Time for AIA to prove their climate credentials

AIA has been the subject of a recent campaign to encourage divestment of its coal and coal-fired power investments. However, AIA has responded so far with little but vague statements about past coal asset divestments and suggestions that it is moving toward policy changes in the future.

This is a missed opportunity. AIA is too important an insurer and global financial firm to take the risks from coal and coal-fired power assets so lightly.

As global investors continue to ratchet up scrutiny of financial services companies, AIA will be seen as a laggard and have its motivation to support efforts like the UN’s Principles of Responsible Investment, the Task Force on Climate-related Financial Disclosures, and Climate Action 100+ increasingly under scrutiny.

To date, AIA has shown little interest in the carbon footprint of its investment portfolio, even though it likely holds as much as USD 6 billion in coal and coal-fired power assets on its books. AIA’s equity portfolio registers a carbon footprint above even the average MSCI index for Asia, even though cleaning up its equity exposure would be easy to do. If AIA is not negatively screening even its equity portfolio, we should expect to see far more coal assets in the rest of its more long-dated investments.

Based on a top-down analysis, we estimate that 15-20% of AIA’s USD 30 billion infrastructure fund is probably invested in coal and coal-fired power. Using a bottom-up analysis by asset class, we estimate that AIA could hold from USD 4.1-5.8 billion of coal and coal-fired power exposure in its equity, corporate credit, and quasi-government/SOE credit portfolios combined. USD 4-6 billion would be a range of 2-3% of AIA’s overall investment portfolio. This may not seem like a great deal, but even if just 10% of that USD 6 billion winds up stranded and needs to be written down, it would take a significant bite out of earnings, potentially impact AIA’s brand value, lead to a drop in AIA’s share price, and raise doubts about AIA’s investment management.

AIA is already behind its peers and needs to address this exposure. Of 11 insurers that have signed the same climate pledges as AIA, AIA is only one yet to announce a coal investment policy.

AIA should remove the uncertainty about its actual coal and coal-fired power exposure and lay out plans to exit those positions and avoid that exposure going forward. Until the company offers more transparency and clarifies its intention to implement clear coal divestment and investment exclusion policies, AIA’s future investment performance will need to be considered against the risks from stranded assets.

AIA has already taken steps to outsource some of its infrastructure investments to HSBC so some of this may be happening already. AIA’s CIO Mark Konyn has also shown an eagerness to avoid the risks presented by stranded assets to AIA’s performance, so the problem is clearly understood.

The time for promises and generalities has passed. Regional and global investors, and more especially AIA policyholders, need action.