Just another cost centre? CLP Power's Hendrik Rosenthal on justifying sustainability in turbulent times

In a new series, On the frontlines, which profiles changemakers on the hard edge of sustainable business, Hendrik Rosenthal, CLP’s group sustainability director, tells the Eco-Business Podcast that open dialogue with internal stakeholders is key to transitioning a company that has committed to a complete exit from coal by 2040. 

” At the end of the day, the business units have to make it [the transition] happen,” he said. The role of the sustainability team is to provide guidance and set standards. Working out the emissions intensity of the power assets going in and out of the business is key to Rosenthal’s job of steering CLP towards net zero, as the company looks to increase its renewables and nuclear portfolio in key markets mainland China, India and Australia.

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Sustainability is not a nice-to-have. It’s not fluffy sustainability reports and marketing slogans.

Hendrik Rosenthal, group director, sustainability, CLP

Rosenthal is philosophical about the precariousness of the sustainability function, as companies question its value and ask whether it is “just another cost centre” at an introspective time for corporate climate action. “Especially in the current environment, with tariffs, geopolitics and big changes happening economically – are we still in a position to maintain such a function?” he said.

But he insists that in Hong Kong sustainability is no longer a “nice-to-have” for publicly listed businesses like CLP, which have been obliged to report their emissions by the Hong Kong Stock Exchange since the start of the year. “This is so different from 2008, when I first arrived in Hong Kong there was no compliance obligations. It’s a compliance question now – just to have that information and have a transition plan,” he said.

Rosenthal believes that as the sustainability function comes under growing pressure, it’s important that practitioners keep an open mind.  “Don’t get stuck into thinking that there is only one way to save the planet – that only option A is good, and B through to Z are bad. “The world doesn’t work that way. We need to be much more practical,” he said.

Tune in as we discuss:

• Recycling, Chernobyl and Canadian wastewater: Rosenthal’s route into sustainability
• Where does sustainability sit in CLP’s corporate structure?
• How is sustainability incentivised at CLP?
• How realistic are CLP’s decarbonisation ambitions?
• Advice for a new generation of sustainability practitioners

The transcript in full:

How did you get into sustainability?

It is something I have always been passionate about.

I grew up in Germany and was interested in recycling. I was growing up around the time Chernobyl [a nuclear accident in Ukraine in 1986 known as the worst nuclear disaster in history] happened. It really influenced me in terms of the thinking around clean water and waste, and informed what I wanted to study at school.

I was a kid at the time [of the Chernobyl disaster], but I distinctly remember I wasn’t allowed to go out and play, especially when it rained. We lived quite far away from the [disaster] site and from Ukraine. But radiation exposure from the nuclear accident was a fear that spread among the community.

Looking back at what’s happened in Germany over the last 10 years with the phase-out of nuclear power post-Fukushima [another nuclear accident caused by an earthquake in Japan in 2011], there is a real sentiment that nuclear power is not safe.

But then when you look at it in terms of the likelihood of incidents happening and how many accidents have happened in the past, and what sort of measures have been taken to make sure accidents don’t happen, versus the climate considerations and our need to generate electricity to run our economies, to simply say we shouldn’t have nuclear power – that it’s a bad thing – is a bit naive in my view.

What brought you to Hong Kong and CLP?

I chose an environmental programme for my graduate studies in environmental resource studies at the University of Waterloo.

There were not many programmes like that around at the time. It was essentially a sustainability degree, looking at what sustainability means in practice.

Following that, I got a job at the Ontario Ministry of Environment in Toronto. 

That brought me onto a sustainability career path, and I decided to take a leave of absence and explore Hong Kong with my family at the time. And I got a foothold here.

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The important thing to remember in a sustainability function is to be pragmatic. You can’t change things overnight.

This was 17 years ago, I ended up doing sustainability consulting work initially. Back in those days, in 2008, sustainability consulting wasn’t really a thing either. It was very niche. It was like, “okay, so what are we gonna do with that? How are clients gonna pay for this?”

Then I switched to the investor side. I joined an association on sustainable and responsible investment. We weren’t even talking about ESG [short for environment, social and governance] back then. It was SRI [short for socially responsible investing] that was key.

We went around the region to knock on doors. “How is climate change relevant to your investment? How are you managing that from a risk perspective?”

Where does sustainability sit within CLP’s corporate structure that allows you to push the sustainability agenda? 

That’s a very important part of the puzzle. It’s all about the governance at the end of the day. How do we have the ability to influence?

My team, the sustainability group, reports directly to a sustainability executive committee. That is essentially our group executive team that includes our C-suite, as well as the managing directors from the various businesses units.

That’s a forum where we deliberate on some of the challenging questions we are faced with.

Some of them relate to compliance matters, some to data management, because we need that from a compliance perspective, some to our transition plan. How do we change our business? How is sustainability actually manifested within CLP?

That’s the fundamental question.

We don’t have a sustainability strategy that sits within the sustainability team, which is something my team needs to look after. We have a business strategy where sustainability is built in.

My team is responsible for making sure that sustainability elements are reflected within that business strategy.

That’s a really important distinction to make across any business that takes sustainability seriously.

It’s not something that can happen in a silo. It has to be embedded across various parts of the operations and how you make your product.

So from the sustainability executive committee, we then bring forward issues to the board level sustainability committee. That’s where decisions are made in terms of updating our targets, approving our disclosures, or reviewing our decarbonisation pathway, looking at issues such as human rights and nature. 

It’s a committee that has foresight that’s embedded within the terms of reference. It’s not looking at current operational problems per se, but trying to be a few steps ahead. 

And if necessary anything after that would require board level approval, only on rare occasions where we have big ticket items like updating our targets and our public commitments.

So that’s how we work up.

But then we also work down across the organisation, through what we call a sustainability forum.

That’s where all the different practitioners that have a sustainability touch point across the business units come together on a regular basis to share what are we all working on and how do we find synergies.

Ultimately, the business units have to make it happen. There is only limited direct Influence we have on the business units to make things happen. It’s more about providing guidance, setting standards, and setting expectations about what we should do in practice. 

How are those business units motivated to ensure the company meets its sustainability targets?

There are two levels [of work].

One is the public commitments that we have and showcase performance on. And inherently within that, there is a question of, “how do we actually do this?”

There has to be some level of comfort and certainty from our part at the group level that we can make this happen to meet these performance expectations.

The biggest one for us is greenhouse gas emissions, in particular, the intensity of the electricity that we send to our customers. That’s our key metric, and what my team looks after in terms of understanding the group portfolio and how do we collectively come to this intensity figure. What are the different parts of the business that are shifting from now until 2050? New assets coming in, old ones phasing out? Do we have any closure potential? Can we divest? Should we divest? How can we accelerate any of this?

So, that’s very much a group view. But at the end of the day, there needs to be the dialogue with the different business units: what are your plans for these various assets?

When they [other business departments] tell us, “Well, we are going to keep this until 2050, because that’s our business plan.” That’s when the conversation starts, and we say: “We are phasing out coal by 2040 at the very latest. You need to make it happen before 2040, and this is a work stream now that you need to start getting your head around to make that happen.”

Coal plants don’t just move overnight in terms of selling or closing them. It’s a long term exercise to bring them online or off the portfolio.

So that’s a certain level of communication that happens in that process. But increasingly each one of the business units also has their own KPIs [short for key performance indicators] on an annual basis. So when we come to a point for a particular year where there’s the need to accelerate [the transition towards net zero], that’s when it pops up in their annual KPI. “You need to have this done this year in order to get to 2028 and have that happen.”

What are the hardest things about your job?

There are the inherent challenges in terms of why we need a sustainability function, and isn’t it just another cost centre? Especially in this current environment that we’re in now, with tariffs, geopolitics and big changes happening economically.

Are we still in a position to maintain a sustainability function and should we maintain such a function?

There is an ongoing process and fairly regular review of what are the nice-to-have bits of what the team delivers and what are the must-haves.

What has happened – and this is so, so different from 2008 when I first arrived in Hong Kong, when there were no compliance obligations – we now have a very clear compliance regime for listed companies in Hong Kong.

We now need to provide a certain level of transparency for the business, and showcase to the market data such as greenhouse gas emissions.

It’s a compliance question now. We have to have sustainability data and show that we have a transition plan.

There are disclosure standards with ISSB (International Sustainability Standards Board, a global sustainability reporting standard) and also the Hong Kong version that the Hong Kong Institute of Certified Public Accountants has published. 

Every listed company in Hong Kong will have to report to these standards by 2028.

That requires a team and a process to make it happen. This is compliance. This is not nice to have. This is not just writing a fluffy sustainability report with some marketing slogans that many companies have done in the past (and, some actually do to this day).

It’s much more about: what is decision-useful information related to sustainability that we need to showcase to the market that investors should know, to make sound investment decisions.

This is really the system that we have now and that in itself creates challenges in terms of making sure we have the right resources, capabilities, and data on-hand to provide that level of transparency and disclosure.

The second part is data and data management, and how we set up a system that collects, in our case, 70 different assets and performance data that are not just financial, but every non-financial metric you could think of in terms of environmental and social performance.

This data needs to come back to our headquarters at group level, because that’s the listed entity, to understand the ESG performance of our portfolio, because we need to disclose that.

A lot of people need to do a job to get that information back to group so we can have aggregated figures. That’s challenging.

Has there been any pushback about the importance of sustainability internally? 

Well, I guess I’m lucky in the sense of the type of organisation where I work.

Every organisation has their own corporate culture and their ways of doing things, and the outlook we have at CLP is much more long term.

We have a view where it’s not just about making a buck for the next quarter. It’s about being part of the community delivering an essential service. It’s about creating shareholder value, but also value in terms of sustainability and mitigating our impacts.

It’s not so clear-cut in terms of phasing out certain things [like coal], because they are costly or why we bother doing certain things, because that’s just a waste of effort.

I think the important part to remember in a sustainability function is to be pragmatic.

You can’t change things overnight.

If you have a machine that has a certain level of energy consumption. It could be much better if you bought a new one. But that machine you currently have, has a lifespan of another 10 years. It would be uneconomical to simply shut it down and buy a new one.

How do you make that argument that you should then buy something much more efficient and better from an environmental perspective?

You need to prioritise. And from a sustainability perspective, there are just so many things you could cover, right? How do you zoom in on the big ticket items that you can do now that you can have a real influence on and a real impact?

It’s a matter of making choices.

How about the broader challenges that CLP is working towards and how realistic they are in the current climate? Moving away from coal and pushing for renewables, for example.

Those are real business ambitions. So they are very realistic in terms of our own internal planning processes and our business growth objectives.

Phasing out coal is a really interesting question. For us, our priority is to no longer have coal in the CLP portfolio.

Now we have investments that were made many years ago, in some instances, where we built new coal power plants. Some of those are maybe 15 years old at this point. They are not ripe for closure. 

There are certain regulatory constraints about operating these plants and having an obligation to deliver power for an extended period of time. There is a contract for a plant to deliver power until well into the late 2030s.

So in terms of our ambition, do we keep this in our portfolio? What is the actual real choice we would have with such a plant? I’m really talking about India. There is such a demand for power in that market that closure is not an option for some of these facilities. Especially the newer ones. The government wouldn’t allow it.

There is so much [energy] demand growth that coal will be a real provider of electricity for the foreseeable future in that country. So in our case, what do we do with that?

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Don’t get stuck in thinking that there is only one way to save the planet.

Well, perhaps we can sell the plant. Perhaps we could divest and recapitalise, get money into our India business so we can then reinvest it into renewables.

We are trying to build a business that is based on non-carbon energy sources, provides energy services, transmission, distribution, energy storage, and really facilitates decarbonisation of electrification.

For that, we don’t really want coal. Divestment is a realistic choice as part of that process.

If you look at it from a greenhouse gas or climate change perspective, we fully appreciate that (divesting from coal) doesn’t help solve the planet’s problems.

But we will be building a business that supports decarbonisation and that, at least from our perspective, we are on the right path.

Tell us your thinking around nuclear, which is quite fashionable these days, particularly in fossil fuel-dependent countries that are struggling to decarbonise.

We have already invested in nuclear power at CLP. We have been for 30 years. It provides about a quarter of Hong Kong’s electricity.

So that’s a given.

We made one of the first investments ever made in nuclear power in China. CLP is part of that legacy.

We have since made additional investments, and if there’s new opportunities to continue to grow our nuclear portfolio, we will be supportive of that.

We see it as a fundamental source of baseload energy that is required and necessary. It meets decarbonisation objectives. It’s reliable, it’s cost-effective.

And if we were to say – which has been said in Germany, for example – that “nuclear power is bad, let’s get it out of portfolio. Let’s burn coal instead.” Or buy from nuclear power from our neighbours because we don’t have enough energy. It’s a bit nonsensical.

What happened in Germany was a political decision that appeased the community for fears that were fundamentally unfounded, from my personal perspective. And that’s me saying that as a German.

Do have any advice for young sustainability professionals wanting to get into the area? Any survival tips? 

Resilience is the key word.

Also, you need keep your options open. Keep an open mind, don’t get stuck in thinking that there is only one way to save the planet. Only A is good, and B through to Z are bad. The world doesn’t work that way.

We need to be much more practical. It’s a step-by-step battle we fight to get us on the right path. And it’s maybe not always perfect. And that’s okay.

From a learning perspective, what has shaped me as well, having grown up – not just in Germany, but also in Canada – was in being able to see the world from a global perspective. And not being so narrow-mindedly focused only on your own backyard.

And then having this opportunity for the last 17 years of my life to explore Asia and be part of this community here. I think it’s just so important for people to see the world. And how we actually are all so similar and have such similar challenges.

That’s a fundamental mindset that I think any sustainability practitioner should have.

This transcript has been edited for brevity and clarity