How Companies Can Maintain Their Footing Amidst Asia-Pacific's Flurry of ESG Disclosure Regulations
Companies in the Asia-Pacific (APAC) region looking to begin or continue their environmental, social, and governance (ESG) journey can be forgiven for throwing their hands up in frustration or for being perplexed by the events of 2022.
Why? The region’s ESG landscape, in its infancy less than a year ago, has evolved at a feverish pace. From hosting a global economic summit, to grappling with a devastating typhoon, to dealing with the looming US-imposed tariffs on renewable industries, 2022 was an overwhelming year for APAC.
This convergence of geopolitical, environmental, and financial storylines only further emphasizes the importance of the region to any major business. Accordingly, business leaders cannot be paralyzed by these complexities. Instead, they must ensure their companies’ ESG approaches not only collect the necessary data to comply with the rash of new rules and regulations, but uses that data to improve their bottom lines.
The calendar year also saw numerous other APAC countries implementing a variety of mandatory ESG disclosures. Singapore, long hailed for its progressiveness in the financial services sector, is mandating climate and board diversity disclosures on publicly-traded companies. China’s ESG regulations, which will eventually trickle down to multinational businesses operating in the country, are beginning to coalesce around national priorities of compliance and environmental targets. India, having already started work on rejiggering its previously-required business sustainability reporting mechanism, is also mandating new emissions reporting standards for its largest 1,000 companies to better align with international ESG regulations.
The APAC region is now a center of ESG regulation. While the majority of ESG regulation guidance originates in the US and EU, the gap between these markets and the APAC markets is shrinking fast. Financial hubs are realizing the importance of regulations - and beginning to roll out policies, many of which look West in gauging US and EU markets’ ebbs and flows. Furthermore, the clout and growth of the regional economic and financial markets are converging with the reckonings of environmental degradation and calls for more financial regulations, leading the push of ESG regulations from the sidelines into the spotlight.
To further regional expertise and better understand this rapidly evolving APAC ESG landscape, I spent 2022 interacting with numerous ESG leaders and professionals across the region exploring their approaches to ESG.
A common theme emerged from my conversations, whether at the ESG Evolve conference in Kuala Lumpur or the India ESG Summit in Bangalore. Countries within the region may be at different stages of ‘voluntary’ versus ‘mandated’ disclosures, yet regulators are evidently united over the urgency to craft compulsory, standardized disclosures to help bring clarity to publicly-traded companies and their private partners.
Similar to Singapore, Malaysia’s stock exchange, Bursa, began requiring sustainability disclosures for exchange-listed companies. In Bangalore, discussions focused on how numerous Indian companies were just beginning their ESG metric reporting in response to the country’s above-mentioned mandatory emissions standards. While company size and stage of ESG ‘journey’ varied, the vast majority of stakeholders I spoke with were facing demands for investment-grade ESG data and were seeking advice on how they could build strong and successful ESG programs that not only satisfied regulatory compliance needs, but would also help them improve their ESG performance.
While national and business leaders all face ESG, each country or corporation will likely differ in how they execute. This brings to mind the frustrated company executive, who operates in multiple countries and with multiple suppliers. They’re going to need both an ability to ingest this data and the ability to consult experts who have honed their craft both within the region and in other similar industries, like environmental, health and safety guidelines.
Given the pace of change, viewing the region’s increased focus on ESG regulations as a wait-and-see game is too risky. While many companies are not taking ownership over their ESG matters, others are running up against the boomerang effect of an immature regulatory system. Japan’s Financial Services Agency has recently implemented stricter regulations on labeling funds as ‘ESG’ in attempts to fend off greenwashing.
The good news is that companies can cut through the noise, and ensure their data is traceable and clean with the right cloud-based software. Additionally, the right ESG software will help with more than fulfilling inevitable compliance regulations. After all, ESG is not simply a box-ticking exercise to appease regulators. Instead, operationalizing ESG will help companies’ grow more efficient, limit risk, and ultimately maximize profit in APAC.
The investment market and asset managers in the region are realizing this inherent value. The region is projected to have the fastest growth in ESG assets under management, valued at just over $3 billion in a few years. Corporations that align their strategies with ESG in mind are producing better financial returns, with evidence of a positive correlation between ESG performance-related spending and enterprise profitability mounting. Especially in this region, the value also lies within ESG’s role in curbing climate risk liabilities, global insurance networks, and the general growth of capital investment regulations. Managers that view the ESG function as simply a regulation exercise will be left frustrated, and missing out on a chance to gain value— financially and with external stakeholders.
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