AIA sets targets to decarbonise power generation portfolio
AIA Group is consolidating its sustainable investing by setting near-term and long-term decarbonisation targets for its investment portfolio, including exposure in the power generation sector.
The commitment is part of AIA’s recently announced climate transition plan, which includes SBTi (Science Based Targets initiative)-validated targets for its general account portfolio, as well as specific goals for investments in some key sectors such as power generation and real estate.
“We have set sector-specific targets for our investments in the real estate and power generation sectors, as mandated by SBTi's methodology. These sectors are highly energy-intensive. By focusing our efforts on these sectors, we can effectively address the unique challenges and opportunities they present, thereby making significant contributions to our overall emission reduction efforts,” Duncan Lee, director of investment environmental, social and governance, group investment at AIA Group told AsianInvestor.
SBTi is used by 4,000 companies worldwide to set a practical pathway to reduce GHG emissions.
AIA's investments in power generation consist of listed equities, corporate bonds and project finance.
The company pledged to reduce greenhouse gas (GHG) emissions from the power generation sector within its general account portfolio by 49.3% per MWh by 2030, and reach net zero for those investments by 2050, in its first Climate Transition Plan published in November last year.
It already integrates climate-related factors into its investment process through an in-house ESG rating scorecard, which covers all general account investments.
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 Asia Pacific. Hong Kong, mainland China, Thailand, and Singapore are the top four markets for its insurance business.
ROADMAP TO NET ZERO
To reduce GHG emissions in its power generation portfolio, the firm will review material corporate bonds in the general account that mature before 2030, and explore opportunities to increase exposure to power generators with a lower emission profile.
It will also explore new investments in power generation companies with low emission intensity.
“This may include a mix of debt, equity, and possibly blended finance arrangements,” according to Lee.
Power generation contributes to about 40% of global emissions, and Asia is projected to account for more than half of global energy consumption by 2025.
To decarbonise the power sector in Asia, AIA noted that it is necessary to develop and deploy energy storage systems and investments that maintain grid stability and increase the reliability of renewable energy.
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It also noted that certain regions require more transmission lines and distribution infrastructure to handle an increasing supply from renewable sources.
“The power grid must be upgraded in certain regions to channel the energy generated by renewable sources to where it is needed,” AIA said in its climate transition plan.
The insurer will continue to actively seek investment opportunities for clean energy in Asian capital markets, while meeting requirements for liability matching and risk-return profiles.
“While we have divested from coal to address the risk of stranded assets, we acknowledge the significance of gas in providing base load and grid stability for Asia’s energy transition and may continue to selectively support critical assets in the region while considering our overall SDA goals,” AIA said.
SDA refers to sectoral decarbonisation approach.
To enhance its engagement with investee companies, Lee said: “Our sustainable investing approach includes active ESG engagement with companies in our directly managed portfolios, consideration of sustainable financial instruments like green and sustainability bonds, and investments in renewable and alternative energy, as well as infrastructure.”
According to AIA’s 2023 ESG report published on March 15, it will maintain the exclusion approach for tobacco, cluster munitions, coal mining and coal-fired power generation in its general account portfolio.
Although divestment is not its foremost choice, some sectors have either been excluded or restricted from its general account.
It divested its entire exposure to directly-managed listed equity and fixed income exposure to coal mining and coal-fired power businesses in 2021.
This story has been updated with the AIA spokesperson's name and title.