must be specific, time-bound, and paired with effective escalation strategies toensure companies are progressing at the appropriate speed required for the economic transition to align withclimate goals.

Exhibit 20: Net-zero, low-carbon, climate-aligned, or green investment strategies for investors
80%
70%
60%
50%
40%
30%
20%
10%
0%

Corporate
engagement andshareholder
actionNegativescreening

Votingpolicy on
climatePositive/ Decarbonization
best-in-classstrategy
screening

Portfolio
tiltingNet
Not
reduction
implementing
targets any low carbon or
green investment
strategies

Japan has seen significant changes in climate voting and shareholder action. In the last few years, a record
number of climate change-related shareholder proposals have been submitted to Japanese companies, with63 shareholder proposals submitted to nine companies21. Although none of the climate resolutions passed, the2022 proxy season in Japan has signaled an increased appetite for climate-related shareholder resolutions in
the region and an evolution of how climate shareholder resolutions are viewed in Japan. The impact of theseresolutions within the market is notable, and it remains to be seen whether the effects will extend beyond Japan.

21

According to the “ESG Activism Japan 2022” report, published by Proxy Watcher.

43

AIGCC Translating to Action: Net Zero Investment in Asia

Case Study 5: Invesco – The Approach for
Sustainable Investing in China Fixed Income
Invesco is a global independent investment management firm which manages over USD 1.3 trillion22of assets globally with an on-the-ground presence in more than 20 markets. Invesco Fixed Income(IFI) has been an early mover in managing ESG-aware mandates since 1989, and currently manages$22bn23 AUM in ESG portfolios among its total $394bn24 AUM.

Sustainable Investing Approach to China Fixed Income
China has adopted one of the most ambitious climate change targets with its 2030/2060 carbon
targets, as well as a strong track record of meeting previous climate related targets. Additionally,
China is the world’s 2nd largest green bond market25. Invesco has been exploring the approaches
to invest in China fixed income in a sustainable way.
Invesco’s approach to pursue a lower carbon intensity during investment in China fixed income
focuses on the following:
1) Negative screening to exclude issuers that do not meet the ESG criteria. Such exclusions areapplied based on criteria including but not limited to the level of involvement in certain activities
such as coal, fossil fuels, tobacco, adult entertainment, gambling, and weapons. All issuersconsidered for investment are screened for compliance with, and excluded if they do not meet,
the United Nations Global Compact principles.
2) Positive screening based on IFI proprietary rating system. Internal and third-party data is used
to identify issuers which meet sufficient practice and standards in terms of ESG and sustainable
development for inclusion in the investment universe, as measured by their ratings relative totheir peers. This positive selection framework is designed to tilt towards issuers that are rated by
the internal research process as either (i) at or above the middle ratings of their global sector or(ii) on an improving trajectory across their ESG metrics to take into consideration more forwardlooking factors on a more-timely basis.
3) Climate consideration and net zero alignment26 – Net zero transition is also crucial to achieve
the target of lower portfolio carbon intensity. Within Invesco’s proprietary Net Zero Investment
Framework, IFI classifies sectors by transition importance to identify Material Emitting Sectors,
as well as evaluating issuers on alignment criteria on topics such as Ambition, Target, Emissions
performance, Disclosure, Decarbonization Strategy and Capital Allocation Alignment. Below is an
example of the assessment of a China technology issuer against the framework. An improvementin Net Zero alignment can potentially translate into lower portfolio carbon intensity over time,
while achieving real world carbon emissions reductions.
22

As of 30 September 2022.

23

As of 30 June 2022.

24

As of 30 September 2022.

25

Source: MSCI, Wind, as of 31 December 2021.

26

Net zero alignment: The Paris Agreement states that the world needs to achieve net-zero by 2050 to keep the rise in the mean global
temperature to well below 2°C from preindustrial levels and preferably to 1.5°C. Net zero alignment measures the status of the issuer toalign with the target.

44

AIGCC Translating to Action: Net Zero Investment in Asia

Notes:* Net Zero Investment Framework (NZIF) by Paris Aligned Investment Initiative translates the goals of the Paris Agreement into practical guidance
for asset owners and asset managers. Based on the criteria and methodologies proposed by NZIF, an asset is decided to sit on one of the
5 categories along the alignment maturity scale – Achieving net zero, Aligned to a net zero pathway, Aligning towards a net zero pathway,
Committed to Aligning, Not Aligned (Gap).
** Based on NZIF category, Green stands for Achieving net zero or Aligned; Amber stands for Aligning or Committed to aligning; Red stands for notaligned (Gap).
Source: Climate Action 100+ Net Zero Benchmark, Transition Pathway Initiative (TPI), PAII Net Zero Investment Framework as at end February 2022.1
Targets are set in-line with science-based Net Zero pathways. For legacy modelling reasons, 1.5 degree aligned assessments are not yet available
for all sectors. For illustrative purposes only.

4) Active allocation to issuers and overweight instruments linked to activities that positively
contribute to certain environmental or social sustainability objectives. To achieve its carbon
neutrality goals, China’s sustainable labelled bond market has been expected to grow rapidly. The
government is prioritizing the implementation of green finance policies to lead the way in climatetransition. There has been both nationwide and local level policy support to incentivize issuanceand investment in the market. For sustainable labelled bonds, including green and social bonds,
IFI has developed its proprietary framework to assess the bonds against the ICMA27 Green Bond
Principles and Social Bond Principles for inclusion. The alignment to the framework is monitoredon continuous basis by IFI during the lifespan of the bond.
5) Issuer engagement to take responsibility as active owners. Invesco engages with invested
companies and issuers as part of the wider commitment to active ownership, which is regarded as
one of the most powerful mechanisms for reducing risks, enhancing returns and having a positive
impact on society and the environment28. Through a centralized engagement process, Invesco
takes advantage of its scale, which increases the chance of meaningful engagement. Invesco draws
on this collective power to capture managements’ attention and use our influence to encouragestronger sustainability-related behaviour from the entities in which we invest.
27

ICMA: The International Capital Market Association.

28

Source: PRI (Principals for Responsible Investment), February 2018.

45

AIGCC Translating to Action: Net Zero Investment in Asia

Investing in the transition is an integral part of net-zero investment strategies.
Transitioning to a net-zero economy involves substantially transforming the business-as-usual economy.
This includes how people buy and sell and make and move things. A report by McKinsey Global Institutepublished in early 2022 stated that the investment required for the transformation of the global economy toachieve a net-zero world by 2050 would be significant, requiring USD 9.2 trillion in annual average spendingon low-emission assets alone, including in emerging technologies29.
Almost half of the respondents (47%) are investing in transition and have included it as part of their
net-zero investment strategy. A small number (13%) also mentioned that they are investing in transition
as a separate strategy.

Exhibit 21: Percentage of investors investing in transition
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Yes – investing intransition and embedded in
our investment strategies

Yes – investing intransition but asa separate strategy

No – but considering
to expand into investingfor net zero transition

No

Asian investors will continue to launch climate-related investment solutions
over the next few years.
Some respondents (13%) have a wide range of existing climate-related investment solutions, and 20% want tolaunch more. A higher percentage of the respondents (27%) have a limited range and are looking to launch one
to five solutions in the next two years.
Interest in launching climate-related investment solutions is a recurrent trend observed since this survey waslaunched. Respondents want to launch products or solutions every year but have yet to overcome challenges
such as the scalability of the products or solutions.

29

McKinsey Sustainability, “The net-zero transition: What it would cost, what it could bring,” January 2022.

46

AIGCC Translating to Action: Net Zero Investment in Asia

Exhibit 22: Percentage of investors that have or are in the process of launching climate-related
investment solutions
30%
25%
20%
15%
10%
5%
0%

Yes – we havea wide range ofexisting climate
related investment
solutions

Yes – we have
Yes – we have a limited
a wide range ofrange, and areexisting climate
looking to launch
related investment
1–5 solutions
solutions but arein the next 2 years
looking to launch more

No – but we areplanning tolaunch 1–5
solutions in thenext 2 years

No

Disclosure on Climate Change
TCFD-aligned reporting has been widely adopted among leading Asian investors.
TCFD reporting is widely adopted among these surveyed investors. Over half of the respondents (69%) said thatthey had produced TCFD-aligned reporting, and 25% are planning to do so within the next 12 months. In termsof the regulatory landscape in Asia, Hong Kong, Singapore, and Japan have already mandated and committed
to TCFD reporting. Although other Asian markets have not mandated TCFD reporting at the time of writing, they
do have some form of sustainability reporting requirements in place – although not entirely TCFD aligned – andare supporters of TCFD in various stages of discussion.

Exhibit 23: Percentage of investors that produce TCFD-aligned reporting
80%
70%
60%
50%
40%
30%
20%
10%
0%

Yes

Not yet, but we are planningto within the next 12 months

No

47

AIGCC Translating to Action: Net Zero Investment in Asia

Investors recognize the need to publish climate action plans,
and most Asian investors have already published a strategy.
An investor climate action plan enables investors to assess their current approach to climate change. Just as
corporate companies are encouraged to publish net-zero transition plans, investors are encouraged to adopt
climate action plans setting out the forward-looking actions, goals, and accountability mechanisms for theorganization to reduce emissions and align with net zero before 2050.
Half of the respondents (50%) have published a climate action plan, with 29% actively considering doing so.
A small number (14%) also mentioned that they have informal plans to reduce emissions.

Exhibit 24: Percentage of investors that have published strategies to achieve net zero
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Yes

No, but actively
consideringNo, but we have an informal
plan to reduce emissions

No

Various formats of climate action plans that meet existing investor reporting preferences have been observed.
These include standalone plans or several investors integrating net-zero targets and plans into their TCFD,
sustainability reporting, and CDP disclosures.
The Investor Climate Action Plans (ICAPs) Ladder (see box below) provides a useful framework for developing a
climate change roadmap. The UN Race to Zero starting line criteria emphasizes that transition plans should not
only have 2030 targets “which reflect maximum effort toward or beyond a fair share of the 50% global reduction
in CO2 by 2030” but that the plans must include immediate actions that the institution will take to achieve its
interim targets30.

30

Race to Zero Expert Peer Review Group Interpretation Guide, June 2022, p. 3.

48

AIGCC Translating to Action: Net Zero Investment in Asia

Investor Climate Action Plan (ICAPs) Framework
The Investor Agenda’s ICAPs Ladder and Guidance are designed to help investors plan and assess
their actions on climate change, no matter where the organization is in its climate journey.
The ICAPs Ladder sets out a summary of actions over four tiers, denoting progress on climate action
in five focus areas applicable to all investors. This serves as a ‘self-assessment checklist’ to help
investors prioritize their focus areas. Investors wanting to be net zero leaders should rapidly climb toTier 1 across all focus areas.

Executive Remuneration on Climate
Investors have started to link executive remuneration to delivering climate targets
and the transition.
Appropriate governance and a portfolio-wide strategy provide the basis for portfolio alignment and broader
actions by investors to achieve net-zero goals. Climate change should be central to the organization’s strategicplan, and the board should fully endorse the climate strategy.
Investor accountability is now on the radar with considerations on executive remuneration and links to climate
metrics. Some respondents (31%) have already linked executive remuneration to climate targets and transition,with 19% actively considering this matter. This approach would align with what investors ask of their companies
and assets. However, 31% of investors responded “no,” suggesting they are not actively considering this. A smaller
number (6%) responded that they had not linked executive remuneration to deliver climate targets, but they
have climate key performance indicators (KPIs) instead.

49

AIGCC Translating to Action: Net Zero Investment in Asia

Exhibit 25: Percentage of investors that link executive remuneration to delivering climate targets
and transition
35%
30%
25%
20%
15%
10%
5%
0%

Yes, more than
one executive

No, but they haveclimate KPIs

No, but actively
consideringNo

Not sure

Just Transition
Nearly half of the investors are materially integrating just transition as partof their portfolio management and investment strategies, and nearly half
are actively considering doing so.
The concept of a ‘just transition’ recognizes that while the transition to a net-zero emissions economy will provide
many benefits and opportunities, there will also be transitional challenges for those workers, communities, andcountries that rely heavily on fossil fuel reserves for their livelihoods or economic growth. To ensure that all
appropriate measures are implemented to inform, engage, and support affected stakeholders through the netzero transition – at the speed required in the tight timeframe between now and 2030 to halve global emissions– we need to ensure that the advantages and costs of transition are distributed.
Almost half of the respondents (44%) had considered a ‘just transition’ element in their portfolio management andinvestment strategy, and another 44% are considering doing so.

50

AIGCC Translating to Action: Net Zero Investment in Asia

Exhibit 26: P ercentage of investors that consider including a just transition element in their portfolio
management and investment strategy
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Yes

No, but actively considering

No

Investors have an important role in ensuring a just and inclusive transition to a net-zero emissions economy.
Whether through corporate engagement, investment strategy and capital allocation, or advocacy andpartnerships. Some investors are taking a bottom-up engagement approach with companies to address justtransition in addition to portfolio decarbonization. A dual approach could be more suitable for companies
in emerging Asian markets, where companies look to transition into net-zero operations against balancing
socioeconomic development and alignment with global net-zero emissions by 2050.

Biodiversity and Deforestation
Investors have not yet conducted an assessment or have an integrated response
to deforestation and biodiversity.
Despite nature loss posing a major risk to businesses, and while moving to nature-positive investments offers
opportunities, investors are struggling to get started with risk assessment and action in this area. Only 13%
of investors have conducted a detailed assessment of nature and biodiversity risks, and 19% have started to
conduct an initial or high-level assessment. Most respondents (38%) have not conducted a detailed assessmentof biodiversity/nature risks, but they are actively considering this.

51

AIGCC Translating to Action: Net Zero Investment in Asia

Exhibit 27: P ercentage of investors that have conducted an assessment or integrated response
to biodiversity/nature or deforestation
40%
35%
30%
25%
20%
15%
10%
5%
0%

Yes, we have conducted
an initial (high level)
assessment

Yes, we have conducteda detailed assessment

No, but actively considering

No

Some investors recognize biodiversity as an important developing area to be actively monitored. Although they
have not yet integrated a robust portfolio-level response, they have looked at aspects of biodiversity whenanalyzing risks for particular companies, such as including palm oil and logging industries in the list of sensitive
industries.
The launch of the Taskforce for Nature-related Financial Disclosures (TNFD) in June 2021 will provide Asianinvestors with a framework for developing and delivering nature-related risk management and disclosures31.

Investment Mandates
Investment mandates are still catching up to climate aspirations for asset owners.
Asset owners recognize the need to engage and track managers’ progress on climate to ensure that actions
taken are consistent with achieving global net-zero emissions by 2050, to accelerate transition, and to deliver
the goals of the Paris Agreement. While asset owners’ climate aspirations continue to grow, more work must be
done to align mandates with net-zero commitments.
Many asset owners in this group do not have full mandates on net-zero alignment or quantifiable expectations
on decarbonization for their external fund managers. Some have about up to 25% of their total AUM from theirinvestment mandate for this requirement, including a requirement for reporting on carbon emissions in theportfolio. Asset owners appear to be in the process of improving this, with some stating that, despite not having
formal requirements on emissions reporting in mandates, they are actively considering requesting externalmanagers to do so (carbon emissions reporting). This is a trend to monitor as climate aspirations strengthen
toward 2030.

31

TNFD released the third iteration of the beta framework on 4 November 2022.

52

AIGCC Translating to Action: Net Zero Investment in Asia

While asset owners have not necessarily included requirements on portfolio decarbonization in their mandates
to asset managers, they have asked most or all their managers to report on their climate engagements andoutcomes. One asset owner indicated almost all their total AUM for managers to report on climate stewardship
activities.

Asset managers report that only a small portion of asset owner clients specify
requirements relating to decarbonization or net zero.
Asset managers report a low proportion of clients with specified requirements related to decarbonization andnet-zero targets. Some asset managers (17%) report that only a small proportion (0–25%) of clients have specified
requirements relating to decarbonization and net zero. Almost half of the respondents (42%) indicate that noneof their clients has specified these requirements.
These results may reflect investment decisions that continue to account for ESG and sustainable development
focuses that do not solely consider climate factors. This reason was also noted in last year’s Net Zero
Investment Report.
Where investors are in pooled listed equity funds, they cannot specify their requirements making mandates
difficult in this instance. However, in such a case, a manager has adopted an integrated approach and net-zerotargets across their portfolios, enabling their clients to consider decarbonization. Asset managers should act as
stewards of the assets and, in the process, ensure that achieving net-zero targets are supported through theirstewardship activities.
To avoid the risk of mispricing assets and the misallocation of capital, asset managers are encouraged to engage
with their asset owner clients on decarbonization goals, setting interim targets, and reviewing their climaterelated policies.

Exhibit 28: P roportion of clients that have specified requirements relating to decarbonizationand net zero (according to asset managers)
60%
50%
40%
30%
20%
10%
0%

0%

1–25%

26–50%

51–75%

Note: The range of percentage that was not chosen by the respondents are not displayed in the exhibit.

53

AIGCC Translating to Action: Net Zero Investment in Asia

Responses vary about the proportion of clients to whom managers currently
provide emissions reporting data.
40% of the asset managers who responded to our survey indicated that 75% or more of their clients provide
emission reporting data. A small proportion (10%) of respondents indicate that they do not offer emissions
reporting data to their clients.
Respondents elaborated further that where emissions data are being disclosed to clients, WACI and absoluteemissions are the chosen climate-related metrics disclosed for selected funds. The carbon footprint for all
open-ended funds and mandates is also provided where there is enough coverage.
This suggests that emissions data availability, quality, and ability to reconcile different outputs because ofdifferent methodologies could contribute to the varying results.
Exhibit 29: P roportion of clients that asset managers currently provide emissions
reporting data to (according to asset managers)
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

0%

1–25%

26–50%

51–75%

76–100%

Most managers report that only a small portion or no asset owner clients require
annual TCFD-aligned reporting.
One-quarter of asset managers (25%) report that no clients require annual climate reporting from them,while another 25% indicate that 1–25% of clients require this.
Some managers, in addition to TCFD reporting, they also provide annual impact and sustainability strategy
reports, with updates on their ESG and engagement in quarterly investor newsletters. This demonstrates acontinued proactiveness among investors to embed climate-related risks and opportunities as part of theirlong-term business strategy.
Asset managers in Asia that report and align their strategy with the TCFD recommendations are anticipatedto see continued growth.

54

AIGCC Translating to Action: Net Zero Investment in Asia

Most asset owners do not mandate managers’ investment in climate solutions.
One-third (33%) of respondents note that only up to 25% of mandates specify investment in climate solutions.
The lack of clear definitions of green or low-carbon investing solutions has been repeatedly identified as one of
the key barriers to climate investment across AIGCC’s previous Net Zero Investment reports and investors may
be having difficulty identifying investable green or climate-based projects. On the one hand, asset owners may
focus more on ESG than on climate solutions investing. However, asset owners may be less willing to refer torequirements of climate solutions investing32, avoiding public scrutiny on greenwashing. It is also possible thatinvestors are having difficulty identifying investable green or climate-based projects.
The definitions of climate solutions and the requirement for solutions that support net-zero transition, whichis especially relevant in Asia, have yet to be made clear. The level of harmonization and development of green
and sustainable finance taxonomies in Asia has a pivotal role in enabling mandates for climate solutions.
Developments – including the ASEAN taxonomy back in November 2021, the second release of the Common
Ground Taxonomy (CGT) report in 2022, and more recently, the Green Finance Industry Taskforce in Singapore’s
Consultation paper to identify a Green taxonomy and Relevant standards for Singapore and ASEAN – indicate
progress toward increasing clarity and harmonization in defining climate solutions. However, the uncertainties
and fragmentation faced in developing and implementing sustainable finance taxonomies and their effects
on the Asian markets should not be underestimated.
Strengthening regulations and guidance on defining climate solutions should remain a priority to provide
investors with direction in what is considered genuine climate-related investments. However, regardless ofregulatory developments, identifying scalable and relevant climate solutions for different markets remains
a priority for many asset managers and is possible while definitions are being developed.

32

Please also refer to Case Study 4: GIC Private Limited – Investing to Support Decarbonization at Scale in page 38.

55

AIGCC Translating to Action: Net Zero Investment in Asia

Chapter 4: Investing in Opportunities
Investors expect to be active in as part of their climate solutions
investment strategy.
Surveyed investors expect to be active across all asset classes as part of their climate solutions investment
strategy, including public equities and private debt (86%), private equity (82%), direct property (80%), unlisted
infrastructure (75%), and venture capital (33%).
Respondents expect to be active in public equities (86%) and another 14% actively considering this. This is likely
due to this asset class having the most easily accessible and available data.
Over half of the respondents also expect to be active in private equity, direct property and unlisted infrastructure
however, asset-level data is more challenging to obtain in these asset classes, especially on climate solutions.

Exhibit 30: Proportion of asset classes expected to be active in climate solution investment strategies
100%
90%

14%

9%

14%

9%

20%

25%

80%

33%

70%
60%
33%

50%
40%

86%

86%

82%

80%

75%

30%
20%

33%

10%
0%

Public equities

Private debt

Private equity
Yes

Direct property

No, but actively considering

Unlisted
infrastructure

Venture capitalNo

The updated ICAPs Guidance (July 2022) points to a series of public guidance documents, indicating that private
equity GPs and LPs are moving toward greater consistency in integrating this asset class into their climate actionplans. The guidance document explains how direct private equity investors can better integrate climate metrics
and targets across three phases of investment: 1) pre-acquisition and due diligence, 2) ownership, and 3) exit.
This may be helpful as private equity investors in Asia continue to consider being active in this asset class as
part of their climate investment strategies.

56

AIGCC Translating to Action: Net Zero Investment in Asia

Chapter 5: Barriers to Investment
A lack of data was perceived to be a key barrier to investment, signaling increased
demand for nuanced data and a knowledge gap that needs to be closed.
With investment activities continuing to grow across asset classes and geographies, market-specific nuances
continue to pose various challenges for investors in the region. This year’s survey driller down into further
specifics to understand this barrier.

Exhibit 31: Barriers to investment
2022

2021

2020

Lack of data (47%)

Lack of tools to measure ‘green

Lack of tools to measure and report

impact’ (45%)‘green impact’ (56%)

Lack of client demand (30%)

Lack of clear definitions of what

Lack of clear definitions of what
constitutes a low-carbon or green

constitutes a low-carbon or green

investment (40%)

investment (33%)

Lack of client demand (40%)

Lack of opportunities with

Lack of opportunities withrisk-return objectives (25%)

risk-return objectives (33%)

Lack of tools to measure and reporton ‘green impact’ (40%)

Almost half of the respondents (47%) note that the ‘lack of data’ is a key barrier to investment. Data quality andaccessibility are issues that investors are faced with, particularly in Asia, where sector-specific and industryspecific information may not be as mature as in other regions. Investors from the private market may also havedifficulty accessing asset-level climate data – which is necessary for decision-making – compared to publicmarkets, where company-level data is comparatively easier to access.
Data challenges may also emerge due to difficulties reconciling results based on differing calculations andscoring methodologies. These factors could also contribute to investor perspectives on the lack of tools tomeasure and report on ‘green impact’ (40%) as a barrier.
The lack of data as a key barrier could also signal investors’ increasing understanding of climate and sustainablefinance knowledge in Asia, whereby they are demanding more granular data (e.g., broken down by asset classes,
sectors, and geographies).

57

AIGCC Translating to Action: Net Zero Investment in Asia

Comments relating to the lack of definitions for low-carbon and green investment, client demand, and a lackof tools to measure and report on ‘green’ impact have been explored earlier in this report. However, Asia-based
investors have also expressed concerns about being asked to reference the EU’s Sustainable Finance Disclosure
Regulation (SFDR) in their investments, given the different market-level understanding. The developmentof Asia-specific green and sustainable taxonomies is anticipated to help Asia-based investors or investors
investing in Asia gain clarity on how to define low and green carbon investment.
Other key barriers to investments should also be recognized including lack of industry reporting (33%). Only 13%
of respondents note a ‘lack of government incentives as a barrier.

Exhibit 32: Barriers to increasing exposure to low-carbon or climate-aligned solutions
50%
47%
45%
40%

40%

40%

40%

35%

33%

30%

27%

27%

25%
20%

20%
15%

13%

10%

13%

7%

7%

5%
0%

Lack ofdata

Lack of clear Lack of tools
definitions to measure
about what and reportconstitutes a on ‘green
climate aligned impact’
investment or
climate solution
investment

Lack ofclientdemandLack ofindustryreporting

Lack ofopportunities
withappropriate
risk returnobjectives

Lack ofinternal
resources

Policy or
regulatory
uncertainty

Liquidity
Constraints

Lack ofIt doesn’t fit
government
with ourincentives
current
investment
strategy orinvestment
appetite

Other

Managing policy or regulatory uncertainty in investment activities via company
engagement has risen 32% year-on-year
Most investors (87%) opt to undertake company engagement directly through a third-party provider or Climate
Action 100+ initiative. Collaborative engagement programs, such as the Climate Action 100+ and AIGCC’s memberbased Asian Utilities Engagement Program (AUEP), effectively align investor expectations in a common agenda
and shared objectives, including in climate policy engagements. The policy engagement agenda in AUEP is
primarily focused on the issues of increasing renewable energy in the power sector and early coal phaseout.
Some example include an event organized by AIGCC in Tokyo, Japan in May 2022, which consist of a closed-doorroundtable that brought together representatives from key government bodies responsible for formulating
policies on energy transition, domestic and international investors, and corporate groups in Japan.
The effect of unleashing private sector financing is beginning to take shape; however, fostering the growth ofclimate opportunities will require continued support from the public sector to increase investments for private
sector capital.

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AIGCC Translating to Action: Net Zero Investment in Asia

Exhibit 33: Approaches taken by investors to manage policy and regulatory uncertainty
in investment activities
90%

87%

80%
70%
60%

55%

50%
40%
30%
20% 20%

20%

20%
13%

10%
0%

7%
Undertake company
engagement directly,
through a thirdparty provider or
Climate Action 100+Redirect investments
to jurisdictions,sectors or markets
with less uncertainty

Adopt a ‘wait andsee’ approach anddelaying low carbon,
green or otherinvestments
2022

10%

Increase the cost oftransactions due
to higher levelsof complexity
in decision making

7%

5%

Place a shadow
price on carbon

2021

Investors (80%) are working collaboratively by supporting investor-backed
statements, letters, and calls for climate action.
Policy advocacy is important in addressing market failures and inaction. Investors have an important role inpolicymaking processes in their own right, their influence on other companies, and their policy practices (ICAPs
Guidance, p. 33).
Most investors (80%) have supported investor-backed statements that call for climate change action. For
example, the Investor Agenda’s Global Investor Statement to Governments on the Climate Crisis in 2022 wassigned by 602 investors representing almost USD 42 trillion in AUM. This statement is investors calling forgovernments to ensure that the 2030 targets in their NDCs align with the goal of limiting global temperaturerise to 1.5°C.
Over half of investors (60%) have undertaken policy advocacy in the following areas: 1) submissions to climaterelated policy consultations, 2) discussions with relevant policymakers/regulators via private roundtablediscussions, and 3) convening public seminars and events on related climate policy discussions.
This indicates that investors are using their voices to try to unlock investment opportunities and scale capital
flows in climate-related work.

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AIGCC Translating to Action: Net Zero Investment in Asia

Exhibit 34: Policy advocacy undertaken by investors on climate-related issues
90%
80%

80%

70%
60%

60%

60%

60%

50%

47%

40%
30%

27%
20%

20%
10%
0%

Working withother investors,
through supporting
investor-backed
statements,
letters and calls
for action on
climate change

Submissions toclimate-related
policyconsultations(e.g. ISSB, Hong
Kong SFC etc.)

Discussions
with relevant
policymakers/
regulators
via private roundtable discussions

Convening or
participating inpublic seminars
and events on
climate change,energy, or
sustainablefinancerelated policy
discussions

Discussions
with relevant
policymakers/
regulators via
public panel
discussions

Media campaigns
calling for climate
policy action on
climate change

Other

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AIGCC Translating to Action: Net Zero Investment in Asia

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