Investor Expectations ofAsian Electric Utilities Companies
Crossover to

net zeroAbout AIGCC
The Asia Investor Group on Climate Change (AIGCC) is an initiative to createawareness 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 capacity and a trusted
forum for investors active in Asia to share best practice and to collaborate on
investment activity, credit analysis, risk management, engagement and policy
related to climate change.
AIGCC members come from 11 different markets in Asia and internationally,
and include asset owners and managers with a combined AUM of over
US$10 trillion (as of November 2020). With a strong international profile, theAIGCC network also engages with government pension and sovereign wealthfunds, family offices and endowments. AIGCC represents the Asian investor
perspective in the evolving global discussions on climate change and thetransition to a net-zero emissions economy.

Acknowledgements
This guide builds upon the previous Investor Expectations series of guides
that were developed by the Global Investor Coalition (GIC). AIGCC is one of
the 4 regional investor networks, alongside IIGCC, Ceres and IGCC, that makeup the GIC. AIGCC would like to thank members of the AIGCC Engagement
and Policy working group who helped develop this guide. We would liketo acknowledge the review by Blackrock, BNP Paribas Asset Management,
Cathay Financial Holdings, Church Commissioners for England, EOSFederated Hermes, Institutional Shareholder Services, Schroders and IGCC.
We would also like to thank CLP for their consultation on our case study.

Authors
Jane Karen Ho, CFA
jane.ho@aigcc.net

Yong-Liang Poryong.por@aigcc.net

Contact
info@aigcc.net

www.aigcc.net@AIGCC_Update

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero01

Executive Summary
Institutional investors recognise that climate change will impact their holdings, portfolios and asset values
in the short, medium and long term. Climate change is an important issue for investors and for the clients andbeneficiaries upon whose behalf they invest. Due to their carbon intensive nature, Asian electric utilities are ofparticular concern since they contribute around 23 per cent of global carbon emissions1, have a young asset age
profile of around 13 years (vs an average economic lifetime of 40 years) and represent more than USD200bn ofmarket capitalisation on Asian stock indices2.
Institutional investors are concerned that some companies are not sufficiently prepared for the transition toa net-zero carbon economy and are not playing their parts in global action against climate change to meetthe goals of the Paris climate agreement. The utility sector will play a fundamental role in the decarbonisationof the economy given its interrelation with other sectors such as heavy industry, transport and real estate; hence
the need for utility companies to take upfront action now. Business strategy and capital allocation decisions
made now will determine the future sustainability and profitability of the sector for decades to come.
According to the Science Based Target initiative (SBTi), from 2020 to 2030 the sector average electric utility
needs to reduce the emissions intensity of electricity generation by 76 per cent under the 1.5°C-aligned
pathway and by 47 percent in the well-below 2°C pathway- this transfers to a coal phase out by 2030 in all
OECD countries and by 2040 at latest in non OECD countries, and no new coal anywhere. The improvement
in renewables technology and economics makes this possible, with renewable energy recently becoming
competitive against fossil fuels in many places. In spite of this, there continues to be substantial investment
in coal-fired power plants in the region, increasing stranded asset risks and leading to a missed opportunity toaccelerate the transition to sustainable energy systems across Asia.
In Asia, climate change policies and the pace of the energy transition vary greatly between countries, making
for a more complex engagement process for utility investors in the region. The recent announcements of
net-zero by China (by 2060), Japan and Korea by 2050 are expected to assist this process and acceleratechange across the region, but it will take time to see the policies come into place. Investors recognise that
Nationally Determined Contributions (NDCs) of many countries are not yet sufficient in meeting 1.5°C warming,
making policy advocacy crucial to the overall engagement process. It is within this context that current investor
expectations are laid out, challenging utility companies to play their parts in the transition towards a net-zerocarbon economy by 2050 and limit global warming to 1.5°C.
This document sets out key insights into trends affecting Asian electric utilities, followed by investor
expectations framed in a series of questions that investors can use for constructive engagement with theboards and management of electric utilities.

1.

IEA World Energy Outlook 2020

2.

Bloomberg, at end September 2020

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero02

TABLE OF CONTENTS

Executive Summary ......................................................................................................... 02
Background ....................................................................................................................... 04
Technology Dynamics ................................................................................................ 10
Policy Dynamics ........................................................................................................... 12
Demand Dynamics ...................................................................................................... 15
Finance Dynamics ........................................................................................................ 16
Investor Expectations ...................................................................................................... 21
Governance ................................................................................................................... 21
Decarbonisation strategy and scenario stress testing ................................... 23
Transparency & Disclosure ...................................................................................... 26
Physical Resilience .................................................................................................... 26
Public policy ............................................................................................................... 27

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero03

1 2 3 4 5Five Investor Expectations of Asian Electric Utilities Companies

GovernanceDecarbonisation
strategy andscenario stresstesting

Transparency &Disclosure

PhysicalResilience

Public policy

PurposeThe purpose of this document is to provide investors with a guide for constructive engagement with boards andmanagement of Asian electric utilities to align business plans with achieving the goals of the Paris Agreement.
We aim to stimulate and facilitate meaningful discussion about the risks and opportunities related to climatechange and the appropriate strategies to mitigate the long term risks to investors. This document may be usedby investors in their dialogues with electric utilities and represents a regionally specific update to the previously
released global Investor Expectations of Electric Utilities Companies and Institutional Investors’ Expectations ofCorporate Climate Risk Management.

Background
Changing technology dynamics
New technology is crucial if the global ambition to limit the global temperature increase to well below 2°C andpursue efforts to limit temperature rise to 1.5°C is to be met. Technology developments on multiple fronts,
including generation, energy services, management and storage, have now made renewables competitive
against fossil fuels in many places. Given the continuously falling cost of renewable energy, fossil fuel plants,
particularly coal plants, are at risk when power purchase agreements (PPA) expire as alternative energy sources
such as renewables paired with batteries and nuclear make up larger proportions of the baseload. The traditional
business models of power generators and distributors are challenged by the transition from a centralised
system of major plants feeding a national grid into a more complex and distributed structure with many small
and locally installed sources of renewable supply and storage.

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero04

Changing policy dynamics
The Paris Agreement provided an unequivocal signal that collective global effort must now focus upon
limiting climate change to well below 2°C, and pursuing efforts for 1.5°C 3. A raft of regulations already exist
but heightened ambition will continue to tighten policy for the utilities sector. Currently 28 countries haveinstituted national targets to achieve net-zero emissions by mid-century, noting the accelerating impacts ofclimate on economies. Notable regulations affecting the utilities sector include specific emission reduction
targets, incentives to increase renewable energy generation, demand side energy savings and carbon pricing,alongside more indirect requirements such as water management. Mandatory coal phase outs decided bygovernments and air pollution thresholds may also lead to high compliance costs or forced closures for noncompliant plants.
China’s recent announcement that it will aim to have peak emissions before 2030 and achieve carbon neutrality
by 2060 is of particular significance, given that the country accounts for roughly 28 per cent of global greenhousegas emissions. Together with South Korea and Japan’s pledges to achieve net-zero carbon emissions by 2050,
this means that three of East Asia’s biggest economies, representing nearly one quarter of global GDP and onethird of total global greenhouse gas emissions, have committed to decarbonizing their economies with further
details to be announced soon.

Changing demand dynamics
Other changes in demand patterns driven by corporate direct power purchases, demographic and economic
shifts and retirement of legacy assets are also having complex impacts on traditional business models inthe sector. In this context, electric utilities need to design new business strategies and seize opportunities
elsewhere to focus on cleaner power generation, networks, customer retention and energy services.

Changing finance dynamics
In a more liberalised generation market, such as the one that China is aiming for, even highly efficientand low cost coal power supply may well be phased out by market forces, rendering operating coal plants
uneconomical well within their lifetimes. Over time, coal-fired generators may face refinancing risk due to theirdeteriorating risk-return profile.
Ongoing progress globally on green taxonomies including across multiple markets in Asia aim to shift financial
flows towards sustainable economic activities and avoid locking in carbon intensive power generation. Financiersand investors are moving to decarbonize their portfolios by limiting exposure to the coal sector- together withthe sharp rise in ESG-based investing, finance for emissions intensive companies and projects will be further
restricted.

3.

IPCC Special 1.5°C report (https://www.ipcc.ch/sr15/chapter/spm/)

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero05

Current trends are calling for an
accelerated transition by Asian electricutilities
The International Renewable Energy Agency4 estimates that half of new solar and wind installations undercut
fossil fuel in 2019, due to sharply falling costs of as much as 82 percent since 2010 (in the case of solar power).
The costs have fallen due to a combination of better technologies, economies of scale and more experienced
renewable developers.
Figure 1: Global weighted average levelised cost of electricity from utility-scale renewable power generation
technologies, 2010 and 2019
Biomass

Geothermal

Hydro

0.4

Solar
Photovoltaic

Concentrating
solar power

Offshonewind

Offshone
wind

0.378
0.346

0.3

2019 USD /Kwh

0.259

0.2

0.1

Fossil fuel cost range

0.073 95

0.076
0.066

0

0.182

2010

2019

0.115

th percentile

2010

0.086

0.068

0.047
0.049

0.161

0.053

0.037
5th percentile

2019

2010

2019

2010

2019

2010

2019

2010

2019

2010

2019

Source: IRENAIn developing markets, which are currently witnessing the greatest demand growth, the energy system has thepotential – and in many cases is already demonstrating a capacity – to leapfrog directly into a cleaner andmore distributed electric infrastructure, by-passing the centralised grid to some extent. In the case of Vietnam,
solar capacity has grown to 5GW by end of 2019 from a zero base in 2017, surpassing Malaysia and Thailand to
become the largest installed solar capacity in Southeast Asia. In India, solar energy capital expenditure (capex)
has exceeded that of coal power plants since 2018 and has a historical 10-year compound annual growth rate
(CAGR) of 104 per cent.5

4.

IRENA (2020), Renewable Power Generation Costs in 20195.

BP Statistical Review of World Energy (2020)

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero06

However, we continue to see planned capacity increase in coal-fired power plants, in spite of climate models
all pointing to the need for no new coal plants to be added anywhere in the world in order to achieve the Paris
Agreement. According to Global Energy Monitor 6, China has about 250 gigawatts (GW) of new coal power plants
under development, greater than the coal fleets of the United States or India. After China and India, Indonesia
and Vietnam have the largest pipeline of coal-fired projects globally, although this pipeline is likely to be scaled
back in some countries 7. Some of these upcoming plants will be financed by or are projects supported byelectric utilities in developed Asia. We believe these plants face the risk of early closure under the Central Banksand Supervisors Network for Greening the Financial System (NGFS) 1.5°C scenario which calls for the complete
phase-out of coal by 2040 unless carbon, capture, utilisation and storage (CCUS) is adopted widely. CCUS will
add additional and significant cost to existing plants. Utilities that are committing right now to new coal projects
with long term take-or-pay Power Purchase Agreements (PPAs) are potentially locking themselves into long term
contracts for expensive power, undermining future profitability.

Physical risks are challenging and some companies are already feeling localized impacts. Electric utilities arehighly dependent on a stable supply of good quality fresh water. Significant amounts of water are needed inalmost all energy generation processes, from generating hydropower, to cooling and other purposes in thermal
power plants, to extracting and processing fuels. Yet the UN predicts a global shortfall in water supply of 40 per
cent by 2030, threatening the long-term viability of energy projects worldwide. In 2020, Thailand experienced
its worst drought in 40 years, forcing power plants to curtail water usage. In addition, Asia is one of the most
exposed regions globally to extreme weather such as heat waves, cyclones and flooding. This reflects the densityof population, industrial production, and the high proportion of coastal areas in the region 8.

In this context, electric utilities need to design new business strategies and seize opportunities elsewhere
to focus on cleaner power generation, networks, customer retention and energy services. However, with newtechnologies, this journey is not without risks. New entrants such as Sun Cable, an ambitious project to sellsolar power from Australia to Singapore, could become a new competitor. As investors, we need to know how
electric utilities will deal with the vast shift already underway within their industry, how they will address theconsiderable risks posed by these trends and how they plan to profit from emerging opportunities.

6.

Global Energy Monitor (2020), A New Coal Boom in China

7.

Japan Times (2020), Vietnam reduces plan to build new coal plants amid fiscal and environmental concerns

8.

AIGCC (2019), Are Asia’s Pension Funds ready for Climate Change?

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero07

Figure 2:
Renewables power market share (2019)

Figure 3:
Renewable power expansion (historical 10-year CAGR)
ThailandEuropePhilippines

S & Cent
America

China
Japan

North America

South Korea
TaiwanAsia PacificIndia

Middle East

Malaysia
0

5

10

15

20

25

0

20

(%)

40

60

(%)

Source: BP Statistical Review of World Energy

Net zero pathways
for Asian electric utilities
The pathways to achieving net zero for electric utilities has been examined in several key studies.
These are useful as reference points for specific company engagements. For example, to discern
whether forward looking business plans are factoring future transition scenarios aligned withachieving the Paris Agreement goals of restricting global temperature rise to 1.5 - 2°C. Investors canwork with companies so that their own scenario analyses are in line with these scenarios to allow forconsistency and comparability of risk assessments between issuers.
We present the following reference scenarios:
Transition Pathway Initiatives (TPI)•

TPI has adopted the Sector Decarbonisation Approach (SDA), which takes a sector-by-sector
approach, comparing companies within each sector against each other and against sectorspecific benchmarks to establish whether the performance of an average company is aligned withinternational emissions targets. In this approach, the sector data is derived from IEA’s modelling
output which provides sector-specific emissions paths, against which TPI calculates company
emission intensities based on public disclosures by companies. To achieve a well below 2°C
pathway, the global utilities sector would need to reduce carbon intensity to 0.229 tCO2/MWh by2030 and to -0.008 tCO2/MWh by 2050 (implying the net removal of CO2) 9.

9.

Transition Pathway Initiative (2020), Carbon Performance Assessment of Electricity Utilities

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero08

Figure 4: Benchmark global carbon intensity pathways for the power sector (tCO2/MWh)
Scenario

2014

2025

2030

2050

Paris Pledges

0.572

0.439

0.402

0.309

2 Degrees

0.572

0.361

0.245

0.036

Well below 2 Degrees

0.572

0.330

0.229

-0.008Source: IEA

Science Based Target initiative (SBTi)• SBTi allocates carbon budgets to companies via two approaches: 1) Convergence, where companies
within a sector reduce their emissions intensity to converge at a common value at some point in
the future; and 2) Contraction, where companies reduce their absolute emissions at the same rate
as the emissions reduction required by the global carbon budget. Companies can use the SBTitarget setting tool to determine their individual emissions targets. Using the former approach,
SBTi calculates that to meet a 1.5°C scenario, emissions intensity from power generation would
have to decrease 76% from 2020 to 2030, reaching 0.1 tCO2/MWh in 2030.10 The World Benchmarking
Alliance developed a methodology based on SBTi’s Sectoral Decarbonization Approach (SDA) tomeasure and rank the world’s 50 most influential electric utilities companies on their transition
to a low carbon economy, which showed that less than 10% of them have Paris-aligned targets.11
Figure 5: Emissions intensities of utilities using SBTi Target Setting Tool for coal-intensive utility
Emissions intensity
kgCO2/MWh

1000
800

1.5˚C coal intensive

Well-below 2˚C coal intensive

1.5˚C low-oarbon

Well-below 2˚C low-oarebon

1.5˚C sector average

Well-below 2˚C sector average

600
400
200
0

2020

2025

2030

2035

2040

2045

2050

Source: Science-Based Target initiative (SBTi)
10.

Science Based Targets (2020), Quick Start Guide for Electric Utilities

11.

World Benchmarking Alliance (2020), Measuring the world’s 50 most influential electric utilities companies

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero09

The Central Banks and Supervisors Network for Greening the Financial System (NGFS)• NGFS published its first set of climate scenarios in June 2020, exploring scenarios of an orderlytransition (global warming of 1.5-2°C), a disorderly transition (global warming of 2-3°C), and a
hot house world (global warming of 3°C+). In the absence of CCUS technologies, the immediate
Paris-aligned scenarios require almost the complete phaseout of coal by 2040 and gas peaks
around 2020-25 in Asia ex Japan. For Japan, the share of renewables in the country’s electricity
mix is required to increase by almost threefold by 2030 (estimated around 50% of total electricity
supply), while both coal and gas usage dramatically decrease by almost three quarters (coalreduces to 8% and gas to 13%).12

Technology Dynamics
Asian companies are at the forefront of renewable technology development. In China, for example, new build
solar can be developed at $35 per megawatt hour (/MWh)13, the same price as operating coal-fired power.
Furthermore, not only are the costs of renewables falling sharply, the technology continues to improve, allowing
for enhanced utilisation rates. According to the IEA, offshore wind is a good example, with average capacity
factors increasing from 38 per cent to 43 per cent from 2010 to 2019. New wind turbines being developed which
exceed 10MW will provide capacity factors above 50 per cent, close to that of many fossil fuel generators.
Longi Green Energy Technology Co. is the world’s largest producer of solar wafers and the world’s largest solar
company by market value. As of the end of last year it created about one in every four wafers made globally.
Chinese solar companies make up 60 per cent of the global capacity for every step in the supply chain.14
Figure 6: Chinese Companies’ Share of Global Solar Equipment Production
Polysilicon

Cells

Panels
80%
70
60
50
40

2016

2017

2018

2019

Source: Bloomberg New Energy Finance

12.

Network for Greening the Financial System (2020), NGFS Climate Scenarios for Central Banks and Supervisors

13.

Bloomberg NEF (2020), Scale-up of Solar and Wind Puts Existing Coal, Gas at Risk

14.

Bloomberg (2020), The Solar-Powered Future is Being Assembled in China

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero10

A suite of technologies are available for managing intermittency, which has been the biggest drawback ofsolar and wind power. The most prominent of these are utility-scale storage projects, primarily using lithiumion batteries. According to Bloomberg New Energy Finance, lithium-ion batteries have benefitted from themultiple applications across the transport and consumer electronics sector, allowing for prices to fall 87 percent from 2010-2019, with prices continuing to fall, expecting to reach $100 per /kilowatt hour (kWh) in 2024.
In many projects, storage is being coupled with solar, allowing for a capacity value of over 99 per cent. Thispotential for managing intermittency and improving grid reliability has inflated expectations for utility-scalestorage deployment, with current estimates going from 9GW in 2018 to 1,095GW in 2040.15

Green hydrogen and ammonia are potential energy carriers as they can be synthesised from renewableenergy through electrolysis. There are a lot of potential uses for hydrogen, including feeding it into the gas grid,combusting it within natural gas generators and the production of green steel 16. Such a scenario with a highpenetration of hydrogen within the economy would have to be predicated on significant renewables expansion,and subsequent low energy prices, as well as continued fall in electrolyser prices. In July 2020, the EU unveiled
its Hydrogen Strategy, a plan to accelerate the adoption of green hydrogen to meet the EU’s net zero emissions
goal by 2050 and which would raise the percentage of hydrogen in national energy demand to 24 per cent froma negligible level at present.17
Figure 7: Levelised cost of energy by technology and category for 2020
400
350
300
250
200
150
100
50

Carbonprice

Peaking
20% load

No Carbon price No Carbon priceor risk premium 5% risk premium

Carbon priceFlexible 40%-80% load, high emission

Carbon price

Solar photovoltaic

Wind

Solar photovoltaic

Wind

Solar photovoltaic

Wind

Biomass (small scale)

Nuclear (SMR)

Solar thermal 8hrs

Gas with CCS

Brown coal with CCS

Black coal with CCS

Gas

Brown coalBlack coal

Gas

Brown coalBlack coal

Gas

Brown coalBlack coal

Fuel cellGas

2018-19 As/MWh0Standalone 2hrs firmed 6hrs firmed
withwith PHES
battery
storage

Flexible 40%-80% load, low emission

Variable

Variable

Variable

Source: CSIRO

15.

Bloomberg NEF (2019), Energy Storage Investments Boom as Battery Costs Halve in the Next Decade

16.

Australian Financial Review (2020), BHP Invests in Hydrogen and Carbon Capture for Chinese Steel

17.

European Commission (2020), EU Hydrogen Strategy

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero11

Policy Dynamics
From September 2020, China, Japan and South Korea in rapid succession, committed to net zero emissions,setting the region on an accelerating pace towards decarbonisation. This was followed by the Philippines
declaring a moratorium on new greenfield coal-fired power plants, becoming the first country in Southeast Asia
to do so, and Thailand also announced to reduce coal generation to 5% by 2030. With this, we believe that more
Asian governments are likely to come forward with both long-term commitments and more ambitious NDCs
ahead of the Glasgow COP. Many Asian electric utilities are state owned enterprises (SOEs) and will play a criticalrole in ensuring countries maintain national competitiveness as global investors and supply chains increasingly
look to invest and source from low carbon economies.

At present, regulations across Asia include specific emissions reduction targets, incentives to increase
renewable energy generation, demand side energy savings and carbon pricing, alongside policy support for
natural gas and more indirect requirements for disclosure and water management (see Appendix for fulldetails with breakdown by country on aforementioned policies).

Asian countries have set emissions reduction targets in the form of Nationally Determined Contributions(NDCs), but which vary vastly between countries and in terms of ambition. The majority of Asian NDCs havebeen rated “highly insufficient” by Climate Analytics, implying that they fall short of a country’s “fair share” range
and are not consistent with holding warming to well below 2°C, let alone the Paris Agreement’s stronger 1.5°C
limit. Whilst this is the context within which electric utilities operate across Asia, investors have a responsibility
to engage with companies and ensure bottom up action, acknowledging that current NDCs are insufficient, arelikely to be revised upwards in terms of ambitions, and more needs to be done to align business strategies with
the Paris Agreement.

Similar to NDCs, targets for renewable energy vary by country and degree of ambition. China and India have
NDC renewable energy targets, whilst other countries only have domestic goals. These targets are also relatively
short term, with some having been exceeded already or are close to being exceeded, they may also be in needof a refreshment higher.

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero

12

Case study: AC Energy
renewables target of 50% of output by 2025
AC Energy, the fifth largest power producer in the Philippines, has become the first power company inSoutheast Asia to announce the full divestment of coal-fired plants as part of its plan to significantly
reduce greenhouse gas emissions and comply with the national target for 35 per cent of Philippines
energy to be generated from renewable sources by 2030. Key details of this plan, first announced in
April 2020, include:• Plan to fully divest all coal generation assets by 2030, subject to review and finalisation by 2035.
• Plan for new investments in lower carbon emitting gas-fired generation.
• Plan to cap thermal capacity to no more than 50% of output or at most 2GW by 2025.
• Target to reach renewables power capacity of 1GW by 2020, 5GW by 2025, and for renewables toaccount for at least 50% of output by 2025 (from 30% at present).
AC Energy’s 2019 Integrated Report18 provides material disclosures with reference to GRI and SASB
Standards. Key details include:• Breakdown of electricity and fuel consumption by category and Scope 1 & 2 emissions.
• Detailed short-term (2020) renewables energy target and actions undertaken to achieve it.
• Comprehensive independent assurance statement to verify the sustainability disclosuresprovided.

18.

AC Energy Integrated Report 2019

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero13

Energy efficiency improvements amongst International Energy Agency (IEA) member countries since 2000
lowered energy use by around 20 per cent in 2018, an amount greater than the final energy consumption ofIndia in the same year. In Asia, not all countries have energy saving policies and those that do vary greatly intargets and measurements. This is a key area where coordination could lead to easy improvements.

In terms of carbon pricing, there is no regional scheme in Asia, with China and South Korea being countries
with notable individual schemes. Nonetheless, managing carbon prices and taxation in different markets
will become a growing concern to utilities companies and China will soon expand its carbon trading scheme
nationally. While companies may think they can pass this cost through to customers, there might be industrial
clients and consumer groups that do not accept this approach. Another development is the work by a private
sector task force set up by Mark Carney, the former Governor of the Bank of England, to establish the standards
for the infrastructure around a voluntary carbon market. The ambition is to begin trading under a new framework,
which will include a transparent price for carbon, by the beginning of 2021.

Stock exchanges in Asia have made substantial efforts to make environmental, social and governance (ESG)
disclosures mandatory for listed companies. ESG disclosures are expected to become mandatory for allcompanies listed in China shortly. From July 2020, Hong Kong listed companies must issue an ESG report that
includes an assessment of the effects of climate change and disclosure of social key performance indicators. This
follows on New Zealand’s recent proposed implementation of mandatory climate-related financial disclosure,reflecting the trend of higher disclosure standards globally.

Countries in Asia have been pushing for the increased use of natural gas at the expense of coal for electricity
generation to reduce particulate and carbon emissions. However, this has become a point of debate due tothe relatively high cost of natural gas vs renewables, still considerable emissions that natural gas produces andpossibility that large-scale methane emissions released into the atmosphere from natural gas production has
not been accounted for in the estimates of natural gas lifecycle emissions.

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero14

Demand Dynamics
Trends in energy demand impacted by climate, renewable energy and environmental factors are having
complex effects on the traditional business model of electric utility companies.
Corporations have started to go around the back of electric utilities by signing direct power purchaseagreements with large-scale off site renewable developers. This shift could represent a major threat to utilities
demand from large clients. According to the global initiative RE100, a global initiative made up of businesses
committed to 100% renewable electricity, companies in China are currently directly sourcing over 970GWh in
renewable power annually for their own operations.19 Companies are also increasingly making commitments
to renewables with a record amount of clean energy bought through power purchase agreements in 2019,according to Bloomberg New Energy Finance. This consisted of 19.5GW of clean contracts signed by more than
100 corporations in 23 different countries, more than triple the activity in 2017 20. In July 2020, TSMC signed a
corporate power purchase agreement with Orsted for the supply of 920MW of wind power, the largest contractof its kind in Taiwan. The Korean government has also introduced measures to support companies joining RE100,
including: 1) Renewable Energy Certificate (REC) purchase system; 2) authorising third-party Power Purchase
Agreements (PPA); and 3) green pricing schemes. Over 70 of Apple’s suppliers, the majority of which are in Asia,
have committed to 100 per cent renewable energy 21, of which 2.7GW is operational in 2019.
There have also been shifts towards renewables in many Asian growth markets such as India and Vietnam, withdemand increasingly fulfilled by cheaper renewable sources that have displaced fossil fuel-based projects.
Figure 8: Renewable power as % of total power growth (2018-19)

South Korea
India
China
Thailand
Vietnam
0

20

40

60

80

(%)

Source: BP Statistical Review of World Energy

19.

Center for Resource Solutions (2019), Accelerating Corporate Renewable Energy Engagement in China

20.

BloombergNEF (2019), Corporate Clean Energy Buying Leapt 44% in 2019, Sets New Record

21.

Apple Supplier Clean Energy, 2020 Program Update

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero15

Electric utilities stand to benefit from the long-term trend of increased electrification, which can drive fuelswitching away from gasoline (in the case of passenger cars) and from natural gas (in the case of buildings). For
example, the IEA estimates that the increasing adoption of electric vehicles (EVs) could boost electricity demand
from EVs by 6-11x by 2030 from 2019 in the EU.22 To capture the full benefits of these trends, it is important thatelectric utilities generate power from renewable sources to ensure that the well-to-wheel emissions remain
lower compared to combustion of gasoline and natural gas.

Regulatory instability is also a rising risk factor for Asian utilities. We note that prior to COVID-19, S&P had
already noted that electricity generation companies in Indonesia and India faced rising risks of intervention. In
Indonesia, PLN, the dominant power utility, faced cash flow pressures due to delayed government payment ofservices. In India, 42 coal-fired power projects totalling 19GW are currently on hold due to financial difficulties23,
while some states such as Andhra Pradesh had delayed payments to renegotiate executed contracts, leading
to curtailment. With both Indonesia and India being hard hit by COVID-19 in 2020, short-term falling electricity
demand increases the risk that generation companies may face reduced payments.24

Finance Dynamics
A rapid change in the financing of the energy industry has led to significant adverse consequences for thefinancing of fossil fuel (particularly coal plants) and conversely beneficial outcomes for financing of renewableenergy.
There is growing and widespread adoption of restrictions on financing thermal coal. According to IEEFA, there
are presently 123 globally significant financial institutions (defined as those with assets under management of
more than $10 billion) that have divested their coal assets and are no longer financing projects throughout thecoal value chain25. More Asian financial institutions have adopted these restrictions this year, including two ofJapan’s largest institutional banks, Sumitomo Mitsui Financial Group and Mizuho Financial Group, and Korea’s KB
Financial Group. This follows coal exit announcements in 2019 by Singapore’s UOB, DBS and OCBC. Importantly,
Japan has announced the tightening of state-backed financing criteria for overseas coal-fired power plants andKorea may soon follow, closing another traditional avenue of financing of coal projects in the region. (Please see
Figure 16 in the Appendix for a detailed list.)

22.

IEA (2020), Global EV Outlook 202023.

Global Energy Monitor, Troubled Indian Coal Plant Construction Sites

24.

S&P Global (2019), Utilities - Asia Pacific, Industry Top Trends 2020

25.

IEEFA, Over 100 and counting

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero

16

Flows into sustainable investing funds are accelerating, reducing the cost of capital of renewable companies
whilst conversely increasing those of fossil fuel companies. The value of global assets applying ESG data todrive investment decisions has almost doubled over four years, and more than tripled over eight years, to $40.5
trillion in 2020, according to research firm Opimas.26 The number of ESG-themed strategies being launched has
accelerated to almost 400 in 2019 compared to 160 in 2016, and research from Morningstar has shown that the
majority of ESG funds have outperformed non-ESG funds over one, three, five and 10 years as well as during the
COVID-19 sell-off in the first quarter of 202027.

Ongoing progress globally on green taxonomies, including across multiple markets in Asia, aim to shift financial
flows towards sustainable economic activities and overcome previous barriers to scaling up green finance.
The World Bank and the International Organisation of Securities Commissions’ (IOSCO) have recently publishedguides to help financial regulators develop green taxonomies28. In October 2020, five key government ministries
in China issued a set of guiding opinions to encourage private investment and foreign capital to back green
bonds and fund climate-friendly projects, including plans to allow individuals and financial firms to participate
in its soon-to-be-launched national carbon-trading scheme and inviting foreign entities to issue green bonds
and hold RMB-denominated green financial assets. In Asia, China, Malaysia, Singapore, Japan, South Korea andIndia have all made varying levels of progress on this front. A key step forward would be to improve consistencyof taxonomies across the different Asian jurisdictions and to aim for harmonisation with the EU taxonomy, which
remains the most advanced classification of green finance in operation.

Renewables offer potentially stronger returns than fossil fuel projects. The sharp fall in alternative energy
costs and lower energy prices in 2020 have led to competitive investor returns for renewables compared tooil and gas projects, according to Wood Mackenzie29. This is likely to encourage energy companies to take on
more renewable projects to meet their 2050 emission goals. We note that in January 2019, a survey conductedby the Oxford Institute of Energy Studies showed that the hurdle rate for most fossil fuel projects were alreadysignificantly higher than renewables (up to 40% for coal projects vs 11% for renewables), signalling a tilting
preference towards renewables, and the growing acceptance of the higher risk profile of fossil fuels as carbon
emissions risks continue to rise.

26.

Global ESG data driven assets hit $40.5 trillion

27.

Morningstar (2020), Do Sustainable Funds Beat Their Rivals?

28.

World Bank (2020), Developing a National Green Taxonomy: A World Bank Guide; IOSCO (2019), Sustainable Finance in
Emerging Markets and the Role of Securities Regulators

29.

Wood Mackenzie (2020), Could Clean Energy Be The Winner In The Oil Price War?

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero17

Utility companies still have large numbers of high-carbon power plants on their balance sheets that may
become legacy or stranded assets going forward. Their future value will depend upon how the transition
away from high-carbon, high-water use electricity generation is managed by policymakers. Weare likely to see
continued decline in costs of gas and renewables, combined with additional regulatory measures against
carbon emissions, which could lead to the early closure of coal plants30. According to Reuters, South Korea isaccelerating plans to shut down up to 20 ageing coal plants from 2019 onwards to reduce emissions, while Japan
will close up to 100 old coal plants by 203031. JERA, Japan’s largest power generator, pledged to shut down all
inefficient coal-fired power plants in the country by 2030 as part of their net-zero 2050 goal.32

Case study: CLP Group Climate Vision 2050
CLP Group, a leading investor and operator in the energy sector of the Asia-Pacific region, has laidout a clear pathway towards decarbonising its generation portfolio of over 24GW, as detailed in its
updated Climate Vision 2050 report, which was first launched in 2007. Key details include:•

A tightened target to reduce its carbon intensity by 80% by 2050 (from 2007 levels), along with newcarbon intensity targets for 2030 and 2040.
• A new renewable energy capacity target of 30% and a new non-carbon emitting capacity targetof 40% by 2030.
• Commitment to add no additional coal-fired power generation assets and progressively phaseout all remaining coal-based assets by 2050.
• Commitment to strengthening its low carbon targets at least every five years.
• Tracking its progress in climate action against the Sectoral Decarbonisation Approach (SDA)
trajectory of the Science Based Targets initiative (SBTi) using the below 2 degrees scenario.

CLP’s 2019 Sustainability Report33 provides clear disclosures across the four TCFD areas:• Governance: The CLP board has overall responsibility for CLP’s ESG strategy and reporting, with
the Sustainability Committee overseeing management of sustainability issues and the Audit &Risk Committee responsible for the assurance of sustainability data. The duties and scope of workof both committees are clearly defined and the Sustainability Executive Committee consists ofsenior members of the management team.

30.

Carbon Tracker estimates that Japan faces up to $71bn of stranded coal assets without policy reform

31.

Reuters (2020), Japan to Accelerate Closure of Old Coal Power Plants

32.

Japan Times (2020), Power firm JERA to shut inefficient coal-fired power plants by 2030

33.

CLP Sustainability Report 2019

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero18

Figure 9: CLP governance framework
Highestgovernance body

The CLP Board
Audit & Risk Committee
Ensures data in the Sustainability Report
is appropriate

Board oversight

Sustainability Committee
Oversees positions and practices
on sustainability issues

Management oversight

Sustainability Executive Committee

Coordinators

Group Sustainability Department

Implementation ofsustainability-related
stratrgies, policies
and goals

Group Functions and Business UnitsGroup Sustainability Forum

Source: CLP• Strategy: CLP’s strategy to deal with climate change is laid out in its latest Climate Vision 2050
publication (22 pages) with key targets set out above. Climate scenario analysis has been
conducted to examine scenarios of extreme global warming and evaluate the resilience of its
strategies against these scenarios. CLP has also developed a set of tailored risks and opportunities
relevant to its assets across its key markets for the short term (0-1 year), medium term (1-5 years)
and medium to long term (5+ years).

Figure 10: CLP’s carbon intensity

CLP unveils
Climate Vision 2050

In line with the decarbonisation strategy, CLP plans to takea range of actions, including:

Increased equity of Hong Kong’s
fossil-fuel portfolio• No investments in additional coal-fired generation capacity,

1.00

Capacity & energy purchase integrated
into carbon intensity targets

2010

0.80

0.90

• Continue to identify opportunities to accelerate thephase-out of coal from the CLP generation portfolio; and• Increase our renewable energy capacity, and focus onopportunities in transmission and decentralised smart
energy solutions.

kgCO2/Kwh

0.80

2020

0.60

0.70

2030

kgCO2/Kwh

kgCO2/Kwh

0.60

Acquisitionof energybusiness
in Australia

0.50

2019

0.62

Retirement ofCastle Peak A

0.50

kgCO2/Kwh

2040

0.34

kgCO2/Kwh

0.40

CLP meets 2010carbon intensity target

kgCO2/Kwh

2050

0.30

0.15

Full commission of
Yangjiang Nuclear

0.20

kgCO2/Kwh

Retirementof Yallourn

0.10

Phase out coal-fired
generation

Reduced use of Castle Peak B

0.00

2007

2010

Actual carbon intensity

2020
Projected carbon intensity in CLP’s buslness
strategy (with capaclty & energy purchase)

2030

2040
Sclence-based target-below 2˚C

2050
Decarbonlsation targets

Source: CLP

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero19• Risk management: CLP’s overall risk management process is overseen by the Board through the
Audit & Risk Committee. The company tracks physical and transition risks, in line with TCFD’s
recommendations , and is developing an additional risk register that tracks risks and opportunities
on a longer-term basis.

• Metrics and targets: CLP provided clear details of its 2019 decarbonisation efforts in comparison
with the 2020 targets and provided case studies on its efforts in this regard. Scope 1, 2 and 3 GHG
emissions are disclosed and a full breakdown of Scope 3 emissions by category are also provided.
Generation capacity by fuel and energy generated by fuel are also disclosed.

On the public policy front, CLP discloses its participation in a range of industry and professional
bodies related to climate change and energy and the level of financial contributions and engagement
thereof. When joining any organisation, respective Public Affairs teams act as a control point andwill consider the appropriateness of the membership request. The Group CEO or respective MD
approves the participation, to ensure the position of the organisation is consistent with CLP’s
ambitions on climate.

To help advance climate-related financial disclosure, CLP also joined the TCFD Electric Utilities Preparer
Forum with five major electric utilities and the World Business Council for Sustainable Development(WBCSD) to share effective disclosure practices and plans to continue this collaboration with WBCSD.
CLP has been an active member in driving collaborative climate actions globally by connecting withleading organisations including WBCSD, the Energy Transitions Commission, The Climate Group, theInternational Emissions Trading Association and the Business Environment Council.

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero

20

Investor Expectations
Asian electric utility companies should have robust long-term business strategies aligned with the Paris
agreement, aiming for a 1.5°C science based transition pathway, even if in many cases these are ambitions
beyond NDCs. This guide sets out investor expectations for the companies in the form of key questions fortheir boards and management teams. The questions set out clear metrics to gauge where each company ispositioned in their journey of decarbonisation, covering scenario analysis of risk and opportunities as well as
emissions reduction targets. The questions proposed are aligned to the four pillars of governance, strategy, risk
management and metrics/targets as recommended by the Task Force on Climate-related Financial Disclosures(TCFD). These expectations and questions have also been referenced against the new Climate Action 100+ Net
Zero Company Benchmark which includes indicators on ambition, targets and goals, decarbonisation strategy,
capital alignment, climate policy engagement, governance, just transition34 and reporting.35

1 2 3 4 5

Five Investor Expectations of Asian Electric Utilities Companies

GovernanceDecarbonisation
strategy andscenario stresstesting

Transparency &Disclosure

PhysicalResilience

Public policy

1 Governance
EXPECTATION
Clearly define board and management governance processes to ensure adequate oversight ofclimate-related risk and opportunities, as well as the strategic implications of planning for a transition
consistent with more ambitious NDCs over time. NDCs are expected to converge over time with Paris
Agreement goals to limit global temperature increase to well below 2°C and pursue efforts to limit
temperature rise to 1.5°C compared to pre-industrial levels.

34.

The goal of a just transition for workers and communities was included as part of the Paris Agreement on climate change.
At its core, the just transition is a forward- looking, action-oriented framework that identifies opportunities for public andprivate investment in economic development that is both sustainable and inclusive. Reference https://www.unpri.org/
download?ac=9452

35.

The Climate Action 100+ Net Zero Company Benchmark will be formally introduced in the second Climate Action 100+Progress Report in late 2020. The first version of the benchmark will be delivered publicly in early 2021 with company levelassessments against the majority of indicators.

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero21

QUESTIONSMission Statement•

Has the company made a GHG emissions reduction statement that explicitly includes scope 1, 2
and, when applicable, the most relevant scope 3 emissions? Is it in line with NDC(s) or exceed them?

•Has the company made a GHG emissions reduction statement that explicitly includes scope 1,
2 and, when applicable, the most relevant scope 3 emissions? Is it in line with a well below 2°C
scenario?

•

Has the company made a net zero GHG emissions ambition statement that explicitly includes
scope 1, 2 and, when applicable, the most relevant scope 3 emissions?

Oversight•

Describe the board’s oversight of climate-related risks and opportunities. Who is the most senior
executive responsible for managing climate risk?

•

What is the process and frequency by which board committees, such as the audit committee, arekept informed of climate change issues?

•

Please provide further details on the role of the audit committee on climate-related issues, suchas whether the company has incorporated climate-related analyses in its financial statements
and underlying assumptions.

•

Describe how processes for identifying, assessing and managing climate-related risks areintegrated into the company’s overall risk management, in particular taking into account theinterconnectedness of climate risks with others to form a full picture. What action, if any, has thecompany taken as a result?

•

How do staff members keep the board and relevant committees abreast of climate-related
developments, including regulatory changes? (Organigrams showing structure may be useful)•

Describe management’s role in assessing and managing climate-related risks and opportunities.

•

Where electric utilities are partly state owned, please explain the decision- making process
between management, board and the state, particularly with regards to climate-related issues.

Expertise•

Does the board itself have expertise in climate risk, and/or accessed expertise outside the company?

•

Do any independent directors have expertise in climate and/or related risks?

•

How does the company support and maintain the building of these capabilities?

Remuneration•

Do metrics used to determine remuneration consider climate change, environmental risks andopportunities? If so, how are these metrics tracked and assessed? e.g. through key performanceindicators (KPIs) or metrics disclosed in response to the TCFD’s recommendations on metrics andtargets.

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero22

2 Decarbonisation strategy and scenario stresstesting
EXPECTATIONTake action to reduce GHG emissions across the value chain, consistent with the Paris Agreement’s
goal of limiting global average temperature increase to well below 2°C compared to pre-industrial
levels and efforts to pursue 1.5°C. We expect electric utility companies to have a clear short, medium
and long-term decarbonisation strategy 36 to enable a just transition.
Provide a timeline for the phaseout of thermal coal power generation37 or the implementation of
mitigation measures like CCUS in line with scientific emissions reduction pathways.

QUESTIONSStrategy•

Does the company have an overarching decarbonisation strategy that encompasses goals andprogression targets?

•

What are the key climate-related risks and opportunities the company has identified over the
short, medium and long term? What are their key impacts on the organization’s different businesslines- including generation, distribution and customer services where applicable?

•

Does the company’s strategy include a commitment to ‘green revenues’38 from low carbon
products and services?

•

Do the company disclose considerations of the impacts from transitioning to a lower-carbon
business model on your workers and communities?

•

Where electric utilities are partly state owned, please discuss the direction of national climaterelated policies, in particular progression towards net zero and any details regarding policy
implementation.

36.

For reference, the Climate Action 100+ Net Zero Company Benchmark defines short, medium and long term as periods 20202025, 2026-2035, 2036-2050.

37.

In-line with the conclusions of Climate Analytics’ analysis that global coal power generation needs to be phased out by
2040 to be compatible with the 1.5C Paris Agreement (2031 for OECD and 2037 for non-OECD Asia)

38.

Revenue from power generation from renewable and alternative energy sources, generated from renewable and alternative
energy value chain, and products and services enabling more efficient methods of energy usage and management.

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero23

Generation•

What is the company’s actual and projected generation mix?

•

What is the company’s outlook for future energy demand? What are the key outlook input
assumptions and ranges tested with respect to (i) speed and alignment of regional and national
policy measures to deliver on the Paris Climate Agreement; (ii) technology break-through andpenetration (in particular, renewable energy, electric storage and energy demand profile); and (iii)
carbon pricing (whether an internal or shadow carbon price is used)?

•

Has the company established firm targets for renewable energy capacity over the short, medium
and long-term?

•

Does the company view natural gas as an intermediate pathway towards carbon reduction (15-20
years) and does it plan for potential policy shifts on gas?

•

If natural gas is expected to be a permanent fuel, has the company explored the addition ofcarbon capture, utilisation and storage (CCUS) facilities to capture these CO2 emissions?

•

Is the company exposed to regulatory risks (e.g. where future tariff reviews could impact potential
capital expenditure) and to what extent may this impact its climate change strategy?

Management and Phaseout of coal-fired power plants•

Has the company committed to implementing the phase out or replacement of existing coal-fired
power plants within a specific timeframe?

•

Has the company committed to divesting and halting coal-fired power plants and projects
overseas within a specific timeframe?

•

How is the company revaluing assets as projected closure dates approach to avoid large, sudden
write-downs?

•

Apart from write-downs and depreciation, how do the company’s current accounting policies
reflect anticipated policy and technology changes?

•

How is the company evaluating other financing methods, such as refinancing or reinvestment39,
to accelerate the decommission of legacy assets?

39.

•

How does the company plan to provision for potential site remediation?

•

Does the company have energy efficiency targets in place for existing plants?

http://rmi.org/wp-content/uploads/2020/06/How-to-retire-early-June-2020.pdf

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero24Expenditure•

How does the company decide on capital expenditure for fossil-fuel energy over the coming
years in the light of potential changes in national policy and more ambitious NDCs?

•

Is the company’s future capex plan aligned with its long-term GHG reduction target, NDCs and/orwith the Paris Agreement’s objective of limiting global warming to well below 2°C and no morethan 1.5°C?

•

Please detail, where possible, any public quantitative information on changes to capital
expenditures and operational expenditures and revenue as a result of actual or anticipatedpolicy changes.

Targets•

Has the company set short, medium and long-term targets for reducing its GHG emissions fromthe present on a clearly defined scope of emissions?

•

How does the company track performance against these targets both for the company overall
and per fuel type?

•Is the long-term target or goal aligned with NDCs, a trajectory to limit global temperature increase
to well below 2°C, or 1.5°C (according to sector specific decarbonization pathways as defined by
SBTi/IPR/TPI/NGFS/NZE2050 40)?

Scenarios and Resilience•

Has the company undertaken a range of scenario stress tests, including for NDC(s), 1.5°C, 2°C anda 3°C+ hothouse world41?

•

Do the scenario analyses include quantitative elements and are the results disclosed?

•

Does the quantitative scenario analysis cover the entire company? Have you disclosed the key
assumptions and variables used and reported on the key risks and opportunities identified andpotential impact on the company’s business strategy?

40. NZE 2050 refers to the Net Zero Emissions by 2050 scenario as set out in the IEA’s World Energy Outlook 2020.
41.

https://www.iea.org/reports/world-energy-model,
https://www.ngfs.net/sites/default/files/medias/documents/820184_ngfs_scenarios_final_version_v6.pdf

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero25

3 Transparency & Disclosure
EXPECTATION
Provide enhanced corporate disclosure in line with recommendations of international frameworks,
such as the Task Force on Climate-related Financial Disclosures (TCFD) or the Sustainability AccountingStandards Board (SASB), to enable investors to test the robustness of the company’s business plans
against a range of climate scenarios and improve decision-making.

QUESTIONS•

Has the company aligned its reporting with international sustainability reporting standards suchas SASB?

•

Has the company participated in surveys such as the CDP questionnaire and are the results
disclosed to investors?

•

Has the company committed to implementing the TCFD recommendations?

•Has the company produced TCFD aligned climate risk reporting to date?

•

What is the company specific carbon intensity (CO2/KWh) and how is it going to evolve? How doesit compare with the well below 2°C/1.5°C specific carbon intensity standard?

4 Physical Resilience
EXPECTATION
Physical risks, in particular water scarcity, should be taken into account in business planning.
Adaptation strategies should be devised and deployed to mitigate these risks.

QUESTIONS•

Has the company provided information about the geographical spread of assets, even at
subnational levels, and assessed the likelihood of physical climate risks to assets from otherextreme weather disruptions such as heat, floods, storms and coastal inundation?

•

Has the company made contingency plans in relation to the potential threats described above?

•

Please detail where plans are made for specific locations, any modeling processes used and any
efforts to improve the physical resilience of assets, such as operational experience, diversificationof assets, and the capacity to deploy additional resilience measures within the time horizon or
lifespan of the asset (i.e.replacement of assets, technology improvements).

•

How is the company assessing water security risks and what are the future scenarios around that?

•Has the company considered changes to its business strategy in the event of changes in water
availability?

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero26

5 Public policy
EXPECTATIONEngage with public policy makers and other stakeholders in support of cost-effective policy measures
to mitigate climate-related risks and support low carbon investments in line with achieving net
zero GHG emissions by 2050 or sooner. Electric utilities should also have board level oversight andtransparency of their positions regarding relevant environmental legislation and of any lobbying
activities - ensuring consistency of any lobbying activities undertaken either directly or indirectly
via industry associations with limiting global warming to well below 2°C with an ambition to limit
warming to no more than 1.5°C above pre-industrial levels.

QUESTIONS
Policy positions•

Climate policy engagement – Does the company have a clear commitment and set of disclosuresclarifying its intent to support climate policy in line with the Paris Agreement?

•

Please describe the position the company has taken on all relevant climate-related policies42.

Activity/Alignment•

How does the company conduct engagement with policymakers on a national and international
level?

•

Please provide a detailed explanation of how the company’s policy engagement process isgoverned.

•

What industry associations does the company have links with (including trade associations,chambers of commerce and business forums)? And what is the nature of the involvement? E.g
Committee participation, board level roles, etc.

•

What is the governance process for managing these relationships?

•

How does the company ensure consistency between its own public positions on climate change
and those articulated by its trade associations, and what actions is it prepared to take where
there is a misalignment?

•

If applicable, please demonstrate how the company’s direct and indirect lobbying activity is
consistent with its public position on climate change/ Paris Agreement goals?

42.

For example, capacity payments and energy market rules, renewables subsidies, energy efficiency/renewable energy targets,carbon price, carbon tax, reform to local carbon markets, GHG reduction targets including NDC and long-term emissions
reduction plans, indirect messages through industry associations.

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero27

With net-zero emissions commitments now covering over half of theworld’s emissions and GDP, following recent announcements frommajor Asian economies and companies (not including the new US
administration’s intentions), the challenge to ‘crossover to net-zero’must start now. Companies who clearly set out their transition plans will
facilitate and benefit from investors assessing their competitiveness inthis rapidly developing and necessary journey to net-zero emissions.
We hope this guide provides a useful overview of the trends affecting
Asian electric utilities, coupled with the practical investor expectations
questions that can be used for constructive engagement with theboards and management of electric utilities.

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero28

Appendix

Regulations impacting the electric utilities sector
1. National and state level greenhouse gas (GHG) emissions reduction targets
Following the negotiations that led to the COP 21 climate agreement, 186 countries set emissions reduction
targets in the form of Nationally Determined Contributions (NDCs). Many of these NDCs reflect national targets
and regulatory packages that have been in place for years, such as in the European Union, but also reflectsignificant new commitments from China and India. It is important to note that based on current trajectories,
many of the Asian countries are expected to meet their current NDCs by 2030.

Figure 11: Projected CO2 emissions vs NDC targets (2030)

Project CO2 emissions vs NDC tatget (2030)
150

(%)

100

50

am
tn
Vi
e

a
di
In

sia
ne
do
In

lip

pi

ne

s

n
Ph
i

pa
Ja

a
in
Ch

So

ut

h

Ko

re
a

0

Source: Climate Action Tracker

However, the majority of Asian NDCs have been rated “highly insufficient” by Climate Analytics, implying thatthey fall short of a country’s “fair share” range and are not consistent with holding warming to well below 2°C,
let alone the Paris Agreement’s stronger 1.5°C limit.

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero29

Figure 12: Country compatibility with global <2°C limit
Country

Current projection

NDC target

South Korea

Critically insufficient

Highly insufficient

China

InsufficientInsufficientJapan

Insufficient

Highly insufficient

Philippines

Compatible

Compatible

Indonesia

InsufficientInsufficient

India

Compatible

Compatible

Vietnam

Highly insufficient

Critically insufficient

Source: Climate Action Tracker 43 (as of November 2020)

In some countries, such as Indonesia, absolute levels of GHG emissions will likely be higher in 2030 even if
NDCs are met, since their NDCs target a level below business as usual. We also note that some of the NDCs
are conditional upon other factors, such as technology assistance by other countries, and are not definedscientifically.

China has pledged to cut its CO2 emissions per unit of GDP by 60-65 per cent from 2005 levels by 2030, byincreasing non-fossil fuel sources in primary energy consumption to about 20 per cent by the same date. In
September 2020, China pledged to scale up its NDC by adopting more vigorous policies and measures and aim
to achieve carbon neutrality before 2060, with more details likely to be forthcoming in the 14th Five-Year Plan
due to be released publicly in early 2021.

Japan is targeting emission reductions of 26 per cent by 2030 from 2013 levels, utilising a bottom up calculation
which takes into account policies, individual technologies and cost constraints. On 26 October 2020, Japan
pledged to become carbon neutral by 2050, with concrete goals to achieving this to be identified in a report
to be released by end-20. On 28 October 2020, South Korea also pledged to become carbon neutral by 2050,
although detailed plans are also lacking at present.

43.

https://climateactiontracker.org/countries/

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero30

Figure 13: National Determined Contributions (NDCs) in Asia

Nationally Determined Contributions (NDC)
Country

Unconditional

Conditional

Announced
Net zero targets

Carbon intensity: -60 to -65%
below 2005 by 2030

n.a.

Peak CO2 by around 2030

n.a.

Japan

GHG: -26% below 2013 by 2030

GHG: -80% below 2013 by 2030

By 2050 (26 Oct 2020)

S. Korea

GHG: -37% below BAU by 2030

n.a.

By 2050 (28 Oct 2020)

TaiwanGHG emission: -50% below
BAU by 2030; -20% below
2005 by 2030

n.a.

n.a.

India

Carbon intensity: -30 to -35%
below 2005 by 2030

Renewable share: 40% by 2030

n.a.

Indonesia

GHG: -29% below BAU by 2030

GHG: Up to -41% below BAU by
2030

n.a.

Malaysia

Carbon intensity: -35% below
2005 by 2030

Carbon intensity: -45% below
2005 by 2030

n.a.

Philippinesn.a.

GHG: -70% below BAU by 2030

n.a.

Thailand

GHG: -20% below BAU by 2030

GHG: -25% below BAU by 2030

n.a.

Vietnam

GHG: -9% below BAU by 2030

GHG: Up to -27% below BAU by
2030

n.a.

China

By 2060 (23 Sep 2020)

Source: UNFCCC, local governments (as of November 2020)

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero31

2. Measures to increase renewable energy supply
China is the world’s leader in terms of installed capacity and consumption of renewable energy, with 184GW ofwind capacity and 174GW of solar capacity at end-2018, with the aim of renewables accounting for at least 35
per cent of electricity consumption by 2030, according to the National Development and Reform Commission(NDRC). For 2020, China expects to increase the share of renewable-based power generation to 28 per cent,with 10 provinces and regions being ordered to generate at least 30 per cent of power from renewable sources.
Whilst subsidies are gradually being withdrawn, renewables have become increasingly price competitive on astandalone basis.
Thailand’s recently approved Power Development Plan and Alternative Energy Development Plan projects
renewable energy in Thailand to be 30 percent of total energy production by 2037, from the present level of 14.5
per cent. To facilitate this, measures such as streamlining licensing for rooftop solar and allowing owners to sell
excess electricity to the grid were approved. Big state enterprises such as EGAT are preparing to invest in large
scale floating solar and energy storage projects.
South Korea’s Renewable Portfolio Standards (RPS) mandates power producers that have installed capacity over
500MW to produce a minimum proportion of power using renewable energy. The obligatory renewable service
supply ratio rises from 1 per cent in 2012 to 10 per cent in 2022, creating a significant new supply of renewableenergy.

Figure 14: Renewable energy targets
Region/Country

Type

Category

Date

RE target (%)

RE achieved (2019, %)China

NDC: Unconditional

Non-fossil

2030

20

31

Japan

Domestic goal

Renewables

2030

24

19

South Korea

Domestic goal

Renewables

2030

33

15

TaiwanDomestic goal

Renewables

2025

20

6

India

NDC: Conditional

Non-fossil

2030

40

22

Indonesia

Domestic goal

Renewables

2025

23

12

Malaysia

Domestic goal

Renewables

2025

20

17

Philippines

Domestic goal

Renewables

2030

35

21

Thailand

Domestic goal

Renewables

2037

37

15

Vietnam

Domestic goal

Renewables

2030

10

9

Source: UNFCCC, local governments (as of November 2020)

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero32

3. Demand and supply side energy saving policies
Japan established the Building Energy Efficiency Act in 2015 with mandatory compliance with energy efficiency
standards and incentive measures such as a labeling system.

China’s Energy Conservation Law provides the legal framework for energy conservation and energy efficiency.
China’s five-year plans have also driven energy efficiency improvements and the Energy Supply and Consumption
Revolution Strategy (2016-30) sets a clear target to cap total energy consumption at 6 gigatonnes of coalequivalent (Gtce).

Thailand’s Energy Efficiency Development Plan (2011-30) is aiming to increase energy efficiency by 25 per cent by
2030, compared to 2005 levels, through a focus on the transportation and industrial sectors.
Figure 15: Energy Efficiency Plans

Region/Country

Program

TargetChina

Energy Supply & Cons. Revolution Strategy

Carbon emission per GDP unit falls by
60-65% by 2030 vs 2005

Japan

Strategic Energy Plan (2018)

Energy reduction of 14% by 2030 vs 2013

South Korea

Energy Master Plan (2014-2035)

13%/15% reduction in energy/electricity
demand by 2035

India

National Mission for Enhanced Energy Efficiency Avoided capacity addition of 20GW

Indonesia

Govt regulation number 70/2009

Improve energy efficiency by 25m boe
in 2025

Malaysia

National Energy Efficiency Action Plan

Electricity demand growth reduction of
8% by 2025

Philippines

Energy Efficiency Roadmap (2014-30)

Annual savings 1.6% and total savingsof 24% by 2030

TaiwanEnergy Transition White Paper (2018)

Efficiency targets set for 6 sectors,
including transportation

ThailandEnergy Efficiency Development Plan (2011-30)

Increase energy efficiency by 25% by2030 vs 2005

VietnamNational Energy Efficiency Program (2019-30)

Efficiency rate of 8-10% per total energy
consumption by 2030

Source: Local governments (as of November 2020)

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero33

4. Carbon pricing
China has been experimenting with cap-and-trade programs in several pilot cities and plans to gradually rollout a nationwide program from 2020 onwards, with several years of testing before expanding to major sectors
like electricity, steel and concrete.

In South Korea, the introduction of the Korea Emissions Trading Scheme (KETS) has seen relatively low prices
with minimal impacts for utilities but it is likely that the introduction of phase three standards from 2021
onwards would have flow-through price impacts for utilities.

Figure 16: Carbon Emission Trading programs
Region/Country

Present status

Future planChina

7 regional pilot programs since 2013

National roll out for power sector from 2020

Japan

Tokyo ETS since 2010, targeting buildings

National roll out postponed since 2010

South Korea

Korea ETS launched since 2015

Phase 3 Allocation Plant for 2021-25

TaiwanETS proposed in 2015

No timeline implemented

India

None

None

Indonesia

Studying mandated ETS implementation

National roll out mandated by 2024

Malaysia

None

None

Philippines

None

None

Thailand

Voluntary-ETS launched since 2013

None

Vietnam

Draft law includes provisions for ETS

Design of domestic ETS from 2021

Source: ICAP, local governments (as of November 2020)

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero34

5. Local developments disclosure regulations
Figure 17: Disclosure standards of Asian stock exchanges
Region/Country

ESG

Disc. rank (2019)

Climate assess.

China

Mandatory by 2020

41

No

Hong Kong

Mandatory

27

From 2021

Japan

Voluntary

34

No

South Korea

Mandatory for large-caps

33

No

TaiwanExpanding the mandatory list to thelisted companies with paid in capital
more than NTD2bn from 2023

n.a.

2023

India

Voluntary

37

No

Indonesia

Mandatory from 2020

36

No

Malaysia

Voluntary

22

No

Philippines

Mandatory from 2020

30

No

Singapore

Mandatory

24

No

ThailandMandatory

9

No

VietnamMandatory

45

No

Source: Various exchanges, Rankings the World’s Stock Exchanges, 2019 (as of November 2020)

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero35

6. Controversies on natural gas as a transition fuelCountries in Asia have been pushing for the increased use of natural gas at the expense of coal for electricity
generation as a means to reduce particulate and carbon emissions, since the lifecycle greenhouse gas emissionsof LNG is less than coal, according to industry analysis.

Since 2014, China has made significant progress in increasing the adoption of natural gas, with the government
setting a goal of increasing China gas consumption to 360 billion cubic metres (bcm) in 2020 to 10 per cent of
the country’s energy mix by 2020, from 6 per cent in 2014. By late-2019, China was the largest importer of LNG in
the world surpassing Japan and South Korea. The formation of China’s national pipeline company in 2019 was afurther step in that direction. Vietnam is also projecting strong growth in LNG imports from 1.2 million tonnes by2025 rising to 30 million tonnes by 2045.

The growing use of natural gas as a transition fuel to renewables from coal has become a point of debate. Thisis because of the relatively high cost of natural gas vs renewables, still considerable emissions that natural
gas produces and possibility that large-scale methane emissions released into the atmosphere from fracking
in the US has not been accounted for in the estimates of natural gas lifecycle emissions. According to the
Global Energy Monitor, overall methane system leakage in the US gas system is 2.3 per cent, which would makeemissions from leakages similar to emissions from burning the gas in power plants, thus doubling the warmingfrom just burning the gas44. The Network for Greening the Financial System (NGFS) has concluded that in order
to conform with the 1.5C scenario, Asia’s natural gas demand has to peak around 2020 and decline by around
40% in 2050.

Gas demand for electricity generation has been flat or on the decline since 2015 in countries such as Japan,
Thailand and India, which could reflect the growing competitiveness of renewables vs LNG and other factors suchas environmental concerns and slowing overall electricity demand growth, particularly in Japan. In Australia, gas
powered generation in the national electricity market has fallen 59 per cent between 2014-19, as gas has not beenable to compete with cheaper, renewable sources of power generation. However, there are specific situations
such as in Hong Kong and Singapore, where the land availability constraints make renewables difficult to scale
up and transition is taking place first with gas, before implementation of other solutions such as green hydrogenor import of renewables from China.

44.

Global Energy Monitor (2020), Gas Bubble - Tracking Global LNG Infrastructure

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero36

7. Regional water resource management
Governments are seeking to shore up their water resources management in order to deliver improved water
security. For example, China’s National Energy Administration released a Coal Bubble Alert System in 2016 which
would ban new coal plants from being built in areas where water is constrained.

Restrictions on thermal coal funding are rising

Figure 18: Asian financial institutions that are restricting thermal coal fundingNo

Financial Institution

Type

Country1

Asian Development Bank

Multilateral Development Bank

Philippines

2

Asian Infrastructure Investment Bank

Multilateral Development Bank

China

3

Cathay Financial Holdings

Bank

Taiwan4

DB Insurance

Insurer / Reinsurer

South Korea

5

DBS Bank

Bank

Singapore

6

E.Sun BankBank

Taiwan7

Japan Bank for International Cooperation

Export Credit Agency / Bank

Japan

8

KB Financial GroupBankSouth Korea

9

Korea Trade Insurance Corporation

Export Credit Agency / BankSouth Korea

10

Mitsubishi UFJ Financial Group

Bank

Japan

11

Mizuho Financial Group

Bank

Japan

12

OCBC BankBank

Singapore

13

Resona Holdings

Bank

Japan

14

Shinhan Financial GroupBankSouth Korea

15

Sompo Holdings

InsurerJapan

16

Sumitomo Mitsui Banking Corporation

Bank

Japan

17

Sumitomo Mitsui Trust Bank

Bank

Japan

18

The Export-Import Bank of Korea

Export Credit Agency

South Korea

19

Toho Bank

Bank

Japan

20

United Overseas BankBank

Singapore

Source: AIGCC, IEEFA (as of Nov 2020)

Investor Expectations of Asian Electric Utilities Companies Crossover to net zero37