AIA sees investor-led push driving Asia's energy transition
Energy companies in the region are starting to feel the value of investors with a sustainability and energy-transition angle, according to Mark Konyn, group chief investment officer at AIA.
Konyn said the key is for investors to be quite assertive about the standards that they wish to apply and making these very clear to investee companies.
“We tell investee companies what we're looking for, and it starts to have an influence. I'd say it's more influence than impact at this stage,” Konyn told AsianInvestor.
AIA has been discussing with energy producers in Asia how they can make parts of their business investible from a sustainability perspective. By ringfencing the relevant assets within the company, AIA helps to finance the long-term development and innovation of these companies’ in a sustainable direction.
Konyn emphasised that investors like AIA are needed to push investee companies along such an agenda.
“Until energy producers understand that there is a pool of capital out there that is interested in their development of sustainable energy production, they will just carry on doing business until somebody tells them not to, until it starts to not look good,” Konyn said.
Hong Kong-based AIA is a major insurer in Asia, with $268.5 billion in total investments at the end of 2023. It has a presence in 18 markets across the Asia Pacific.
INVESTMENT OPPORTUNITIES
Lending money to both government and private sector has come with both privileges and responsibilities, according to Konyn, as the firm, which focuses on fixed-income investing, takes seriously its role in shaping economic development.
With commitments to net zero and the Science-Based Targets Initiative (SBTI), the insurance group has taken a clear stance on how it hopes for economic growth to evolve.
As the world moves in this direction, new and relevant investment opportunities will present themselves, according to Konyn.
“Weaning yourself off an energy source that has been polluting and has undermined climate, and going towards more sustainable energy sources, affects all sorts of supply chains and value chains within the global and regional economy. We think it's going to throw up a lot of investment opportunities, and that's where we're coming from,” Konyn said.
Also read: AIA sees scope to finance sustainable energy in Asia
AIA also considers its own business as a long-term investor and as an insurer with long-term liabilities. Looking across its investment portfolio, Konyn sees general gains from its sustainable energy agenda that ensures portfolio companies will be able to service their debt.
“Climate change is in many cases a significant challenge and existential threat to investee companies’ business models. For insurers, if the risks that you typically underwrite and charge premiums on are no longer insurable, that's an existential threat to your business,” Konyn said.
BLENDED FINANCE HOPES
AIA has liabilities and policyholders across 18 markets and currencies in the region, and over 80% of its business is sold through agents embedded within the local communities where they operate.
That makes it crucial for the insurance group to make sure investments have an impact where the effects of climate change are being noticed.
“We effectively mobilise aggregate domestic savings and channel it back into local communities through our investment portfolio, to a large extent. Being responsible about that is important to us, and it links to our purpose,” Konyn said.
Also read: AIA sets targets to decarbonise power generation portfolio
AIA considers blended finance, where development finance is strategically deployed to mobilise other sources of finance towards sustainable development in developing countries, to be a model that holds potential.
“We believe the market for blended finance should grow, but it depends on the paths taken. We're here to sit down and work through those issues with our long-term funding,” Konyn said.
He pointed out that energy has generally been priced in US dollars. With the energy transition currently underway, alternative energy sources will be localised and closer to consumers.
“That diversification of energy pricing is great for the developing countries to buy in their own currency. It is also great for us because we have a local currency need given that we're underwriting in 18 different markets across Asia, and we take the premium in local currencies,” Konyn said.