Still more room for growth for decarbonisation in Apac economies: MSCI
[SINGAPORE] Despite the reliance on fossil fuels, 837 Asia-Pacific corporations have disclosed their climate-transition plans, doubling the commitment growth from 25 per cent in 2023 to 50 per cent in 2025, a report by investment research firm MSCI showed.
This demonstrates a 'growing momentum towards adopting transition plans and advancing technological innovation to support corporate decarbonisation efforts', MSCI added.
It noted that the doubling of the number of companies that have committed to the Science Based Targets initiative standard indicated a strategic focus on real economy decarbonisation.
There are 3,874 constituents in the MSCI AC Asia Pacific Investable Market Index (IMI). Twenty-two per cent (or 837) of the companies disclosed transition plans in 2024, with the information technology sector being the highest with 27 per cent having transition plans, followed by industrials at 26 per cent, and materials sectors at 23 per cent.
Internationally, Japan had the highest disclosures at 45 per cent, followed by South Korea at 33 per cent, and Taiwan at 30 per cent, with an increase of disclosed transition plans from 12 per cent in 2022 to 22 per cent in 2024 in Apac.
MSCI added that companies with transition plans were more likely to disclose key climate metrics than those without. They were also more likely to report their Scope 1, 2 and 3 emissions as well as set climate targets.
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Apac economies also heavily rely on fossil fuels, contributing more than 40 per cent of global greenhouse gas emissions in 2023.
As the global average temperature surpassed the threshold set by the Paris Agreement, reaching a record high of 1.5 degrees Celsius above pre-industrial levels in 2024, MSCI examined corporate transition plans across 13 Apac markets, with a focus on clean-tech investment.
The research firm noted that corporate disclosure of transition plans may drive clean-tech demand by signalling the need for emissions reduction technologies.
The speed and scale at which Apac corporations can decarbonise will depend not only on their ambition, but also on their technology road map, capital allocation, and access to commercially viable clean technologies.
To better understand how transition plans can drive clean-tech demand in Apac, MSCI analysed the transition plans in areas such as energy, utilities and materials sectors.
The effects of these policies are reflected in the energy sector. Of the 90 companies in the energy sector in the MSCI AC Asia Pacific IMI, 18 per cent (or 16 companies) of them disclosed their transition plans, planning to invest in hydrogen, renewable energy and electric vehicles (EVs) to diversify their revenue streams towards clean energy.
They have also integrated hydrogen fuels into their transition plans, reducing greenhouse gas emissions across all modes of operations.
In addition to the 16 energy companies, 200 companies or 5 per cent of the MSCI AC Asia Pacific IMI constituents hold hydrogen-related patents, with technologies that demonstrate hydrogen's potential to fully replace other less-sustainable choices such as fossil fuels.
The emerging technologies may demonstrate hydrogen's potential as a low-carbon energy carrier. But MSCI noted that 'scaling up hydrogen production and balancing supply and demand may face significant challenges due to high production costs and infrastructure requirements'.
Electric and hybrid vehicles in transition plans
However, the market penetration of the policies in electric and hybrid vehicle companies is not as successful. Of the constituents of the index, only 4 per cent (or 150) of the companies provide clean transportation solutions.
Despite the low disclosure rate, 4% of companies, such as Zhejiang Leapmotor and LG Energy Solution, posted a compound annual growth rate of over 150% in total sales from 2020 to 2023. CREDIT: MCSI ESG RESEARCH
However, MSCI said that makers of these vehicles can capitalise on market growth and the rising demand for clean transportation solutions.
EV solutions providers and EV component makers such as Zhejiang Leapmotor and LG Energy Solution posted a compound annual growth rate of over 150 per cent in total sales from 2020 to 2023.
Success in utilities sector
More than 80 per cent of the 23 Apac utilities constituents indicate transition plans involving the use of clean fuels in their road maps, such as hydrogen-fired generation, reflecting the success and growing priorities for sustainability in the sector.
The diversification of low-carbon power generation can be attributed to research reflecting that renewable powers surpassed 50 per cent of the electricity market share.
Waaree Renewable and KPI Green, which derive most of their revenues from renewable energy solutions, reported a compound annual growth rate of more than 100% between 2020 and 2023. CREDIT: MCSI ESG RESEARCH
This is reflected in two Indian companies – Waaree Renewable and KPI Green, which derived most of their revenues from renewable energy solutions and reported a compound annual growth rate of more than 100 per cent between 2020 and 2023.
Despite the success and expansion, certain countries and market dynamics are not as promising due to slower phase-outs of coal-fired power plants, such as China, Indonesia and India; other countries such as Japan still provide petrol subsidies, which slow decarbonisation efforts.
Growth in materials sector
According to the report by MSCI, more than 90 per cent of companies in the materials sector disclosed their transition plans, developing low-carbon steels.
A common challenge faced in this sector is the intense heat required for operations, making fossil fuels the most practical option.
Despite the heavy use of fossil fuels, less than half of the companies considered adopting carbon capture and sequestration, which involves capturing the carbon produced to store them underground.
The success of companies disclosing their transition plans are reflected in steel industries such as Tianqi Lithium, Chifeng Jilong Gold Mining and LB Group, growing the low-carbon patent quality for their materials by 70 per cent from 2020 to 2023.
Room for growth in carbon credits
However, only 2 per cent of the carbon projects are rated 'A' or 'AA', with 65 per cent of projects falling into 'B' to 'CCC' ratings. This indicates a shortage of high-quality options for credible transitions.
It also raises concerns about their environmental impact and the reputational risks for companies.
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