THE growth in demand to invest in companies with strong environmental, social and governance (ESG) profile has gained pace as policymakers around the world drive a low-carbon economic transition to combat climate change.
The Covid-19 pandemic has also raised public interest in sustainable living.
Renewable energy (RE) company reNIKOLA Sdn Bhd’s managing director Boumhidi Abdelali (Adel) says green energy is a must for many corporations, going forward.
“To attract more investments from global multinationals and funds, we must have green energy in the country’s ecosystem, ” the seasoned solar power entrepreneur says, adding that the Covid-19 pandemic has prompted many investors and bankers to seek and fund companies that will prosper in the new environment.
“Globally, the world is swiftly moving towards renewable or clean energy and reduce reliance on fossil fuel. Despite the current pandemic, governments and businesses are pursuing decarbonisation plans.
“In the United States alone, the new Biden administration plans to invest US$2 trillion (RM8.2 trillion) over four years to increase the use of clean energy. Closer to us, China has pledged to reach carbon neutrality by 2060, with 60 other small countries aiming to do so by 2050, ” he adds.
Towards this end, many oil and gas (O&G) firms are evolving into integrated energy companies.
“The pursuit of clean energy has led to many O&G companies allocating much of their capex towards renewables, be it new investment, strategic partnership or collaborations, or the setting up a new business unit to make a greater push into this area, ” notes Maybank IB Research in an April report on ESG.
It adds that many have also undertaken the merger and acquisition (M&A) route via acquiring large-scale solar projects to accelerate meeting carbon offsets targets. In the Malaysian O&G space, the majority are service providers and hence, pursuing a carbon neutral agenda will be a priority. In this aspect, the research firm says Yinson Holdings Bhd is ahead of its peers.
Primarily a floating production, storage and offloading company operating within the upstream oil and gas sector, Yinson currently has a RE capacity of 330MV from its solar projects in India. It has a mid-term target of reaching 1GW of RE in two years, and a long-term target of 5GW in five years. In order to achieve these targets, the group has already planned a pipeline of markets in which it seeks to penetrate in the coming few years.
Traditional utility providers, Tenaga Nasional Bhd (TNB) and Malakoff Corp Bhd have also begun their respective renewables push. TNB aims to achieve 5GW RE capacity by 2025, worth RM33bil, which would contribute some RM2bil in earnings before interest and taxes.
The potential spinning off its generation unit could improve its ESG profile, given its large exposure to coal-fuelled power plants now, which had possibly led to the exodus by foreign investors in the stock.
By 2030, TNB expects coal-related revenue to drop to less than 20% of group revenue.
Given the hefty capital outlay involved, balance sheet strength is a key – a factor that differentiates the company from many others.
Similarly, Malakoff, which has had significant coal exposure, has embarked on small projects in solar, mini-hydro and biogas. The acquisition of Alam Flora Sdn Bhd in late 2019 has given the independent power producer an entry into waste management, which could pave the way for a possible expansion into waste-to-energy ventures.
“Companies that invest along the low-carbon or environmental lines are likely to attract large private investors, such as pension funds, which are increasingly expected to operate with an eye on ESG credentials, but some do not provide the returns needed, ” says one analyst.
Still, he thinks RE will continue to grow for its inherent environmental benefits, which far outweigh the adverse impacts of traditional energy sources.
With backing from governments to encourage investments in this space, he says technology within the sector will continue to improve, and coupled with more competition, costs will come down over time.