AIGCC’s utility engagement group clamps down on executive pay

The group has slammed the antitrust criticisms in the US backlash as being disingenuous and harming investors.


Linking executive compensation to climate-related KPIs has emerged as a top governance priority for the AIGCC-convened Asian Utilities Engagement Programme (AUEP) in the second year of its running.

The initiative was launched to build on and complement the work of CA100+, which has brought together shareholders in the world’s most polluting companies to jointly push for environmental improvements. CA100+ is considered the largest ever global investor engagement initiative on climate change.

Asian utilities that are identified as focus companies by the AUEP are asked to implement a governance framework for climate issues, adopt a timeline for decarbonisation, make TCFD-aligned climate disclosures, develop plans to address physical climate risks and align government lobbying with climate goals.

This year, three new AIGCC members signed up to the AUEP, bringing the total number of investor members to 19. The new signatories are abrdn, Sun Life and Singapore’s Lion Global Invest.

According to its annual report published today, pay and climate came up “in most” of the engagements conducted with focus companies over the previous reporting year of August 2022 to July 2023.

AUEP reported that three of their focus companies, from a total of seven, are in the process of or have started to integrate climate in pay calculations this year. This includes Japan’s J-Power and Chub Electric, which are now considering linking director pay to sustainability KPIs, while Malaysia’s Tenaga Nasional has already done so for senior management.

Some focus companies indicated that they are working to use emissions reduction as the climate indicator linked to board-level compensation in a “positive development” for the programme. Further engagement with companies will focus on details on how non-financial performance metrics such as climate indicators feed into performance evaluations.

Separately, two focus companies – Indonesia’s Perusahaan Listrik Negara (PLN) and Tenaga Nasional have selected several coal plants for early phase-outs over the past year. PLN has also committed to stop building new coal plants.

Hong Kong utility CLP Holdings is the only AUEP focus company so far to establish a phase-out schedule for all coal assets. These are to be retired by 2040.

The programme also disclosed a series of closed-door engagement sessions with “regulators in multiple markets”, including Indonesia, Japan and Malaysia. Topics discussed include the role of hydrogen within Japan’s decarbonisation plans, improving the design of public and private financing vehicles (such as the JETPs) to attract investment and the potential development of a coal phase-out timeline for OECD and non-OECD countries.

AIGCC CEO Rebecca Mikula-Wright said that while the AUEP has been “progressing well”, investors wanted to see more short-term progress with regards to interim climate targets and immediate emissions reductions with demonstrable progress towards coal phase outs.

“For transition plans to be credible, companies looking to explore alternative renewable technologies, such as hydrogen, should ensure they are truly zero-emissions throughout the supply chain, and make sure they have a genuine advantage over more mature clean energy options,” she said.

“Policy engagement will continue to be an important, complementary element to our ongoing engagements with energy companies, ensuring the right incentives exist in the overall economy.”

Mikula-Wright added that the AUEP is eyeing expansion over the coming years and that interested investors should get in touch.

When asked to comment on the antitrust criticisms that have dogged CA100+ and the GFANZ finance sector groups, an AIGCC spokesperson said: “The bad faith backlash in the US against incorporating climate stewardship in investment decision-making is profoundly based in a cynical and dysfunctional political ecosystem.

“It is disingenuous, and works against the interests of investors’ beneficiaries by attempting to take away investors’ option to incorporate the real risks of climate transition, damage and disruption into their investment management.”

The spokesperson said that AUEP “does not and will not provide recommendations to investors to divest, vote in a particular way or make any other investment decision”.

Concerns over the chilling effects on collaborative engagement caused by anti-trust laws have existed for years, most prominently in Japan. However, there are early moves by Japanese regulator the Financial Services Agency (FSA) to revise current laws with a view of promoting investor engagement.