Energy transition in developing Asia: Critical to the success of addressing climate change

Asia is absolutely critical to meeting the goals of the Paris climate agreement. The region’s greenhouse gas emissions are already higher than any other region of the world and continue to grow as the need for energy expands, both to provide access to energy to a growing population and reflecting the region’s role as the world’s manufacturing powerhouse. Meeting these growing energy needs whilst also turning the trajectory of greenhouse gas emission downwards requires a radical shift to a lower-carbon pathway.

We traveled to Thailand, China and Hong Kong to engage with 10 strategically important energy companies to encourage actions aligning their emissions to the Paris Agreement goals. In our meetings with these companies, we set out our belief that although national policies in the region are misaligned with the Paris Agreement goals, they should think longer-term and recognize the advantages of being proactive by going above and beyond where their governments are currently positioned on the low-carbon transition.

An important energy system continues to grow

Contributing more than 60% of world’s GDP growth in 20171 and with now more than 60% of world’s population living in the region2, Asian countries have been catching up to provide reliable and affordable energy to the growing population alongside the middle-class expansion. This is a challenging task for some developing countries in the region, as over 400 million people in developing Asia still lack access to electricity.

This has created a significant need for the energy system to expand. In the Association of Southeast Asian Nations (ASEAN), economic growth in the past 15 years drove 60% growth in energy demand –an upward trend that is likely to continue until at least 2040, when the electricity access rate reaches 100% as estimated by the International Energy Agency (IEA)3. India, with its electricity access rate sitting at 82% in 2016, is expected to see more than 4% growth annually in energy demand through to 20354. China, although having achieved 100% electricity access back in 2010, is still set to experience a 21% rise energy demand growth by 2040 according to the IEA.

Key Developing Asia Countries & Electricity Access Rates in 2016:

  • 100%: China, Singapore, Thailand, Brunei, Sri Lanka
  • 90% – 100%: Malaysia, Vietnam
  • <90%: India, Indonesia, Philippines and others


Source: IEA, Energy Access Outlook 2017

Positive signs of deep energy transformation, but it needs to be quicker

Balancing the energy demand growth and the need for decarbonization is challenging. The IEA currently estimates that to limit global warming to well below 2 degrees Celsius as set out in the Paris Agreement, 90% of the energy demand growth across developing Asia would need to be fulfilled by low-carbon energy sources, while displacing existing high-emitting fossil fuel demands through electrification of the region’s energy and transportation systems by 2040. Deep energy transformation would need to be completed by 2050, meaning that energy-related emissions would need to drop by 75%5.

While there are certainly positive signs across Asia, including the doubled renewable energy capacity between 2013-20186, oil and coal use also continued to rise and met most of the additional demand in the past two years7. If this trend continues, the IEA expects that almost 50% of the region’s primary energy consumption in 2040 would still be met by coal and oil8. This would very likely exhaust the Asian “carbon budget” (the total amount of greenhouse gas permittable to stay under 2 degrees of global warming) much sooner than expected. Looking at the a more ambitious 1.5 degrees scenario, the University of Oxford has estimated that almost 84% of the current and planned thermal plants across Southeast Asia are incompatible with this goal9.

India, with its electricity access rate sitting at 82% in 2016, is expected to see more than 4% growth annually in energy demand through to 20354.

National policy trajectories are currently inconsistent with the Paris goals

National energy and climate change policies have a significant role in altering this trend, as most parts of the developing Asian energy market are still regulated by, or experience a strong presence of, state-owned enterprises. However, most of the climate change commitments declared by key developing Asian countries are expected to be incompatible to the 2 degrees warming limit, let alone the more ambitious 1.5 degrees aim, according to the Climate Action Tracker10.

The Intergovernmental Panel of Climate Change (IPCC) estimates that there needs to be an additional 54% reduction, or 29 gigatons of CO2 equivalent, from the projected emissions level in 2030 based on all the existing national commitments11. If these national commitments remain unchanged, the implication is that the post-2030 adjustment would need to be much more ambitious. Such a “back-loaded” approach in national decarbonization strategies could be risky if corporates were to merely follow the existing national ambitions when setting reduction targets, leaving a short time-frame between 2030-2050 for deep energy transformation, and the potential for “stranded assets” if investments in the coming decade turn out to be incompatible with a more severe cut in future emissions.

Our engagement with the Asian energy sector

Given the challenges the energy sector will likely face, we traveled to China and Thailand and met with ten mining, oil & gas and utility companies to encourage early action on climate change.

Some already see energy transition as an opportunity

Several companies in the energy and utilities sectors that we met showed good awareness of energy transition issues. Many of them acknowledged that this is now an essential part of investor interests, with a focus on the arising opportunities in the low carbon future. We feel particularly positive that CLP and PTT have both set out clear business plans to harness the opportunities.

CLP, a utility company based in Hong Kong with operations in India and China, launched its Climate Vision 2050 back in 2007, which set out its mid-term renewable energy capacity targets and helped CLP become one of the first Asian companies establishing a 2050 reduction target. In recent years, the company has been targeting key markets, such as India, for renewable energy growth, and has worked with strategic investors to strengthen its competitive position. Although India’s national energy policy played a significant role in enabling such opportunities, we commend CLP’s early vision back in 2007.

CLP is also actively engaging in policy dialogues with regulators to confirm the timeline of switching its coal-fired units to lower-carbon technologies. In September 2019, the company published their position on Hong Kong’s “Long-term Decarbonization Strategy”, encouraging the government to take a balanced view considering environmental sustainability in its future energy policy and to be clear on the timeline starting the transition away from coal to natural gas.

PTT, the largest integrated oil & gas company in Thailand, is another company we see viewing the energy transition as an opportunity. We met PTT as it was working on an update of its green revenue target, and the company shared with us its positive outlook on the green product markets, where it is currently scaling up. The revenue target is coordinated between its large number of subsidiaries and informs their research and development targets and budgetary decisions. In our opinion, this is an example of best practice rarely seen in Asia. While we will continue to encourage stretching mid and long-term reduction targets by the group, we feel that management has adequate knowledge on energy transition, with a good climate change governance framework.

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.

But most struggle with actions to manage transition risks

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 de-merged 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 decarbonize 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.


Climate Commitments by Key Developing Asian countries:

2030 greenhouse gas reduction targets (unconditional):

  • Indonesia (29% reduction across selected sectors against the business as usual scenario)
  • China (peak CO2 emissions in absolute terms; 60-65% economic wide reduction of carbon emissions per GPD below 2005 level)
  • India (33%-35% below 2005 emission intensity)

Non-fossil energy consumption targets:

  • Indonesia (23% by 2025, 31% by 2050)
  • China (20% by 2030, 50% by 2050)
  • India (40% by 2030)

Coal supply targets:

Indonesia (min. 30% by 2025, min. 25% by 2050)

China (implied in the 2030 emission peak pledge and the non-fossil energy target)

India (implied in the 2030 carbon intensity target and the non-fossil energy target)

Source: UNFCCC NDC Interim Registry

CLP’s Climate Pledge 2050

  • 80% reduction by 2050 in carbon intensity compared to the 2007 baseline
  • 30% of its generation portfolio to be renewable energies
    and 40% to be non-carbon by 2030
  • Interim targets (2020, 2030 & 2040) on the above to track progress

Source: CLP Climate Vision 2050

PTT Climate Change Management

  • Opportunities: Establishing an investment strategy and setting a target to increase the PTT Group’s revenue from low carbon products by 2023. This includes renewable energy, biofuels and natural gas.
  • Risks: Evaluate and implement carbon pricing when considering to invest in 2020.
  • Impact Reduction: 20% reduction by 2030 compared to business as usual scenario.

Source: PTT 2018 Report

Several companies in the energy and utilities sectors that we met showed good awareness of energy transition issues.

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 recognize 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 road map 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 low-carbon 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.
Related Capability

Learn more about our Responsible Investing capabilities.

Subscribe to our insights



The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Investing in emerging markets is generally considered to involve more risk than developed markets.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Related articles
No posts matching your criteria
June 2020

Modern slavery: Engagement update

In our last Viewpoint about modern slavery, we highlighted that as long-term investors, we encourage companies – particularly those in high-risk sectors – to identify and manage modern slavery risks.

April 2020

The meaty realities of food production

The growing global population is driving demand for protein, increasing the impact of the global food industry on workers and the environment.

March 2020

ESG implications of the COVID-19 pandemic

We are still in the early stages of understanding the impact that COVID-19 will have. However, some important implications are already emerging.

February 2020

A new life for old coal power?

As part of our 2020 climate-related engagement, we will tackle coal as it is the most carbon-intensive fossil fuel.

February 2020

Living wage in the retail sector

We are working with a group of companies, NGOs and an agency for international development cooperation to develop and pilot a methodology for ‘social opportunities scenario analysis’, which would help companies to consider the trade-offs between short-term cost management and long-term employee satisfaction and performance in a more structured way.

January 2020

Gender diversity: Are German companies keeping up?

Despite a 30% quota for Supervisory Board diversity, German corporations continue to lag peers on gender diversity at senior levels.

December 2019

Access for growth: Promoting responsible access to healthcare and finance in India

India’s vast untapped market for healthcare and financial services offers significant growth prospects for companies looking to serve it.

December 2019

Kristi Mitchem discusses opportunities in ESG

BMO Global Asset Management CEO Kristi Mitchem talks with BNN Bloomberg anchor Catherine Murray at the Canadian Sustainable Investment Forum in Toronto about how the company is working to advance sustainable finance initiatives.

December 2019

The workforce data quest: Why we need it and why it helps companies as well

Response rates to the WDI are still low in comparison to the investment universe or similar initiatives, but numbers are increasing year after year.

December 2019

Purpose & ESG: Transforming Corporations While Building Long-Term Profit

Studies show that adopting environmental, social and governance (ESG) principles is good for business, but doing it right requires companies to develop a proper framework that communicates their purpose with sustainability as a prominent driver.

November 2019

Antimicrobial resistance: An investor perspective on a pressing global threat

At BMO Global Asset Management, one of our key corporate engagement topics is antimicrobial resistance (AMR), which is a pressing global challenge.