Regulation is also a strong growth driver for ESG investing in Asia. But compared to their western counterparts, corporate ESG disclosure regulations across Asian markets are still at a relatively nascent stage. The market itself can be characterised as being fragmented. In this week’s ESG newsletter, we would like to highlight some key developments in Asia’s corporate ESG regulations as well as the progress we have observed on the ground.
Over the past four years, Hong Kong’s position as “Asia’s financial hub” and “Asia’s World City” (as the official slogan says) has suffered. The hit it took was such that many have questioned Hong Kong’s viability, preferring its long time challenger, Singapore, to plan their Asian future. Needless to say, Hong Kong has been on a roller-coaster over the recent past.
In the first nine months of 2022, additional installation of batteries for Electric Vehicles (EV) across China was 193.7GWh according to China Automotive Battery Innovation Alliance (CABIA) data. It represented a 110.5% increase year-over-year.
China Passenger Car Association (CPCA) preliminary data show that domestic passenger car retail volume in September 2022 is expected to have seen 1.9mn new cars sold, increasing by 21% year-over-year. It is worth noting that September 2021 was a low base because of chip shortages at that time. Month-over-month, the overall passenger car retail volume increased slightly by 2%.
The Paris Agreement of 2015 mandates all member countries to report Nationally Determined Contributions (NDC) that are designed to help achieve climate goals. Since 2020, major ASEAN countries have all submitted NDCs, which we believe is a reflection of each country’s economic development stage, technological capabilities and climate ambitions.
Gas and electricity prices have reached record levels in 2022 and hit all-time highs following the Russian invasion of Ukraine. The dramatic increase in electricity prices is putting pressure on households, small and medium enterprises and risks causing wider social and economic harm. This coming winter, low and even middle-income households as well as smaller businesses may face the risk of not being able to pay their energy bills. Many will have to cut on other essential spendings to keep warm.
Since early July, unprecedented heatwaves have been sweeping across southern parts of China, drying up reservoirs and crippling hydropower stations along the Yangtze River. Due to the abnormal drop in rainfall level, high-temperature alerts have been issued by China’s National Meteorological Center for the 32nd consecutive day, with top daytime temperatures across 13 provinces ranging from 35 degrees Celsius to 40 degrees Celsius. Based on both intensity and duration, this is so far the worst and longest heatwave China ever experienced since 1961 when nationwide weather records started being gathered.
It has been one year since China launched the world’s largest carbon credit market, an emission trading scheme that was expected to play a critical role in the country’s climate ambitions. Although we discussed this topic on multiple occasions in our weekly newsletters, we felt compelled to highlight the challenges and obstacles we observed during the past year and outline the shortcomings of the current scheme.
Energy Storage System (ESS) has been a hot topic in renewables over the past couple of years, and it is only getting hotter this year as the global energy crisis intensifies. The volume of added grid-scale energy storage installations in the United States has been multiplied by four between 1H 2021 and 1H 2022, setting up a new record.
Our regular readers might remember that we had a global electric vehicle (EV) market review for the full year of 2021 and for the first quarter of 2022. Now it is time to wrap up the first half of 2022.
On 1st July 2022, the government of India started implementing a law that bans the manufacture, import, stocking, distribution, sale, and use of certain single-use plastic items across all of India. This is the second phase of a plan laid out by the government in August 2021 to end usage of single-use plastic in the country. This phase will ban singleuse plastics in straws, cutlery, earbuds, packaging films, balloons, candy, ice cream and cigarette packets, among other products. The full list can be found on the government’s website here.
As economic activities in Shanghai and other cities are gradually being restored to normal, China’s auto market demand and supply have rebounded. According to insurance data and to CMB International Securities’ estimation, daily sales volume of New Energy Vehicles (NEVs) for the first 19 days of June increased by 124.2% compared to the same period last year, and by 70.9% month-on-month thanks to the easing of pandemic control measures. April was the trough when total retail car sales in China had dropped by -35.4% YoY. That drop was reduced to -16.9% YoY in May, according to data gathered by the China Passenger Car Association.
The government of India is not being conservative when it comes to the country’s renewable plans. India currently has around 150GW in renewable energy capacity today. During the Conference of the Parties (COP 26) in Glasgow in 2021, India announced a 500GW renewables capacity target by the year 2030, up from the previous 2030 target of 450GW. The 500GW target would imply that more than 70% of India’s added capacity until 2030 is to come from renewables.
As we previously wrote about Indonesia being in a sweet spot due to its commodity exports under the current inflationary environment, what is largely unknown to the rest of the world is that the country is also trying hard to avoid its resources curse. The country’s environmental commitment came as a pleasant surprise when it announced its carbon neutrality goal at the COP26 summit in 2021. As a result of the commitment, major Indonesian lenders have started to take action by underwriting more green loans and terminating fossil-fuel related financings.
Following a decade long of hesitation and reluctance to adopt genetically modified organisms (GMOs), the Chinese agricultural regulator recently revised a set of regulations for seed-makers to seek approval for GMOs, an indication that the country is about to reverse its previous stance on the commercialisation of GMOs.
India is facing its worst power crisis in six years. The country of 1.4 billion people is used to power shortages in warmer seasons, but during April 2022 Indian nationals have been facing consistently 4 to 8 hours of daily power shortages, a situation that is worse than usual. This has added to the woes of many Indians whose lives are already impacted by other infrastructural problems such as traffic congestion and pollution. While in previous years the shortages were limited to rural India, the shortage has spilled over this year to urban India.
Most commodities have seen their supplies materially disrupted since the Ukraine war started two months ago, possibly creating food shortages in certain parts of the world that were highly dependent on Ukrainian wheat and sunflower oil. The recently imposed ban on palm oil exports by the Indonesian government will likely exacerbate the situation even further.
According to EV-Volumes (Figure 1), global xEV sales volume reached 6.75 million units in 2021, up 108% year-over-year. BEVs accounted for 71% of total volume of xEV. China xEV sales volume jumped by more than 2 million units in 2021, more than the volume increase of all other regions combined. Concurrently, the largest EV power battery producer in China, CATL, had its total sales volume of battery systems increased by 185% in 2021 to 133GWh.
In a previous article, we discussed China’s experimental personal carbon account that aims to promote green consumption behaviours in clothing, food, housing and transportation. Earlier last week, the National Development and Reform Commission (NDRC) issued the Guiding Opinions on Accelerating Textile Recycling and Utilisation, providing policy guidance on implementing green transformation measures in the country’s textile sector.
A number of Chinese cities including Shanghai and Shenzhen have launched pilot programs for personal carbon accounts, as an effort to guide and record their citizens’ green consumption and transportation behaviours. On 28th March, Zhejiang province, a major economic powerhouse on the east coast, also launched personal carbon account services for its residents, becoming the first provincial-level government in China to roll out such an innovative measure.
JK Capital published its inaugural Stewardship Report to highlight our level of engagement with corporates, our level of disclosure towards our stakeholders,our contributing actions within our community, and hopefully to have you share our team spirit and help you understand what is driving us to provide superior returns through our products.
The National People’s Congress of China, commonly referred to as the NPC, is the highest national legislative body of the country. The NPC meets in full sessions for approximately two weeks each year and votes on important pieces of legislation and personnel assignments. The meeting also collects legislative proposals submitted by representatives to form the NPC’s agenda for the year. During this year’s NPC meeting, a number of proposals were submitted centring around the ESG theme, providing us with hints on what might be inked into formal legislation in the future.
The price movement of nickel over the past week was staggering. The London Metal Exchange (LME) three-month nickel contract, the primary pricing reference for the global physical supply chain, hit $101,365 per tonne early on 8th March, up from just $30,000 on 4th March. The ferocity of the price action reflected a forced liquidation of positions and a buy-back in a liquidity vacuum. The contract was suspended at $80,000 as the exchange stepped in to halt trading on 8th March. The Exchange said reopening criteria has not been met so nickel trading would not resume until a formal announcement is made.
On 17th February, the Indian government unveiled its grand vision for green hydrogen with the release of its Green Hydrogen Policy. As the first part of the much-awaited National Hydrogen Policy of India, the policy aims at massively boosting green hydrogen/ammonia production in the country and making India an export hub for the clean fuels.
Recently, the Japanese government announced a target to boost the use of Sustainable Aviation Fuels (SAFs) to 10% of total jet fuel consumption by 2030 as an effort to extend its emission cutting campaign to the skies. Around the same time, Singapore Airlines also announced that it would kickstart a one-year pilot SAF scheme in 3Q 2022, joining the club of an existing 60+ airlines globally that have committed to adopting more SAFs.
When watching the 2022 Beijing Winter Olympic games, audiences might notice the gigantic furnaces and cooling towers sitting right next to the snow-covered ski ramps. This rather unique venue, which is one of Beijing’s urban renewal projects that had been transformed from a decommissioned steel factory, highlights China’s historical efforts in fighting air pollution. Recently, the Chinese Ministry of Industry and Information Technology (MIIT), the National Development and Reform Commission (NDRC) and the Ministry of Ecology and Environment (MEE) jointly delivered the Guiding Opinions on Promoting High-Quality Development of the Iron and Steel Industry.
Recently, the Securities and Exchange Board of India (SEBI) proposed to standardise the ratings of listed companies on Environmental, Social and Governance (ESG) metrics in a consultation paper. The consultation paper is an outcome of SEBI’s discussion with various stakeholders that brought to the notice of the regulator that most of the current ESG rating providers (ERPs) employ methodologies that differ significantly between themselves without sufficient disclosures.
Since 2H21, consumer spending in China has shown worrying signs of slowdown as growth plummeted to a jaw-dropping rate of 1.7% YoY in December, the slowest growth since September 2020. On the back of the release of these economic data by the National Bureau of Statistics (NBS), the National Development and Reform Commission (NDRC) jointly released the Promoting Green Consumption Action Plan with six other top government agencies, aiming to stimulate the country’s consumption towards a direction that matches its net-zero environmental commitment.
On the first day of 2022, the Indonesian government caught coal exporters off-guard by imposing an immediate ban on thermal coal exports, sending shockwaves through the global energy market. The Indonesian authority cited “critically low stockpiles” at its stateowned utility Perusahaan Listrik Negara (PLN) as the reason and stipulated that the ban will not be lifted until its domestic coal miners have fulfilled their Domestic Market Obligation (DMO).
As NEVs become increasingly popular among ESG conscious consumers, the negative environmental and social impact of producing NEVs, in particular the mining and processing of raw materials found in NEV batteries, have been largely overlooked and remains mostly unknown to the public.
On the last few days of 2021, the Chinese government published several emission reduction-related policies, echoing the Carbon Neutrality masterplan released by the State Council earlier in September. In a November newsletter, we expected many more emission reduction policies targeted key sectors and industries are yet to be released, as pieces of the country’s Carbon Neutrality jigsaw puzzle.
On 23rd December 2021, China Rare-Earths Group was officially established by merging rare earths assets from three state firms, including Aluminium Corporation of China (Chinalco), China Minmetals Corporation and Ganzhou Rare Earth Group. Ganzhou Rare Metal Exchange and Ganzhou Zhonglan Rare Earth New Material Technology will also be folded into the new entity.
Over the past weekend, the people of Taiwan cast votes for referendums that are of strategic importance for the island’s geopolitical and economic development. In particular, the proposals to complete the construction of the Datan liquefied natural gas (LNG) receiving terminal and revitalise the Lungmen Nuclear Power Plant are considered as critical for the chipmaking powerhouse to secure its energy supply but facing attacks from political opponents and environmental conservationists.
While the pressure on companies around the world to accelerate their decarbonisation efforts gains traction every day, we, at JK Capital Management, have developed our proprietary approach to monitor, assess and evaluate the “carbon path” that our portfolio companies are taking. As a responsible investor, decarbonisation effort is one of the most critical elements for incorporating climate-related risks into our investment management strategies.
As part of its commitment to support a thriving sustainable finance ecosystem, the Stock Exchange of Hong Kong (HKEX) recently published the Practical Net-Zero Guide for Business for Hong Kong-listed companies (and any other corporations) looking for guidance and insights to plan their decarbonisation journey.
The rules of corporate governance are not exactly the same in emerging markets as they are in developed markets, at least not in practice. In fact, suboptimal governance practices in these markets have partially led to the so-called “emerging market risk premium” demanded by international investors, and China is no exception
As home to over half of the global population, the Asia-Pacific region is of strategic importance for tackling global climate change. To obtain a more comprehensive understanding of the regulatory environment and more importantly to capture potential investment opportunities, we have taken a deeper look at decarbonisation commitments made countries and regions across Asia, with special emphasis on those our funds are exposed to.
After 14 days of heated negotiations and horse-trading, COP26 eventually delivered some promising breakthrough pledges along with some other less-desirable compromises, marking another milestone in the fight against climate change. Here are some key takeaways from the summit.
China’s 14th Five-Year Plan outlines the forthcoming construction of nine major clean energy bases and five offshore wind power industrial bases, with an estimated future installed capacity of 400 GW. The clean energy bases will be mainly composed of wind power and photovoltaic, as well as some solar thermal power.
China’s annual consumption of coal exceeds 4 billion tons, accounting for 56% of the country’s total energy consumption. Despite China’s commitment to pursue a clean energy transformation, admittedly coal still plays a pivotal role in the country’s energy structure. As a result, a rising coal price could have a real impact on the Chinese economy.
2020 turned out to be a great year for electric vehicles (EV) markets. Global EV sales, including plug-in hybrid vehicles, reached 3.24 million, compared to 2.26 million in 2019. For the first time since 2015, the market share of EVs in Europe outpaced that of EVs in China. The share of EVs as a percentage of total new car sales throughout Europe increased from 3.3% in 2019 to 10.2 % in 2020. The EV share in China increased from 5.1 % to 5.5 % during the same period.
On 20th June 2021, the National Energy Administration (NEA) of China launched a program to promote rooftop solar power in pilot counties. According to the notice issued by the administration, those counties with enough suitable roof area shall apply for participation in the pilot project which has an application deadline on 15th July 2021.
Separately, a similar development on rooftop solar panels was observed in India. One of India’s largest listed companies Reliance Industries Limited (RIL) announced its plans to spend USD 10bn towards the development of solar energy over the next three years.
As ESG integration dominates the spotlight of the fund management industry, a growing body of global evidence points to the business benefits of greater female representation on boards. The presence of women on boards of directors tends to have benefits including stronger financial performance, better corporate governance, improved disclosure and transparency, and enhanced employee and community relationships, among others.
JK Capital has been a long-term supporter of integrating Environmental, Social and Governance (ESG) considerations into investment processes. Although the emphasis on sound governance practices has been established and well-implemented at JK Capital since the inception of the firm in 1997, reliable environmental and social quantitative data was not available in the market until recently to enable full ESG integration and analysis.