CLP Holdings, previously China Light & Power, was founded in 1901. But in its more recent history it has transformed itself into an environmental leader in its sector. Our relationship with the company dates back more than 20 years.
Part of CLP’s transition has been prompted by the ambitious government targets on carbon emissions in its key markets of Hong Kong and China but the company has also been proactively pursuing decarbonisation. Its first environmental plan and set of targets was announced back in 2007. Whilst these efforts are commendable and success had been demonstrated, we decided to formally engage with the company to understand its path to further progress and, if need be, encourage management to do more.
From our perspective, the company’s carbon footprint appeared too high. With the company’s coal assets responsible for the bulk of the emissions but an immaterial contribution to profits, we suggested a strategic review of those coal assets.
We wrote to the company, outlining our views, proposals and questions whilst also requesting a meeting with senior management. That meeting was unfortunately cancelled due to Covid-19 related travel restrictions, but we were able to meet by video call in March and since then have spoken to the management on this subject several times.
As is often the case in such situations, management had already begun to look at the options available for these assets whilst also considering the long-term management of them or the winding down of related mines and processing facilities. The company has made a public commitment to make no further investments in coal and has also begun efforts to exit some coal assets.
To that extent, the company has started to implement the changes that we had identified. But in looking at further steps, through our engagement we have gained a greater understanding of the hurdles to further progress.
Decisions of this nature are never straightforward, and we recognise that the complete disposal of assets is not only unlikely but may not be the best course of action. What we have learnt through this engagement, and through conversations with other energy companies, is that there is a genuine debate to be had on the disposal of assets.
For CLP, there is a political dimension, with the need to consult with governments even on the curtailment of investment, far less the exit of assets. A sale might seem like the best option, but what if the buyer, often a private buyer operating away from the eyes of public listing, has no regard for environmental impact. Would it be better for CLP to retain those assets but manage them as well as possible environmentally and socially, accepting the environmental cost in terms of the company’s emissions tally.
Many of these assets are in emerging markets, where fossil fuels are for now the main energy source, with energy needed to drive economic growth. Generation assets and related infrastructure such as mines are very often located in rural areas with all local employment related to the industry, directly or indirectly. With no other options for employment and no chance of alternative inward investment that might create jobs, the social cost of that unemployment cannot be ignored.
That said, whilst we now have greater understanding and appreciation of the conflicting social and environmental demands, we will continue to engage with the company on its overall carbon impact and urge continued steps to address that negative output.
Engagement for Information
The most common form of engagement, an engagement for information is a meeting or correspondence involving a two-way exchange of information. This dialogue makes a vital contribution to our overall understanding of a company, its management and its approach to sustainability issues.