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Business Times
2 days ago
- Business
- Business Times
Issue 153: Transition plans reveal clean tech opportunities; DBS hot on nuclear
This week in ESG: MSCI Research analyses companies' transition plans; DBS sees growth in nuclear sector Sustainable investing (Part 1) Finding opportunities in disclosures Editor's note: ESG Insights will take a break on Jun 27 and Jul 4, and will resume on Jul 11. Sustainability and climate reporting continue to face widespread resistance among businesses, many of which do not view these issues as material or consistent with business objectives. But global markets' gradual move towards mandatory reporting on environmental, social and governance (ESG) issues – especially climate-related disclosures – goes beyond providing insights on the sustainability of individual companies. When a critical mass of businesses provides ESG information, that data can be used to discern broader trends, which in turn can be used to make money. MSCI Research's latest report on climate action progress among companies on the MSCI AC Asia Pacific Investable Market Index shows one way in which that analysis can be done. A NEWSLETTER FOR YOU Friday, 12.30 pm ESG Insights An exclusive weekly report on the latest environmental, social and governance issues. Sign Up Sign Up MSCI Research assessed the transition plans disclosed by companies on the index and identified a number of clean-tech sectors that could experience increased demand because of companies' decarbonisation commitments. A transition plan lays out a company's strategic decarbonisation goals, technology roadmaps and capital allocation to achieve short, medium and long-term targets. In the energy sector, MSCI Research found that companies with transition plans were planning to invest more in hydrogen, renewables, electric vehicles and carbon capture and storage (CCS). All 16 energy companies that provided transition plans, in addition to 200 companies not in the energy sector, held hydrogen-related patents as at October 2024. About 4 per cent, or 150 companies, of the index companies provide clean transportation solutions, MSCI Research said. Companies that generated more than 80 per cent of revenue from electric vehicles and hybrid electric vehicles had annual total revenue growth rates of over 25 per cent, surpassing their peers. In the utilities sector, MSCI Research identified clean energy and hydrogen-fired generation as strategic priorities for companies in the region, with more than 80 per cent of transition roadmaps indicating potential use of clean fuels. More than 70 per cent of the transition plans also referred to potential use of CCS. A key area of research and development investment is in perovskite-on-silicon tandem solar cells, which have higher theoretical efficiency limits than the traditional silicon cells. Almost all transition plans from the materials sector involved developing renewable-energy and low-carbon products. Steel, cement and hydrogen are examples of materials that require large amounts of power and have therefore been difficult to transition away from fossil fuels. Despite the energy-intensive nature of many of these products, MSCI Research found that less than half of companies in the sector were looking at adopting CCS. The MSCI Research analysis is possible because the number of companies that are reporting on their transition plans has been increasing, from 12 per cent of all the stocks on the index in 2022 to 22 per cent in 2024. The numbers are expected to improve in the coming years as jurisdictions begin to adopt and implement global accounting standards that include disclosing transition plans. The adoption of the accounting standards will also uplift the quality of the data, by increasing the sample size and improving comparability. Harnessing the power of the financial markets is often touted as a critical requirement for fighting climate change at scale. For that to happen, it's important that investors understand climate action not simply as a form of risk management, but as a source of profitable opportunities as well. More and better sustainability disclosures can enable analysis for this side of the equation. As investors become more sophisticated about climate-related disclosures, companies will also find it easier to get noticed for credible climate strategies and progress on those strategies. While sustainability reporting may require resources, companies that are transparent and committed could find the cost well worth the rewards. Sustainable investing (Part 2) Eyeing a nuclear boom When is uranium exposure a good thing? When you're investing in it, says DBS chief investment officer Hou Wey Fook. Hou sees four drivers for higher demand in the nuclear energy value chain. The first is a security need to diversify away from fossil fuels, sparked by wars in Europe and the Middle East. The second is the energy transition commitments that countries and big companies have set for themselves. In quite a number of these cases, nuclear energy has emerged as a potentially feasible and possibly essential low-carbon alternative to fossil fuels, especially when renewable options are inadequate or still immature. For instance, Indonesia, Malaysia, the Philippines, Singapore and Vietnam are at various stages of exploring nuclear energy. Tech giants such as Amazon, Google, Meta and Microsoft have also announced their intentions to acquire nuclear energy. Third, digitalisation and artificial intelligence are gobbling up a huge and increasing amount of electricity. Finally, the development of small modular reactors has significantly lowered the cost and land resources required for nuclear energy. Hou outlined four ways to invest in the nuclear sector: Physical uranium Uranium miners Reactor developers Utilities As Hou says, momentum for nuclear energy is definitely growing. However, most of the nuclear players sit outside of Asia. Hong Kong-listed CGN Mining, which extracts uranium to support China's nuclear industry, is one of the rare investable names in this region. It's definitely a space worth watching. Other ESG reads
Business Times
12-05-2025
- Business
- Business Times
High interest rates, volatile stock markets could prime private credit to outshine private equity again
[SINGAPORE] Funds that invest in private credit globally may be poised to beat those for private equity (PE) again this year. That is especially if interest rates remain high while exit opportunities in stock markets are stymied by volatility. An Apr 29 report by index provider MSCI shows that private credit funds generated 6.9 per cent last year, exceeding the PE funds' return of 5.6 per cent. 2024 marked the third straight year of outperformance. A relatively new asset class, private credit began as a source of liquidity when the global financial crisis of 2008 caused high-yield and syndicated loan markets to seize up. Demand for private credit has been growing, as tighter regulations make it more onerous for banks to lend to companies. Interest rates on private debt are usually charged at a premium to the benchmark rates, so the asset tends to perform better when borrowing costs are rising, or not falling as quickly as anticipated. On May 7, the Federal Reserve held interest rates steady for the third time this year. While noting that the US economy has 'continued to expand at a solid pace', the central bank highlighted that the risks of higher unemployment and inflation have risen. This indicated the Fed has dropped 'its implicit easing bias', Ray Sharma-Ong, head of multi-asset investment solutions, Southeast Asia, at Aberdeen Investments, said in a May 8 report. The uncertainty surrounding US economic outlook due to the impact of tariffs and trade policy 'makes it harder for the Fed to cut rates pre-emptively to support economic growth'. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up 'Private credit, predominantly consisting of floating rate instruments, has benefited from the higher interest-rate environment. The increased interest income has more than offset any write-downs and default events,' Keith Crouch, executive director at MSCI Research, told The Business Times. 'Given these factors, while private credit funds have shown resilience, the overall trend will depend on how these dynamics evolve.' Keith Crouch of MSCI Research says that higher borrowing costs have benefited private credit, and the dynamics in the interest-rate climate will influence the asset's outlook. PHOTO: MSCI Another reason for the more sanguine outlook for private credit compared to PE is the squeeze on exit opportunities amid continued volatility in public stock markets. PE fund managers rely on deal flow to exit and generate returns for their investors, which typically include pension funds, sovereign wealth funds and insurers. The exits occur when the portfolio companies raise capital via avenues such as initial public offerings, or through mergers and acquisition activity. But these are drying up in the aftermath of the turmoil unleashed on global financial markets by US President Donald Trump's 'Liberation Day' tariffs, and the ongoing trade negotiations. 'The current market environment with the heightened volatility and long-term economic uncertainty simply creates greater exit challenges for PE,' said Michael Jones, managing director at PGIM Private Capital, which manages a US$109.7 billion portfolio of private placements, mezzanine and direct lending investments. 'It is fundamentally easier to exit private credit funds because private credit funds become self-liquidating over time, given the underlying investments have stated maturity dates and private credit can ultimately force an exit if needed (either via a refinancing or a sale) or negotiate an outcome as the borrower needs to address the debt at maturity,' he told BT. Michael Jones of PGIM Private Capital says private credit funds are 'fundamentally easier' for investors to exit. PHOTO: PGIM PRIVATE CAPITAL Fewer PE exit opportunities could aggravate the current low rate of distributions, the returns or profits that fund managers disburse to investors. In the fourth quarter of 2024, the distribution rate of buyout and venture capital funds – two types of PE funds – remained well below their five-year averages before the Covid-19 pandemic, according to the MSCI report. This 'remains a concern' for investors in PE funds as capital they would otherwise redeploy to new investments remains stuck.
