China's coal power giants charge ahead into climate risks


China’s top six listed coal-power generators are failing to respond to climate change, lagging international peers and leaving them misaligned with Beijing’s broader environmental policies, according to a sustainability and governance risk consultant.

That’s keeping shareholders without adequate information on how the firms are addressing climate change or adjusting their businesses to adapt, Singapore-based Asia Research & Engagement said in a report Monday. The companies, with a combined market capitalisation of almost $91 billion at the mid-year, account for about a fifth of China’s power and emitted nearly 3% of the world’s carbon dioxide in 2017, according to ARE.

“China’s large listed power companies are struggling to take meaningful steps on the transition to cleaner energy,” ARE said in the report. “Foreign investors find it harder to justify holding shares.”

The six didn’t respond to requests for comment amid a holiday in mainland China.

The power industry globally is under pressure to cut carbon emissions amid climate change concerns, with coal’s use under particular scrutiny as it’s the most polluting. The fuel has divided policy makers, sparked a retreat from top miners such as Rio Tinto Group and BHP Group, and prompted lenders including Standard Chartered and HSBC Holdings to slash financing for new coal projects.

Though China has added more solar and wind power capacity than any other country and sets clear targets for green energy use, it mines and burns about half the world’s coal, which still meets about 60% of the nation’s total energy needs.

A key challenge for the firms, according to ARE, is that broader carbon and pollution goals dictated by President Xi Jinping’s government are pursued by larger state-owned parents across all business units, of which the listed companies on average represent only 35% of total capacity.

Efforts to reduce air pollution, greenhouse gases or waste of renewable power “often apply across the entire portfolio not just for the listed entities,” according to ARE report authors, Benjamin McCarron and Xinying Tok. “Consequently, the parent companies will seek to set strategy at the level of the whole portfolio.”

For example, the parent companies of Datang International Power Generation Co. and Huaneng Power International Inc. have already spun off the main renewable power assets into separate units earlier this decade, which“constrains strategic options for investors” in the coal-dominated firms.

Under pressure

China Shenhua Energy Co. was singled out by ARE for not providing 2018 greenhouse gas emissions data or listing climate change as a material issue. The company is almost exclusively coal-powered and hasn’t added wind or solar generation, ARE said. By contrast, China Resources Power Holdings Co. shows the strongest transition to renewable energy and the fastest decline in coal use.

The remaining Hong Kong-listed companies analyzed in the ARE report are Huadian Power International Corp. and China Power International Development Ltd. Four of the six are dual-listed in Shanghai.

The companies all have higher proportions of coal in their power mix than the national target, which will act as a long-term constraint to growth, according to ARE. And while wind and solar represented 7.8% of China’s total generation last year, it only averaged 3.7% for the six majors.

“International investors are under pressure to reduce exposure to coal,” ARE said in the report. “Without a transition pathway to generating portfolios with cleaner characteristics the companies will face increasing challenges in marketing their shares internationally.”

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