22 January 2010
Responsible Research, an independent research company covering Asian environment, social and governance themes for global investors, has issued the first in a series of 24 Asian sector sustainability reports, entitled Powering Asia: Issues for Responsible Investors. The report focuses on the importance of non-renewable electricity generation in fuelling Asia‘s continued economic growth and looks at how the provision of power can be used as a political tool in certain countries.
The 105 page report, which was complemented by Trucost data on emissions, has identified some clear leaders in the areas of environmental performance, management and CSR reporting and corporate governance. It reports on several large companies that are excellent reporters but have high-impact business models. It also highlights examples of smaller companies with a large share of renewable energy generation. Some of these are theoretically ‘investable‘ to those looking to lower a portfolios carbon footprint, but have poor reporting or governance.
Of the 29 companies covered, the biggest CO2 emissions producers were Kepco (Korea), Huaneng Power (China) and NTPC Ltd (India). These 'global warmers' are estimated to each produce a staggering 180 mtCO2 or more annually. In terms of the intensity of emissions (measured against revenues), China Resources was found to have the worst record at an estimated 28,845 tCO2/US$m revenue. Compared to HK Electric, which still burns 68% fossil fuel, yet has an intensity of only 6,091 tCO2/US$m revenue, it is clear that there are some fossil fuel burners who are more efficient than others.
The power generation companies with the largest contribution to earnings from renewable energy include Aboitiz Power Corp and Energy Development Corporation (Philippines). Tenaga Nasional (Malaysia) and Tata Power (India) are also found to have relatively low emissions intensity despite having lower contributions from renewables.
The clear leaders in terms of CSR reporting and management were found both in developed markets with strong regulatory control (CLP Holdings (HK) and HK Electric (HK)) and, unexpectedly, in emerging markets; (Tata (India), Datang (China), Electricity Generating Corporation (Thailand)). Generally, environmental management is poor within this sector in Asia. No company in the universe has yet achieved global best practices where environmental impacts are strategically measured, managed, certified and targets are set. Over 60 percent of the companies covered reported zero relevant information or had no identifiable management of the issues. Kepco (Korea) contributes the most to GHG emissions amongst listed Asian power companies (total estimated CO2 emissions) but is one of the top two performers on environmental management. Conversely, some IPPs with a high proportion of generation from renewables showed no awareness of environmental management and therefore scored poorly.
Corporate governance within the power sector varies greatly according to regulatory environment, business model, stock market listing and reporting requirements, peer group performance and shareholding structure. China Resources (HK), CLP (HK) and Reliance Infrastructure (India) perform equally well at the top of the league but the Malaysian operator, Tanjong, also deserves a special mention for its Board committee structure and independence of directors. YTL (Malaysia) also performs well but would be better placed if there were more independence on the Board and if it were to have to have separate remuneration and nomination committees.
The poorest performance on corporate governance indicators are also in India - NTPC Ltd, Torrent and Power Grid Corporation which appear to have extremely poor disclosure and whose board structures do not seem to support the interests of minority shareholders. They also have the same individual serving as CEO and Chairman; this is typically seen as an indicator of poor corporate governance by most governance observers. Kepco (Korea) has a history of poor corporate governance which adds to the concerns for most responsible investors.
A final note on performance should be made regarding losses in transmission and distribution. The highest disclosed T&D losses are, not surprisingly, reported in India; NTPC Ltd (22%), Reliance Infrastructure (21%) and Tata Power (15%).
DOWNLOAD the report here