Carbon emissions reporting in Asia

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Melissa Brown, Co-authored with Scott Linder, YK Park and Alexander Read-Brown, ASRIA

Asia ex-Japan results from the 2007 Carbon Disclosure Project reveal that: 1) a range of Asian companies are increasingly describing strategic business initiatives to curtail carbon emissions, 2) companies working on climate change strategies often rely on industry associations and global NGOs for guidance, 3) the degree of top management engagement is a critical determinant in the disclosure of carbon emissions and the development of formal initiative, 4) pictures of regional response characteristics are becoming apparent and 5) the quality and quantity of responses from Asia’s tech and telecoms companies is notable, while Asia’s banks and utilities lag their global counterparts.

In 2007, the Carbon Disclosure Project’s fifth report (CDP5) included responses from 44 companies from countries located in Asia, not including Japan (Asia ex-Japan). An analysis of these responses by ASrIA offers compelling insights into Asian companies’ emerging policy responses to climate change. This is meaningful because most of these companies do not have the benefit of government policy guidance or carbon trading markets which would create transparent price incentives for action. Instead, they are responding to a range of pressures, from customers, competitors, investors and global regulators, which promise to shape their long term competitiveness.

A MORE STRATEGIC RESPONSE

The most positive trend in 2007’s Asian CDP responses is the shift toward disclosure of more strategic corporate policies linked to climate change. The best respondents provided clear examples of a move from awareness to action, with comprehensive carbon policies driving investment, new products and technology development. Such strategies include carbon offsets, supplier accountability, green building programmes and steel production process innovation. Although climate change remains a relatively new policy area in Asia, leading companies are now taking the initiative and positioning themselves to capitalise on a shift in policy and growing consumer awareness.

NEW INDUSTRY RESOURCES

Companies in Asia typically lack consistent drivers for responding to climate change and resources to clarify emerging standards. By contrast, in the EU companies benefit from high levels of disclosure, stronger regulatory incentives, heavy monitoring requirements and growing shareholder feedback. Under the Kyoto Protocol, Asian countries, as developing markets, are recognised as vulnerable to adverse economic impacts of climate change and are therefore not required to meet carbon emissions caps. Only Japan faces binding emissions reduction targets and is included in the rules which support international emissions trading.

Most Asian government policies, directives and regulatory systems related to carbon emissions and climate change are embryonic, featuring headline policy statements but limited signs of implementation. Initial policy frameworks typically have a flexible time frame and are often overlooked if the policy focus shifts to industrial development, which may conflict with efforts to restrict carbon emissions growth or improve energy efficiency.

As a result, Asian companies, especially those in globally competitive export sectors, such as technology and building materials, are increasingly relying on industry associations to shape their emerging carbon emissions policy responses, carbon reporting and management strategies. These industry associations appear to be filling a vacuum created by limited government initiatives with a growing body of global research on best practice responses at the industry level with regard to climate change. Some of the more frequently named associations are local, but there is strong representation from international groups, many of which can provide a tested roadmap for sector-specific carbon emissions reporting.

GOVERNANCE MATTERS

The CDP Asia sample presents high variability in the extent to which top management is addressing issues of reporting and strategy. This is an important subject because corporate governance is a critical variable in assessing long term corporate environmental performance. One leading corporation, for example, indicated that top management views climate change as an issue which must be evaluated in terms of the global footprint of their operations. Rather than framing its strategies in terms of its home country standards, it is developing policies which are consistent with the greenhouse gas reduction policy framework in the various countries in which it operates. This will likely mean that trends in the EU and North American markets will be particularly influential.

One of the key differences in responses was evidence of active engagement versus statements of intention. Many companies reported recently established planning committees, initiatives under consideration and possible future reduction targets. While some of these responses may represent a management that has recently become genuinely engaged in addressing carbon emissions, it could also be that management commitments are still tentative.

SECTOR FOCUS: TWO LEADERS, TWO LAGGARDS

Asian bankers waiting for guidance

With several exceptions, the 2007 CDP report demonstrates that Asia’s banks are making slow progress in addressing the long term economic impacts of climate change. It is tempting to see the limited capacity of Asian banks in assessing climate change issues as a by product of the bureaucratic restrictions faced by Asian bank regulators who often have a narrow policy remit. While global groups, such as UNEP FI, are broadening their contact base in Asia, many Asian banks lack even the environmental management capacity to address basic operational issues.
All of the financial sector respondents display at least a basic perception that climate change is a global issue, and two-thirds acknowledge potential business impacts. Only one-third, however, recognise that there might be large scale economic repercussions. For example, one Indian financial sector respondent offered a clear view that the potential long term impacts on the agricultural economy could be harsh and would have fundamental effects on its business model. Despite the still limited understanding of climate change impacts, two useful strands of reporting were evident from the responses concerning the role of energy efficiency and opportunities for new products.

Energy efficiency

Asian banks are gradually identifying energy efficiency as the best means to reduce carbon emissions in their industry. Four of the bank respondents refer to or have implemented energy efficiency programmes of varying depth and quality. Most seek to increase efficiency by decreasing air conditioning usage or replacing and minimising lighting elements. Only two of the financial sector respondents had clear energy reduction targets.

Harnessing consumer sentiment

Bank respondents primarily viewed climate change, heightened public awareness and shifting consumer sentiment as an opportunity to offer new investment products. Ironically this trend was most evident in less thorough responses from banks which did not see any direct risk to their business from climate change. In general, those respondents with a more developed grasp of the issues placed greater emphasis on carbon emissions data, energy efficiency and other initiatives.

Asian utilities hiding under a cloud

With the exception of a few well covered respondents, Asia’s fastest growing coal-fired power companies are still absent from reporting carbon emissions. Several key companies are established participants in CDP and have a developed investor dialogue covering emissions trends, strategic choices and renewables and CDM initiatives. China’s most influential power companies, however, have not yet provided any material data on emissions or formal policies to CDP or the investment community at large.

The lack of disclosure by this politically sensitive sector is a by product of the ongoing, but in many instances, still opaque policy debate on climate change by Asian governments. Indeed, where governments have yet to establish a clear policy framework, it appears premature to expect government-invested or government-controlled power companies to take the initiative in disclosing emissions or articulating critical policy objectives.

Asia’s tech players demonstrating new carbon sophistication

The Asian tech sector is emerging as a strong reporter on environmentally linked issues including carbon. Asia’s leading tech companies appear to be making systematic efforts to match the breadth and depth of reporting common to their global competitors. For supply chain companies in the consumer electronics and components sector, engagement with international customers has provided a baseline of knowledge about the environmental management standards of global markets.

Virtually all of the tech sector respondents framed their responses in terms of the need to stay competitive in a low cost and loosely regulated sector. In this context, the development of innovative energy efficient products is a frequently cited goal for Asian tech respondents. Efficiency improvements to laptops, computers, semiconductors, LCDs, and DRAMs, as well as linked investment and awards these products have received were all highlighted. Although many of the disclosures had a promotional flavour, several demonstrated an acute awareness of a nuanced but increasingly demanding green market place.

A new trend which is beginning to affect Asia’s tech companies is the need to play a role in customers’ carbon accounting as brands begin to evaluate their supply chain carbon footprints. These efforts also link to an emerging awareness of carbon neutrality. Of the CDP5 respondents seeking to become carbon neutral, 50 per cent are in the tech sector. Although these companies generally stated that climate change is an incidental risk to their operations, a number of statements suggest they are motivated to embrace carbon neutrality as a tool for becoming more energy efficient and raising brand equity.

Asian telecoms benefitting from carbon linked trends

Like the tech sector, telecom respondents set a generally high standard on carbon reporting. With the exception of the lone participating Chinese telecom, all of the companies disclosed carbon emissions.
It is also apparent that respondents, especially the wireless players, understand they are one of the few sectors which can benefit strategically from carbon linked trends. Whether talking about wireless banking or navigation devices, Asia’s wireless players are keen to be viewed as solution providers in a carbon constrained world. As one telecom response succinctly expressed it, “communications technology is a great enabler...”

A second common theme in the telecoms responses is the recognition that physical assets are at risk due to adverse weather conditions and higher ambient temperatures. This is a particular worry for operators in typhoon- and flood-prone regions in Asia. Risks to facilities and related service failures obviously pose a serious financial and reputation threat to companies, which are often heavily regulated.

REGIONAL CHARACTERISTICS

Thanks to the increase in the sample size, the 2007 Asian CDP offers a more realistic picture of trends at country level. It is becoming easier, for example, to form a picture of a Korean response versus a Singaporean response. This should not be surprising as reporting norms are usually set at the country level. Nonetheless, material reporting continues to lag in nations with few drivers, such as India, while improvement is evident in countries where leading companies have a more international footprint, eg Hong Kong and Taiwan. Korean companies are the Asian leaders in more comprehensive carbon reporting while Indian companies were the largest group of new respondents.

SETTING A BENCHMARK

Evaluating corporate carbon emissions disclosure provides valuable insights into future Asian climate change reporting and strategy development. Thanks to the increase in the Asian sample in 2007, there are more tools to assess peer group competition on carbon fundamentals. Additionally, the 2007 responses offer initial data points on the growing impact of supply chain carbon reporting initiatives and global sector initiatives affecting sectors such as airlines and technology. Taken together, these developments suggest that the Carbon Disclosure Project continues to act as a valuable catalyst and identifies important leading indicators.

Organisation

The Association for Sustainable & Responsible Investment in Asia (ASrIA) is a not for profit, membership association dedicated to promoting sustainable investment practice and corporate responsibility in the Asia Pacific region since its founding in 2001. ASrIA’s members include investment institutions managing over US$4 trillion in assets. Our goal is to build market capacity for SRI by providing insightful, up to date and accessible information on the development of SRI in Asia and globally.

Enquiries
Website: www.asria.org

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