Chinese natural gas suppliers are another group of businesses enjoying energy transition as a driver for new business growth. Kunlun Energy and Hong Kong and China Gas are both focusing on downstream distribution and are clearly benefiting from the incentives created by China’s energy policy, which drives gasification for heat supply at major cities.
Hong Kong and China Gas
In parallel to the energy transition opportunities, it is equally important to understand how companies are reducing their climate change impacts and their reliance on fossil fuels. We remain disappointed that a comprehensive management approach here is rare. Except for CLP, Sinopec and PTT, key energy companies, including Shenhua, Power Assets (apart from one of their assets), Kunlun Energy, Hong Kong and China Gas (on their large China asset portfolio) and Beijing Enterprise have all failed to disclose a company-wide emission reduction target further ahead than a one-year time horizon. Although we anticipate that upcoming disclosure requirements at the Hong Kong Stock Exchange and in China will help address the lack of clarity, we feel that there is a long way for companies to fully consider the implications of the Paris Agreement goal of limiting global warming to “well below 2 degrees” in their greenhouse gas emission management approach.
There also seems to be limited room for some to diversify into the low carbon segments. Shenhua, for example, has recently been repositioned to focus on upstream coal mining, and demerged around half of its utility assets under the new parent – the state-owned CHN ENERGY Investment Group. This is likely to limit its access to low carbon growth opportunities and the options to decarbonise available in its downstream. The company also mentioned that they expect to rely on newly emerging abatement technologies to significantly lower their company wide carbon intensity. As some of these technologies – such as Carbon Capture and Storage – are still in early pilot, it could also mean that it is highly uncertain whether companies of such kind could be anywhere near to alignment to the Paris Agreement goals by mid-century.
Our future engagement with the Asian energy sector
We recently set out our expectation that companies should align their emissions to the “well below 2-degree” scenarios in our climate change engagement framework. We believe that it is the responsibility of boards and executive management teams to provide clarity on their transition approach to the low carbon economy.
We recognise development and access to energy needs, and the economics of different technologies in the region. However, we feel that these are too often used as a reason for inaction. Balancing these, our minimum expectations for high-emissions companies in this sector are:
- Set a medium-term reduction target (by 2030) that is at least in line with the country’s existing commitment in the Paris Agreement;
- Conduct a scenario analysis with a timeframe until 2050 to understand policy trajectories and their possible impacts on the business;
- Publish a technology roadmap suitable for the company to achieve the reduction target. This could be based on key abatement technologies with the backing of a clear research & development or investment plan;
- Focus on low-carbon opportunities (technologies and/ or products and services) that are already economical (or will be in the near term) in their business growth strategies. We will encourage companies to go above and beyond current policy trajectories to scale these lowcarbon solutions;
- We expect companies to lobby positively on these low carbon opportunities and
- We will continue to educate on the concept of 2-degrees alignment, and the inherent risks of business strategies that are not consistent with a future zero-carbon world.