Eastspring Investments: Responsible Investment Report 2022
24
Company D
Company D is an energy company in Indonesia.
Business ethics and transparency
In 2021, then Chairman of Prudential Insurance Growth Markets, Donald Kanak, was the originator of the Energy Transition Mechanism (“ETM”) via the World Economic Forum and Asian Development Bank. Since then, we have been huge supporters of early retirements of coal-fired power plants (“CFPP”) and believe in the value of well- planned and well-financed early retirement projects. In October 2022, the media reported that the company had signed a Memorandum of Understanding (“MOU”) with a state-owned entity (“SOE”) to purchase one of SOE’s coal-fired power plants (“CFPP”) to support the Nation’s net zero programme by accelerating the CFPP’s retirement. As no prior details were shared with investors, the immediate market reaction to the acquisition announcement made during the G20 Conference led to plunging share prices. Within the week, we arranged a meeting with the company’s Chief Financial Officer (“CFO”) to discuss the details of this plan and other key concerns, including the lack of transparency and the significance of the CFPP against the company’s equity size and cash flow. If the communication of the MOU had been better managed, the company would have been able to highlight the benefits of the early retirement program and the value it will bring about to its key stakeholders, which may have prevented the volatility they experienced in their share price. The company management responded positively to our feedback and shared that the project was a joint venture in the early stages of its development, hence valuation and internal rate of return details were not yet available at that point in time. The company also clarified its financing plans which, in line with its 2020-25 downstream plan, included expansion of its renewable energy business as well as the use of green financing instruments We provided further suggestions on the delivery and content of investor relations materials to better position future announcements related to this project. The company demonstrated willingness to improve, and we will monitor progress on this project and engage with management accordingly.
Eastspring Indonesia
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