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Business Times
2 days ago
- Business
- Business Times
Issue 153: Transition plans reveal clean tech opportunities; DBS hot on nuclear
This week in ESG: MSCI Research analyses companies' transition plans; DBS sees growth in nuclear sector Sustainable investing (Part 1) Finding opportunities in disclosures Editor's note: ESG Insights will take a break on Jun 27 and Jul 4, and will resume on Jul 11. Sustainability and climate reporting continue to face widespread resistance among businesses, many of which do not view these issues as material or consistent with business objectives. But global markets' gradual move towards mandatory reporting on environmental, social and governance (ESG) issues – especially climate-related disclosures – goes beyond providing insights on the sustainability of individual companies. When a critical mass of businesses provides ESG information, that data can be used to discern broader trends, which in turn can be used to make money. MSCI Research's latest report on climate action progress among companies on the MSCI AC Asia Pacific Investable Market Index shows one way in which that analysis can be done. A NEWSLETTER FOR YOU Friday, 12.30 pm ESG Insights An exclusive weekly report on the latest environmental, social and governance issues. Sign Up Sign Up MSCI Research assessed the transition plans disclosed by companies on the index and identified a number of clean-tech sectors that could experience increased demand because of companies' decarbonisation commitments. A transition plan lays out a company's strategic decarbonisation goals, technology roadmaps and capital allocation to achieve short, medium and long-term targets. In the energy sector, MSCI Research found that companies with transition plans were planning to invest more in hydrogen, renewables, electric vehicles and carbon capture and storage (CCS). All 16 energy companies that provided transition plans, in addition to 200 companies not in the energy sector, held hydrogen-related patents as at October 2024. About 4 per cent, or 150 companies, of the index companies provide clean transportation solutions, MSCI Research said. Companies that generated more than 80 per cent of revenue from electric vehicles and hybrid electric vehicles had annual total revenue growth rates of over 25 per cent, surpassing their peers. In the utilities sector, MSCI Research identified clean energy and hydrogen-fired generation as strategic priorities for companies in the region, with more than 80 per cent of transition roadmaps indicating potential use of clean fuels. More than 70 per cent of the transition plans also referred to potential use of CCS. A key area of research and development investment is in perovskite-on-silicon tandem solar cells, which have higher theoretical efficiency limits than the traditional silicon cells. Almost all transition plans from the materials sector involved developing renewable-energy and low-carbon products. Steel, cement and hydrogen are examples of materials that require large amounts of power and have therefore been difficult to transition away from fossil fuels. Despite the energy-intensive nature of many of these products, MSCI Research found that less than half of companies in the sector were looking at adopting CCS. The MSCI Research analysis is possible because the number of companies that are reporting on their transition plans has been increasing, from 12 per cent of all the stocks on the index in 2022 to 22 per cent in 2024. The numbers are expected to improve in the coming years as jurisdictions begin to adopt and implement global accounting standards that include disclosing transition plans. The adoption of the accounting standards will also uplift the quality of the data, by increasing the sample size and improving comparability. Harnessing the power of the financial markets is often touted as a critical requirement for fighting climate change at scale. For that to happen, it's important that investors understand climate action not simply as a form of risk management, but as a source of profitable opportunities as well. More and better sustainability disclosures can enable analysis for this side of the equation. As investors become more sophisticated about climate-related disclosures, companies will also find it easier to get noticed for credible climate strategies and progress on those strategies. While sustainability reporting may require resources, companies that are transparent and committed could find the cost well worth the rewards. Sustainable investing (Part 2) Eyeing a nuclear boom When is uranium exposure a good thing? When you're investing in it, says DBS chief investment officer Hou Wey Fook. Hou sees four drivers for higher demand in the nuclear energy value chain. The first is a security need to diversify away from fossil fuels, sparked by wars in Europe and the Middle East. The second is the energy transition commitments that countries and big companies have set for themselves. In quite a number of these cases, nuclear energy has emerged as a potentially feasible and possibly essential low-carbon alternative to fossil fuels, especially when renewable options are inadequate or still immature. For instance, Indonesia, Malaysia, the Philippines, Singapore and Vietnam are at various stages of exploring nuclear energy. Tech giants such as Amazon, Google, Meta and Microsoft have also announced their intentions to acquire nuclear energy. Third, digitalisation and artificial intelligence are gobbling up a huge and increasing amount of electricity. Finally, the development of small modular reactors has significantly lowered the cost and land resources required for nuclear energy. Hou outlined four ways to invest in the nuclear sector: Physical uranium Uranium miners Reactor developers Utilities As Hou says, momentum for nuclear energy is definitely growing. However, most of the nuclear players sit outside of Asia. Hong Kong-listed CGN Mining, which extracts uranium to support China's nuclear industry, is one of the rare investable names in this region. It's definitely a space worth watching. Other ESG reads
Business Times
7 days ago
- Business
- Business Times
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. A NEWSLETTER FOR YOU Friday, 12.30 pm ESG Insights An exclusive weekly report on the latest environmental, social and governance issues. Sign Up Sign Up 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.
