23rd March 2023


The Power of Active Ownership: Battling the Vung Ang 2 Threat

What can a responsible investor do to spotlight – and try to stop – activities contributing to climate change? Eric Pedersen, Head of Nordea Asset Management's Responsible Investments Team explains the company’s philosophy. 


In 2020, while engaging with a Japanese bank on climate issues, we became aware of Vung Ang-2 coal-fired power plant project, currently under construction in  Ha Tinh Province, Vietnam. The project is situated on a site near the Vung Ang-1 coal plant and the Formosa Steel plant—both have caused local environmental degradation and are major emitters of Greenhouse Gases (GHG).

Global energy-related carbon dioxide emissions surged by 1.5 billion tonnes in 2021, the second-largest increase in history, reversing most of last year’s decline caused by the Covid-19 pandemic. According to the International Energy Agency, this driven in large part by the resurgence of coal and gas use in the power sector. In emerging markets like Vietnam, this is particularly evident. 

The new Vung Ang-2 project consists of two turbines to be commissioned in 2024 and 2025—both will be fuelled by imported anthracite, hard coal. This project will significantly add to regional GHG emissions in the short term, and hence will very likely be closed down long before the end of its economic life, creating significant financial risk. Because of this, Nordea Asset Management identified a series of companies and lenders involved in the project, and led a consortium of 25 investors representing EUR 4.8tn in AuM in sending a letter urging the firms involved to withdraw from the project, and end all forms of involvement in new coal projects worldwide. The letter cited the associated climate-related financial and reputational risks, as well as the risk companies pass along to investors when failing to address climate risk exposure. In addition to the letter, NAM and our collaborators followed up with direct, individual dialogues with the companies associated with Vung Ang-2. 

Determining whether to divest or engage is an important decision—we are not afraid to exclude companies when we find it necessary to do so, but we strongly believe in engagement as an effective tool for change. In the case of Vung Ang 2, we chose collaborative engagement to deliver the best result.

The project stands out for several reasons. First, we found that the emission levels from this project are estimated to be almost three times as high as levels from the average plant in the EU, China and the USA. Secondly, the environmental impact assessment that had been carried out on this project had major flaws, e.g. it failed to assess renewables as an alternative to coal, which was remarkable, given the price competitiveness of clean energy. A September 2019 report by the UK think tank Carbon Tracker, concludes that the cost of constructing new renewables will be lower than operating costs of existing coal-fired power generation in Vietnam by as early as 2022. Thirdly, Vung Ang 2 has been significantly delayed since its approval in 2009 inflicting significant cost to investors—in the meantime, the price of renewables has plummeted. And finally, the health and safety issues tied to this project are numerous.   

Consequently, we found that Vung Ang 2 is not only questionable from a climate perspective but also from a financial point of view. It is highly symbolic, as a high-profile example of what are hopefully the last generation of large coal-fired power plants to be built. 

Identifying the most suitable engagement targets is important – and they can be indirect. To maximise our influence, we decided to engage with the companies that are tied to the Vung Ang 2 construction project (owners, contractors, financing banks etc.). Our engagement objective was ambitious: not only did we want them to withdraw from this specific plant construction, but also to make a commitment to exit the entire coal industry. By extending an invitation to other shareholders to carry this engagement out collectively, we were able  to leverage the knowledge and influence of other investors to increase our ownership share in the companies tied to this project. 

Today, we are happy to share our engagement strategy has borne fruit.  While we currently do not  have news that development of Vung Ang 2 has stopped, significant related results have been achieved by our engagement: The shareholder pressure we and our peers applied has played a key role in Samsung C&T’s commitment to withdraw from all future coal projects and exit the coal industry. KEPCO, Mitsubishi Corporation and Sumitomo Mitsui Financial Group have also announced plans to end future coal projects. In addition, Mitsubishi Corporation has announced they are withdrawing from the sister project of Vung Ang-2, Vinh Tan-3. Moreover, this engagement was cited by pro-climate members of Korea’s parliament during a climate debate which ultimately led the Korean government to announce a net zero target for emissions. Moreover, Japan recently announced that it is withdrawing official financing from the construction of coal power plants outside its borders. The consequences of this decision for Vung Ang 2 are not clear at the time of writing.

NAM is committed to continuing our engagement activities concerning the Vung Ang 2 project, and we urge investors and investee companies to make commitments to end involvement in new coal projects. Our engagement on this issue is driven by our belief that it is our fiduciary duty to deliver returns with responsibility. That’s why we have built a comprehensive ESG toolbox in which engagement and exclusion work hand-in-hand.