The Vung Ang 2 project is part of the Vung Ang thermal power centre and is the second complex of a coal-fired electricity-generating plant located in the industrial zone of the Hà Tĩnh province in Vietnam. The first plant constructed has seriously impacted the area and local officials have testified that the pollution from the coal power plant has contributed to increased negative health and environmental effects.
When the construction of the second complex was announced, Nordea’s Responsible Investment team responded by deciding to influence some of the major investors in the project.
“We chose to focus on Vung Ang 2 because several of the companies behind the project are major players in the expansion of coal power globally. To have greater impact, we invited more investors for a shared active engagement approach, and the initiative was greatly welcomed,” explains analyst Elin Noring from Nordea’s Responsible Investment team.
In October 2020 a consortium, driven by Nordea Asset Management (NAM), of 25 professional investors with combined assets under management of more than EUR 4.8 trillion, was formed. The consortium sent a letter to the companies behind the project urging them to withdraw, also from all types of activities related to new coal-fired power plants globally. Nordea also held meetings with the Vung Ang 2-related companies.
Since 2020 several of the companies linked to the project have taken steps to reduce their involvement in the coal industry (see box).
Research shows that coal power must be phased out globally by 2040 to meet the Paris Agreement’s goal to limit global warming to 1.5°C. Historically, a coal-fired power plant has had an average lifespan of 46 years, which means that all new financing of coal-fired power plants is in direct conflict with the goals and timetable of the Paris Agreement.
Companies that have reacted to the letter from the consortium includes the owners Korea Electric Power Corporation and Mitsubishi Corporation as well as the contractor Samsung C&T, all announcing an end to future coal projects.
In addition, the financiers MUFG, SMFG and Mizuho have all introduced targets to reduce their financing of coal-fired power plants to zero by 2040.
“The project is an example of how we’re actively working with companies in high-emissions sectors to ensure that they transition at the pace required to achieve a net-zero emission world by 2050."
"Phasing out coal from the energy sector is one of the most important steps to reach the goals set in the Paris Agreement. Nevertheless, more than 1,000 new coal-fired power plants are currently being built or are planned to be built globally. This is a development that runs counter to the global goals, and it underlines the importance of action to combat coal-fired power plant expansions,” Elin Noring explains.
Despite the engagement of the 25 investors, it unfortunately looks as if the construction of Vung Ang 2 will go ahead due to contractual agreements.
“While we didn’t achieve our original objective of stopping the construction of Vung Ang 2, important progress has been made on the objective to move away from future coal projects. I’m confident that we together have moved this topic to the top of the agenda and that the work of the investor collaboration has played a part in increasing the companies’ ambitions and pace of the coal phase out. We firmly believe that our work as active owners is one of the ways to bring about continued change,” concludes Elin Noring.
For our involvement in the Vung Ang 2 plant Nordea won the ᾽ESG Initiative of the Year᾽ category in the Financial News Asset Management Awards Europe 2021.
The investor collaboration has also been shortlisted for the 2021 PRI Award for Stewardship Initiative of the Year. PRI is an United Nations organisation and an international network of investors who are committed to responsible investment.
Read more about our engagement in the Vung Ang project in the Nordea Funds magazine:
As a signer of the Net Zero Asset Managers Initiative Nordea has committed to reducing carbon emissions from its investment portfolio to net zero by 2050.
A key element in reaching the target is our active ownership activities, where we enter into dialogue with companies on how to reduce their climate impact, with the Vung Ang 2 project in Vietnam as a recent example.