'Without Asia-Pacific, we won’t achieve climate neutrality by 2050'

Asian companies emit a relatively large amount of CO2 compared to their Western counterparts. So if you can convince the ten companies with the largest emissions per Asian country to reduce their CO2 emissions, that will make a difference. And that is exactly what the Climate Focus 10 program is aimed at, which APG carries out on behalf of its pension fund clients. Yoo-Kyung (YK) Park, Head of Responsible Investment & Governance Asia Pacific, on Asia-Pacific's crucial role in global emissions reduction.

On September 15, 2022, Samsung Electronics announced its new environmental strategy and has joined the RE100 initiative. Samsung is the largest company in South Korea and, among other improvements, wants to aim for net-zero emissions by 2050. This is partly due to  APG’s engagement efforts through its Climate Focus 10 program.  The companies in this program are all active in CO2-intensive industries, such as chemicals, iron and steel, energy, telecom, semiconductors and consumer electronics. The aim of the program is to persuade the largest CO2-emitting companies in a country to reduce their CO2 footprint, with APG focusing on South Korea and Japan for the time being. Yoo-Kyung Park, who is South Korean herself, is responsible for the engagement with these companies. 

Why are the emissions of Asian companies so high, compared to American and European companies?

"There is not really a sense of urgency about climate change among many Asian companies. A significant proportion of Asia is made up of developing markets and, fundamentally, more focused on growth and less so on their climate impact. But given the scale of these companies and their climate impact, if we want to achieve net zero emissions globally by 2050, we simply need to have Asia-Pacific on board. Without these countries, we will not achieve that net-zero target." 

Why does APG choose to engage with South Korean and Japanese companies first?

"As OECD countries, Japan and South Korea have already developed markets, having gone through the process of industrialization and economic growth. As part of the OECD, in addition to economic performance they have also paid attention to non-economic indicators in the last decades. For example, education and healthcare, but also environment and sustainable development. Companies from OECD countries are therefore more receptive to calls from outside to become more sustainable than companies from emerging markets such as China and India, where the level of prosperity is lower. The emerging countries are the next step in our Climate Focus 10 program."

What does APG expect from the ten companies it engages with in South Korea?

"We want them to start by making a commitment to co2 emissions reduction. Just before the annual shareholders' meeting, we send the companies in question a letter addressed to the board. This letter contains questions like: Is your emission reduction target ambitious enough? Are you investing enough in this? Do you communicate sufficiently with shareholders about your emissions, so that they also understand the risks involved? We ask the companies to announce their emission reduction target at the subsequent shareholders' meeting. Six months later, we approach the company again to determine whether it has made progress. And we will continue this, and various other levels of engagement, until we see improvements."

What were the results of those efforts?

"All the companies in Korea that received a letter from APG in February 2022 have replied to it. A number of them, including Samsung, appeared to have made some progress. Hyundai Steel, for example, did not yet have a long-term target for its emissions reduction; now it does. LG Chemical previously only revealed scope 1 and scope 2 emissions, now also scope 3 (see box). This is important, because the greater the insight into emissions, the more a company can do about it. Posco Chemical did not yet have any emission reduction targets; now it wants to have net zero emissions by 2050 and has expressed an ambition for 2030."

These companies probably don't always welcome you with open arms. Is a letter and a conversation a year enough to convince them to reduce emissions?

"No. By themselves, South Korean companies do not take the subject seriously, at least not seriously enough. Especially if they have to make substantial investments to reduce their emissions, they do not take action – unless there’s a business threat right around the corner. So in order to create more pressure and urgency, we go public with our concerns. During the past shareholder season, I rolled out a media campaign  to local South Korean and international media which has certainly contributed to national awareness about CO2 emissions among the general public. If media attention doesn't help, we can also file a shareholder resolution as a last resort. But that is a method that we prefer not to use. We prefer to remain in dialogue.

Which companies in South-Korea are the most difficult to persuade of the necessity of emissions reduction?

"We mainly get a lot of pushback from companies that use a lot of electricity for their production process: steel producers and semiconductor manufacturers. There is only one electricity provider in South Korea and that is government-owned. Nearly 70% of their electricity is generated from fossil fuels – mainly coal. When we ask these companies to use more renewable energy, they point at the electricity provider and its monopoly position. They say: we can't use more renewable energy because we have no influence on the electricity company and there are no alternative, more sustainable suppliers of electricity."

And what is your answer to that?

"That we expect big players in an industry to try to reduce their energy consumption on the one hand, but also lobby the South Korean government to make the power generation of the state electricity company more sustainable."

How critical are South Korean asset managers of the companies they invest in, when it comes to emissions?

"When local asset managers hold South Korean companies to account for their emissions, they do so behind closed doors, not publicly. They relate to the Korean government in a different way than a foreign investor like APG. In that respect, I’m in a relatively favorable position: with APG – and its pension fund clients – I have a large asset manager behind me and I can make use of both means: a conversation behind closed doors and publicity."

The Climate Focus 10 program runs until 2030. How optimistic are you about South Korean companies and their emissions reduction in the next 7-8 years?

"The top ten emitters in South Korea are made up entirely of multinationals. They are companies with global marketing and global supply chains. So they know very well what needs to be done when it comes to reducing emissions. The attitude of these companies has always been: we are not committed to emission targets, but we are working on it. We say: you first have to make a commitment to be able to do something about it. South Korean companies are just starting to arrive at that stage. The awareness is there, but progress is slow. The coming years will prove to what extent their commitments will be followed by actions.