Sustainability in Asia – in conversation with Adam Janikowski and Robert Todd

Monique Barker: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape with a view on addressing current issues in a concise format to help you navigate and take action. I’m your host, Dominique Barker. Please join me as we explore today’s most pressing matters with special guests that will give you some new perspective and help you make sense of what really matters.

Adam Janikowski: There is an expectation by both the government and the population of China that they’re going to to be able to do that. They’ve done it for more ambitious targets in the past than this. But there’s a need for a profound change.

Monique Barker: Today, I’m joined by Robert Todd, who’s a managing director in our energy infrastructure and transition team based in London, UK, and Adam Janikowski, executive director based in Hong Kong and investment banking. And he’s really taken the lead on ESG in the Asia region. Good morning, gentlemen.

Adam Janikowski: Good morning, Dominique. Thank you for having us.

Monique Barker: Adam, why don’t we start with you. Congratulations. That sustainability conference, Asian Sustainability Conference was fantastic. And for those of our clients who wish to hear the replay, please do feel free to reach out to your CIBC rep. An excellent conference with excellent information on the state of play in the Asia region. Can you summarise for us some of the information that Ambassador Barten gave on China targets? They’re really impressive.

Adam Janikowski: Well, thank you, Dominique, and thank you for the compliments on our conference. I think we all at CIBC are quite proud of the conference we did put on. And for those who didn’t listen to it, it was really a conference focussed on Asian companies and what they are doing around sustainable finance targeted a Western audience. Because what we do at CIBC is try to bridge the gap in knowledge and and advice between the two worlds. And sometimes that’s a bit larger than what we’d like it to be. What we learnt with Ambassador Bartons presentation that China China’s really at the forefront of both emitting carbon, but also in its commitment to reducing its carbon emissions. China is actually committed to net zero emissions by 2060 and peak emissions at 2030. And these are two very important targets to look at as you think about it. China’s largest market in the world, basically for everything, primarily because its population, it’s the largest energy consumer and also the largest emitter of CO2 globally. But it’s also extremely important in a priority market for sustainable finance. When we’re thinking about targets, it’s not just China that’s setting targets like 2060 and 2030, but several of the provinces and municipalities are competing and setting pretty ambitious targets. One that I took away with is in Shanghai, less than 50 percent of the vehicles can be internal combustion vehicles. So over 50 percent have to be electric vehicles by 2030.

Monique Barker: Yeah, that really struck me, too. So I had a question for you, because is that of new vehicles being sold? And I know you spend a lot of time in Shanghai. Are you actually seeing it on the street?

Adam Janikowski: Oh, absolutely. I have to look into this. I believe it is all vehicles, not just new vehicles being sold. And China, like like many other large municipalities around the world, can really control that through licence plate registrations and licence plate distributions. So they’re very, very serious about addressing climate change at the national, provincial and even corporate level. So when we’re thinking about this and when you look around the streets of Shanghai, you’re really starting to see electric vehicles become more and more prevalent in buses, in taxis and also in passenger vehicles. But the big difference is, is not Tesla’s. Yes, there are Tesla’s, but those are for the higher end of the community. It’s actually made in China solution companies like BYD, which Warren Buffett has a big stake in and actually outsells Tesla in terms of the number of vehicles, number of electric vehicles every year. Those are the kind of electric vehicles you see on the streets of Shanghai.

Monique Barker: Interesting. I think one thing that really struck me was Ambassador Bartons strong comment that if China sets targets, they are going to hit them. And he said, I think he used the words deadly confident. I was really impressed by how much progress is being made and how strong the messaging is. And hydrogen featured prominently. Can you talk a little bit about that?

Adam Janikowski: Well, it’s funny, Dominique, you really seem to take away several of the same things I took away. I think his exact words were and I wrote it down because it struck me so strongly. He said when China makes a plan, they execute, which essentially is it’s state led planning at his best. So, you know, China has published very strong central planning documents and they outline the path to peak carbon emissions at twenty thirty and net zero by twenty sixty. Those, if you remember, those are the two milestones I mentioned earlier. This means that there’s a lot of opportunity. There is an expectation by both the government and the population of China that they’re going to to be able to do that. They’ve done it for more ambitious targets in the past than this. But there’s a need for a profound change. China has not released official numbers on how much it’s going to cost to get to net zero. But Goldman Sachs, for example, suggests it will be US 16 trillion price tag. Other estimates are US Twenty two trillion that the People’s Bank of China is estimating and BCG consultants are saying it’s between 13 and 15 trillion. These are not small numbers. But what’s interesting, you mentioned hydrogen and how important it is a hydrogen economy and the hydrogen contribution to that cost will be about twenty five percent, whether that’s fuelling stations, whether that’s transportation or basically development, but a large part of China’s investments in the new economy, twenty five percent of China’s investment into a new economy is going to be hydrogen.

Monique Barker: And there was quite a few companies that spoke about, and I know some of the companies we spoke to leading into the conference that unfortunately couldn’t make it, but the actual building out of hydrogen infrastructure for passenger vehicles, and that is different than a lot of other areas of the world. And I was really struck by that. And so has that investment started? How far along are we?

Adam Janikowski: Oh, yes, that investment has definitely started. Many of our listeners will be aware of Sinopec, one of China’s largest oil and gas companies, or if if they’re not aware of it intimately, they would have heard of it along with Senok, CNBC. Sinopec, actually, despite being oil and gas company, has an annual hydrogen production capacity that exceeds three point five million tons, which is about 14 percent of the national total today. And what they have committed to in this came out last month. They plan to build and operate one hundred hydrogen refuelling stations by twenty twenty one. That’s not a big number. But then they’re looking at putting into place 1000 in the next five years. So they’re leading the industrial development of hydrogen energy. And that’s just in China. As an aside, just today, Sinopec announced that it’s set to become China’s largest whole industrial chain CCRC demonstration plant as well. So, you know, if you look at a poster child for an oil and gas company transitioning to the new economy, you might want to take a look also in China and take a look at Sinopec. But we’re seeing other companies. And if you’ll allow me, I mean, we talk to Korea and we had hoped Cogas would be able to join us at our conference. Cogas is a natural gas producer, oil and gas producer, which is state owned in Korea. They’ve just created a new division focussing solely on hydrogen. And maybe we’ll talk about Japan in a minute. But every one of those large Japanese companies that are household name Sumitomo, Mitsubishi companies like Chubu Electric or Jira, every one of them has a hydrogen business now. And everyone is focussing a lot of time, resources and manpower on hydrogen.

Monique Barker: Interesting. Rob, maybe we can switch to you. I know you’ve spent a number of years in the Asia Pacific region and you’re leading on the renewable side in Europe, U.K. I know you spent quite a bit of time still in Australia, in Asia. Can you just give a lay of the land and what you’re seeing in China, renewables and maybe Asia PAC more broadly?

Rob Todd: Yes. Thanks, Dominique. I spent a number of years based in Asia covering the renewable energy sector, and it’s been fascinating to see the growth of the industry and not least China. It really began with a manufacturing story in the early days and particularly around the solar space, which really was a home for production to then export to the rest of the world. They don’t turn their attention to wind power. And that was more of a domestic story. And then they turn their attention to the installations themselves. Now, today, they actually form the bulk of new installations globally for both solar and wind. And 2020 was an outstanding year for those two technologies in spite of covid. With that in mind, I think, you know, there were a few growing pains. They introduced various tenders for capacity. They introduced tariffs, and the pace of growth was just outstanding. And what we saw on the ground in the early years of renewables was a number of projects were not even connected to the grid, even around a third of total capacity. And there were delays in payments of up to two years around those types of installations as well. But the growth kept coming and the government implemented a lot of new policy to support the growth of the industry. And we saw what was the first new energy IPO from China in Hong Kong, which had a valuation which was quite eye watering at the time, which was over twenty five times price to earnings multiple back in 2009. And since then, there’s been a number of other groups that have become listed platforms in Hong Kong. So big focus today is and you’ve seen this as part of the 14 five year plan is the renewables and sustainability more broadly is really a strategic pillar for them. And I think the goal around carbon neutrality was perhaps unexpected by many. But by 2060, that’s a big priority. And of course, as part of that, to reach peak carbon emissions by the end of the 2020. So I would echo what Adam says in terms of the confidence to deliver and the determination to succeed here that the government’s trying to put into place.

Monique Barker: Thank you very much. That’s excellent. Another takeaway just on the hydrogen. Rob, you spoke about the other five year plans and all the planning. And hydrogen was identified as one of six key industries of the future, not a subset of renewables, but an industry on its own. And just for Canada, as we think of ourselves as being exporters of energy and hydrogen could really play a role there. So there could be some exciting times ahead between Canada and Asia. Gentlemen, thank you very much for your time today. That was excellent. And again, the conference was really good. And if anybody would like to listen to a replay, please reach out to your CIBC representative,

Adam Janikowski: Thank you very much, Dominic, at any point, we’re very happy to speak to our clients and help them achieve their purpose as they look to expand their businesses globally and Asia.

Rob Todd: Thanks, Dominic. Enjoyed talking with you today. Thank you very much.

Monique Barker: Please join us next time as we tackle some of sustainability’s biggest questions, providing different perspectives to help you move forward. I’m your host, Dominique Barker, and this is the sustainability agenda.

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