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Climate change: why Hong Kong-listed firms have to ensure ‘just transition’ sustainability plans

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Just transition, or practices for mitigating and adapting to climate change without sacrificing key stakeholders’ interests, is an emerging topic that Hong Kong-listed companies have to confront, according to a sustainability expert.

Companies will increasingly be questioned by institutional investors about their plans to address the social impact that may arise out of their climate and sustainability-related strategic decisions, said Anthony Cheung, a member of the supervisory board of World Benchmarking Alliance (WBA). The non-profit ranks the world’s most influential companies on their contribution to the United Nations’ 17 sustainable development goals to be achieved by 2030.

“In the past, when Hong Kong listed companies met institutional investors, the companies mostly talked about their plans on greenhouse gases and waste management,” he said ahead of the Chamber of Hong Kong Listed Companies’ ESG and green finance forum on Wednesday.

The forum will focus on transition finance, green technology, social impact investment, environment, social and governance (ESG) and climate risk disclosures. Cheung is one of the participants in a panel discussion on social impact investment.

Anthony Cheung is a member of the supervisory board of World Benchmarking Alliance and managing director of ESG at Polymer Capital. Photo: Handout

“Going forward, we should expect some of the just transition issues to be asked and addressed,” said Cheung, who is also the managing director of ESG at Asia-focused hedge fund Polymer Capital.

On the global level, emerging economies are seeking a just transition, demanding financial and technological assistance from developed nations to help them mitigate and adapt to climate change.

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For example, developed nations, multilateral development banks and private lenders have agreed to provide investments, grants and concessionary loans to help South Africa, Indonesia and Vietnam to shut their coal-fired power plants earlier.

“It is really a multi-stakeholder, collective approach, involving government, banks and investors,” Yulanda Chung, head of sustainability at DBS Bank, said at ReThink HK, Hong Kong’s largest green finance and sustainability conference last month. “The power plants’ owners have to be compensated by lowering the cost of financing or by renegotiating the terms of their power purchase agreements with the government.”

DBS is advising the Indonesian government on ways to structure agreements.

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At the industry and business level, a just transition involves offering assistance – in the form of skills development and alternative jobs creation – to workers and local communities affected by, for example, closure of environmentally unfriendly operations such as coal mines.

“Decarbonisation will create winners and losers from many industries, with economic opportunities in new fields while legacy activities will be left behind,” said Jenn-Hui Tan, chief sustainability officer at Fidelity International, which manages some US$728 billion of client funds. “Just transition is about how you go about phasing out an activity in a responsible way that will minimise those societal impacts.”

However, companies’ performance has been dismal, according to the WBA report published in November 2021, which analysed 180 of the world’s largest and most impactful companies in the oil and gas, utilities, and car manufacturing sectors.

Only nine of the 180 firms scored above 50 per cent on their performance across six just transition indicators, which the WBA said puts more than 11 million workers at risk.

“Our assessments have revealed a systemic lack of disclosure on how companies identify, prepare for and mitigate the social impacts of their low-carbon transition strategies,” the report said. “Lack of action by companies could arguably risk the success of the entire low-carbon transition and could lead to increased inequality, mass unemployment and civil unrest.”

In Hong Kong and mainland China, more needs to be done by companies to foster cross-sector collaboration, prioritising renewable energy investments, supporting green technology research, and integrating ESG considerations into financial decision-making, Cheung said.

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Some of the most pioneering investors, including supranational institutions and global banks, are no longer only focusing on companies’ ESG scores when making financing decisions, he said.

They are increasingly seeking companies and projects with clear targets on at least two to three of the UN’s 17 sustainable development goals.

“Investors like companies that are willing to take one step further to come up with innovative products and services that would be lucrative and also address sustainable development issues,” Cheung said.

However, many professional investors have yet to incorporate just transition into their investment decisions in a big way, according to a Fidelity’s survey of 120 institutional investors last month.

It found only 42 per cent of the respondents were familiar with the concept, and only 35 per cent among those familiar with it have or are developing a dedicated investment strategy focusing on it.

Article was originally published from here

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