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.
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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:
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Physical uranium
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Uranium miners
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Reactor developers
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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
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Wilmar International down 4% after Jakarta’s seizure of 11.8 trillion rupiah from Wilmar Group in graft case
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Inside Wilmar’s graft probe: How a cooking oil crisis led to a multitrillion rupiah corruption scandal
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World Bank approves US$2.1 billion investment to support Indonesia’s growth and clean energy goals
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Home-grown and high-end: Malaysia’s smart farms rewrite the food map
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From policy to pilots: Apac’s growing influence in carbon removal
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Warning signs on climate flashing bright red: top scientists
