Can social issues and net zero challenges be separated in Asia?

The environmental and social aspects of net zero are simply "inseparable” so they must be assessed differently in Asian markets than elsewhere in the world, according to an APAC engagement insider.

As Asia has very different social constructs and varying levels of protection in many of its markets, this “give us a very different starting point in the conversation” as the region looks to move to net zero, according to Valerie Kwan, director for engagement at the Asia Investor Group on Climate Change.

For example, on the issue of coal phaseout across the continent, Kwan singled out mega market India: “It's a given when we talk about coal phase out we need to acknowledge the fact that state owned enterprises or public sector utilities as they call it in India, will have a dominant role."

She went on to tell delegates at a conference in Denmark: "When we engage with companies on the phasing out of coal in East India, it's probably not only a company level engagement that's required, because that's certainly a national directive involved.”

Her comments were made on the second day of the NordicSIF conference, hosted in Copenhagen, during a panel discussion on stewarding social risks in the climate transition.

Proxy season in Asia

Commenting on the Asian investor space in the context of this AGM season, Jeanne Martin, head of banking programme at ShareAction, said that “filing resolutions is a really impactful way to influence a company's behaviour, but it isn't something that a lot of asset managers are comfortable doing."

Martin told delegates that “in research we found that no asset manager in the Asia Pacific region had filed or co-filed resolutions [in 2022], whereas three reported having done so in the US and 15 in Europe, so lots of progress needs to be made.”

The fourth edition of ShareAction’s Voting Matters report also showed that 68 of the world’s largest asset managers voted on 252 shareholder resolutions tabled to address environmental and social crises, and that the four largest asset managers in the world voted for significantly fewer climate and social resolutions than they did in 2021.

Social taxonomy

Also discussed during the event in Copenhagen was the EU Taxonomy for sustainable activities, which has gone through a protracted issuing process. 

While its current iteration includes ‘Do No Significant Harm’ criteria when assessing sustainability, a full social taxonomy is yet to be developed.

Regarding a social taxonomy, Signe Andreasen Lysgaard, a former member of the EU Platform for Sustainable Finance, which developed the taxonomy, said: “[a social taxonomy] should be a game changer still."

Lysgaard pointed out that: “We've had way less emphasis both from the Commission side and from investors because there's been so much to grapple with in terms of understanding the technical screening criteria." 

"The do no significant harm criteria is joined up, but simply ticking the box or assuming compliance on minimum safeguards is a dangerous road for investors, and for the long term success of the taxonomy. I really do hope that we'll see more emphasis and that there will be a lever for the social component of the net zero transition.”

Following a public consultation in April, the EU Commission executive will soon be publishing technical screening criteria for the taxonomy’s four remaining remits of water, circular economy, pollution prevention, and biodiversity, with the latter expected to cause the most controversy due to debates over offsetting projects.

Outside of the EU, taxonomies have also been proposed in regions as wide-ranging as Norway and Singapore.