Health and life insurer AIA is under pressure to set targets regarding its portfolio holdings in coal and coal-fired electricity assets, with a US-based think tank estimating the company could hold as much as US$6 billion in coal-related assets.
The Institute for Energy Economics and Financial Analysis (IEEFA) has published a report estimating AIA's coal-based investments and its actions on how it plans to address that exposure.
IEEFA estimates that based on a top-down analysis, 15-20% of AIA's US$30 billion infrastructure fund is "probably invested in coal and coal-fired power," and using a bottom-up analysis by asset class, they estimate that AIA could hold from US$4.1-5.8 billion of coal and coal-fired power exposure in its equity, corporate credit, and quasi-government/SOE credit portfolios combined.
That estimated amount of $4-6 billion would be a range of 2-3% of AIA's overall investment portfolio, but IEEFA states in its report that "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 has committed to the TCFD, PRI, and CA100," said Norman Waite, energy finance analyst at IEEFA "It's only one of 11 insurers around the world to have done so. However, AIA is the only one of that group that has no policy on coal investments yet. To be fair, there is some variability among those other 10 policies, but they all have made commitments.
"IEEFA has found that over 150 global financials have made commitments on coal - divestment and/or exclusion. AIA is one of the world's largest financial enterprises so we'd hope they address these issues early rather than late."
IEEFA is calling for more transparency from AIA to clarify its intention to implement clear coal divestment and investment exclusion policies, and says that AIA's future investment performance will need to be considered against the risks from stranded assets.
The report notes AIA has already taken steps to outsource some of its infrastructure investments to HSBC "so some of this may be happening already." Further, 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."
AIA highlighted its activities to date.
"We continue to align our investment program with recognised and meaningful ESG principles, adopting best practices such as the continued assessment and disclosure of our carbon footprint," a spokesperson told FS Sustainability. "We have already taken a number of steps in recent years to address the carbon intensity of our investment portfolio. This includes the decision to end all direct equity balance sheet investments in coal mining and coal-fired power generation earlier this year, and carrying out a full review of all other coal-related investments as part of our efforts to meet our own significant climate ambitions."
The result of that review will guide future investment strategy, AIA said.
"Our focus on infrastructure investing over the past 30 years continues to be a mainstay of our program with increasing allocation to renewable energy opportunities, green and sustainability bonds," the spokesperson said.
IEEFA noted that a change in CEO at AIA also provided a new opportunity for the company.
"AIA brought on new CEO Lee Yuan Siong just earlier this year," Waite said. "He has an historic opportunity to come out with a new AIA policy on coal and coal-fired power investments, divestments, and exclusion.
"AIA is one of the world's most important financial companies, both to investors as well as to its policyholders. The risks from coal assets are only getting larger. Earlier this year AIA's CIO Mark Konyn noted the rising risk to investment performance from stranded assets (eg coal and coal-fired power). For IEEFA, this seemed like the perfect time to encourage AIA to move forward and join the global effort to address coal investment risks."
The IEEFA is a US-based think tank that is supported by philanthropic foundations including the Rockefeller Family Fund, Energy Foundation, Mertz-Gilmore Foundation, Moxie Foundation, Rockefeller Brothers Fund, KR Foundation, Park Foundation, The Heinz Endowments, Charles and Helen Brown Foundation, Just Transition Fund, Wallace Global Fund, The 11th Hour Project/The Schmidt Family Foundation and others.