Asia ESG accelerates amid environmental and board diversity concerns

At Moral Money, we aim to give you a global perspective on environmental, social and governance investing. To further this effort, today we have dedicated most of the newsletter to Asian ESG issues.

ESG equity funds in developed Asian nations recorded $3.6bn in inflows through June, up 187 per cent from the prior year period, according to Bank of America. As Asia’s ESG action catches up with Europe, we want to make sure we are giving you the news you need. If you are hungry for more insights, the FT’s Investing for Good Asia conference is taking place on September 8. It is free for Moral Money subscribers. To take advantage of your exclusive offer, register here using the code MM100. — Patrick Temple-West

Board diversity push from Hong Kong Stock Exchange comes under fire

Business is booming at the Hong Kong Stock Exchange under new chief executive Nicolas Aguzin, the company’s first non-Chinese leader. He jumped into the unenviable task of steering the exchange after Beijing’s harsh national security law for the city last year.

Wary, perhaps, of losing foreign investment following Beijing’s takeover, the exchange earlier this year proposed to overhaul its corporate governance rules for listed companies. Notably, the changes aim to eventually eliminate all-male company boards. As of December 31 2020, about 32 per cent of exchange companies had no female board members, the exchange said.

But the exchange’s proposal has come under criticism recently. 

BlackRock said the exchange should set a higher, minimum target of 30 per cent female board directors. The asset manager noted that exchanges in Singapore and Malaysia have already moved faster than Hong Kong to require more women on boards.

Hong Kong’s Equal Opportunities Commission, which is responsible for enforcing the city’s anti-discrimination ordinances, said the exchange’s “proposed timeline to eliminate single gender boards is too conservative”. 

On the other hand, the Chamber of Hong Kong Listed Companies said the board diversity requirements should require a longer transition period “to avoid companies outbidding each other for the service of experienced and qualified female director candidates just for compliance purpose[s]”.

When the exchange changes its proposed rules, it tends to tweak them “in the direction of dilution, not enhancement,” said Jamie Allen, head of the Asian Corporate Governance Association, which also called for tougher diversity requirements. 

As a for-profit business, the exchange “has a conflict of interest” when cultivating business and when tough corporate governance rules collide, Allen said. “It has consistently set the bar low on corporate governance,” he said. “We would like HKEX to be more ambitious.” (Patrick Temple-West)

Tempers fray over kumbaya capitalism

If you ever thought the growing consensus that companies and investors could make the world a better place was getting too kumbaya, think again. 

As we wrote last week, Lucian Bebchuk and his Harvard Law School colleague Roberto Tallarita marked the second anniversary of Business Roundtable’s landmark stakeholder capitalism pledge by dismissing it as “mostly for show”. 

Now Marty Lipton and William Savitt have fired back in an equally withering memo. The two attorneys for Wachtell, Lipton, Rosen & Katz, which has done more than any other law firm to establish what it calls the new paradigm of corporate governance, assail the professors’ methodology and conclusions. (We will spare you the full back and forth but Bebchuk says “our empirical findings speak well for themselves”.)

Tempers are similarly fraying around ESG investing, which has played a huge role in convincing boards that serving all stakeholders might be in their interests. 

As I wrote in my column this week, the biggest reason may be that stakeholders are not yet seeing much impact from all the initiatives launched in their name. To beat the backlash, ESG investing and stakeholder governance need a more honest focus on what impact they are having.

Over at Unhedged, meanwhile, our colleague Rob Armstrong lays out a provocative nine-point case against ESG investing, which he — like the BlackRock émigré Tariq Fancy — dubs “intellectually bankrupt and . . . damaging to the most important causes it purports to support”.

If Moral Money readers have a nine-point rebuttal, we’ll be interested to read it. Email us at moralmoneyreply@ft.com. (Andrew Edgecliffe-Johnson)

China’s carbon market gets off to a slow start

China’s nascent carbon market is off to a shaky start. The price of carbon in the world’s largest market fell to a record low last Friday, at $7.50 per tonne of CO2. 

The country launched its national emissions trading scheme on July 16, after delays and nearly a decade of pilot projects. It currently only applies to coal and gas-fired energy plants and focuses on carbon intensity, rather than total emissions as with the EU and Canada. The market is expected to expand to other sectors including domestic aviation and petrochemicals. 

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The drop in China’s carbon prices follows warnings from analysts that the nation’s carbon market — with its limited scope, generous allowances, and lenient penalties — is ineffective in curbing emissions. According to the High-Level Commission on Carbon Prices, a group supported by the World Bank, carbon prices must be $50-$100/tCO2 by 2030 to achieve the Paris climate goals. 

“It’s not clear if this programme will have a meaningful impact on emissions,” said David Sandalow, an inaugural fellow at the Center on Global Energy Policy at Columbia University. Still, he acknowledges that the slow start “is not unusual”. 

Often looked to as a model and pioneer for carbon pricing, the EU emissions trading system faced similar obstacles following its launch in 2005. The scheme faced an oversupply of allowances and low prices up until 2016 when the EU introduced market reforms. After increasing nearly 70 per cent since the start of the year, the bloc’s carbon price stood at $63.93 on Friday. 

Last year, President Xi Jinping pledged China would be carbon neutral by 2060. Despite Beijing’s rhetoric, the world’s largest polluter has not parted from fossil fuels. To meet its power demand, the country announced 43 coal-fired power plants in the first half of this year. (Amanda Chu)

Ships turn ‘green’ but their final destination remains dangerous

Maritime shipping produces more greenhouse gas emissions than airlines, according to a report released this month by Pacific Environment, an environmental activist organisation. 

But there are signs that shipping companies are tacking away from their pollution problems. Just yesterday Maersk, the world’s largest container company, announced it would order eight new vessels that can run on “green” methanol.

Still, companies may need to do more, such as require retiring older models. That would bring more vessels to Asia’s shorelines, where 90 per cent of the world’s ship-breaking takes place in a process that has long been criticised for being highly polluting and dangerous to workers. 

Some experts are hopeful that ships’ 20 to 25-year lifespan will increase due to maintenance and engineering innovation. 

“The lifespan of cargo fleet is extending,” Alan Holland, chief executive at Keelvar, a sourcing software provider told Moral Money, “so instead of retiring and offshoring [beaching] fleet, older vessels are being repurposed.”

It is too soon to say if “green” methanol ships will help to clean up sullied Asian shorelines, but it could serve to offset vessels’ lifetime environmental impact. (Kristen Talman)

Tips from Tamami

Nikkei’s Tamami Shimizuishi helps you stay up to date on stories you may have missed from the eastern hemisphere.

The US Treasury Department released new guidance last week that advised multilateral development banks to prioritise investment in clean energy over fossil fuels as part of the Biden administration’s green recovery push.

With the US and Japan tied as the two largest shareholders in the Asian Development Bank, the updated US guidance could have a significant impact on the future of energy in the region.

Some environmentalists, however, were disappointed that the US stopped short of prohibiting support for natural gas projects and left wriggle room for the liquefied natural gas industry.

“A more cynical take is that the US wants to leave the door open for LNG because of its own export plans, but we simply can’t afford this,” said Bronwen Tucker, research analyst at an environmental group Oil Change International. “We’re much more likely to meet our climate goals if the US offers more climate finance for renewables and a just transition than continuing to allow for public finance for LNG or other gas infrastructure.”

Susanne Wong, Asia programme manager at Oil Change International, warned that “one of the biggest threats to reaching the goals of the Paris agreement is the planned buildout of gas infrastructure projects in Asia”.

For its part, US LNG trade groups welcomed the new guidance, saying that LNG is still cleaner than fossil fuel alternatives.

“Since the main alternative to natural gas for many of these countries is coal-fired power — which China remains eager to finance — we urge Treasury and the multilateral development banks to show maximum flexibility to support gas power projects and LNG infrastructure in developing countries to avoid dirtier outcomes,” said Fred H Hutchison, chief executive of LNG Allies.

Chart of the day

Should China swap rice for potatoes? In 2015, the world’s most populous country implemented the “Potato as Staple Food” policy to meet its growing appetite. Now, a new Nature study found that consuming more potatoes will not only bolster food security but help the environment. 

The study found that producing more potatoes and less rice, wheat, and maize could curb emissions by as much as 25 per cent. However, China will need to convince consumers to eat more spuds, which may prove difficult given the cultural significance of rice and wheat. Simply increasing potato production without changing diets could lead the country to be dependent on rice imports. (Amanda Chu)

Smart read

Female board members at the UK’s largest companies are paid about 40 per cent less than their male counterparts, according to new data recruiter New Street Consulting Group. Please read Attracta Mooney’s article here.

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