What Does ESG Look Like In Asia?
Environmental, Social, and Governance is abbreviated as ESG. It refers to the practice of applying ESG standards to corporate operations in order to promote sustainable growth. References to ESG have almost become a buzz word for businesses, especially in the United States and Europe, and is increasingly emerging in Asia Pacific. The term was first used over 20 years ago in 2004 by a group of financial institutions in a United Nations study titled “Who Cares Wins.” Although it has generally been perceived that Asia lags behind other continents in the development of sustainable finance, ESG issues have received more attention in recent years, and this trend is expected to continue.
In recent years, a number of frameworks with frequently overlapping goals have been established to create standards in ESG data reporting. Prior to that, the leading framework and standard-setting groups — the Carbon Disclosure Project, the Climate Disclosure Standard Board, the Global Reporting Initiative (GRI), the Value Reporting Foundation, and the International Integrated Reporting Council — offered guidelines and rules to create a thorough corporate reporting system with both financial accounting and sustainability disclosures. In the past five years, ESG policies in APAC have doubled, now making up 20% of global ESG policies, compared to 44% in Western Europe and 4% in North America. Asia-Pacific countries like Singapore mandate that all publicly traded corporations produce annual sustainability reports outlining all pertinent ESG information.
We see notable developments in Asia as a whole, including the establishment of a highly careful regulatory framework. Taxonomies are being created to assist market players in determining how “green” an activity is, and regulators are beginning to implement fund-labelling regulations in a deliberate and future-focused approach.
Asian Countries Leading The GreenTech Revolution
On this front, Hong Kong and Singapore’s regulators are leading the way. Their creation of a taskforce on the topic and the implementation of ESG-related laws for the financial industry show how serious they are about achieving net zero before 2050. Various rules for ESG information disclosure and ESG investment have been adopted by Hong Kong and Singapore regulators of banks listed firms and asset managers. Singapore is a great example of an Asian country which has clearly outlined its plans and trajectory and leading the way for the rest of Asia.
The Monetary Authority of Singapore (MAS) is progressing with its comprehensive, long-term strategy to make sustainable finance a defining feature of Singapore as an international financial centre.
MAS launched the Green Finance Action Plan which has the following four pillars:
- Strengthening the financial sectors resilience to environmental risk
- Developing markets and solutions for a sustainable economy
- Harnessing technology to ensure trusted and efficient sustainable finance flows and
- Building capability and knowledge in sustainable finances.
ESG Regulations Are Challenging Asset Managers In Asia
- Green Taxonomies
- TCDS-aligned Climate Reporting
- Carbon Pricing Schemes
- Supply Chain Due Diligence and Transparency Requirements
- Corporate ESG Disclosures
- ESG Fund Requirements
The relatively low rate of ESG focus in Mainland China during the pandemic may be due to the absence of obligatory ESG disclosure laws. But things are about to change. With the Mainland Chinese government increasingly prioritizing sustainability and establishing green investment principles that will guide its Belt & Road Initiative, corporations will increase their ESG efforts in the months and years to come to align with this goal.
For more than a decade, ESG issues have been rising on the corporate agenda, but the pandemic has solidified the ESG movement as an essential necessity for all businesses. The 27 institutions that have joined the Global Investor Program (GIP) include financial institutions include Japan, Hong Kong, and Singapore. 4% of businesses claim the crisis has had no impact on their approach to sustainability, despite the growth of governmental and regulatory action. This shows that not all businesses have reached the ESG tipping point.
Managing ESG Regulation and Enforcement
Businesses confront a demanding compliance effort as nations in the Asia Pacific region continue to enact new ESG regulations. New disclosure requirements in Mainland China and a stronger emphasis on stewardship throughout much of Southeast Asia are only two examples of the ongoing regulatory reforms. In light of this, the top ESG risk is cited by 57% of survey participants as regulatory enforcement and investigations. Furthermore, 44% identify new regulation as the most significant ESG risk. Further highlighting the significance of corporate agendas, these are also the two areas where respondents say they are most likely to seek outside counsel from lawyers and other experts.
The fragmented structure of ESG legislation in the Asia Pacific region is a contributing factor to the issue, especially for multinational organizations. Regional ESG disclosure frameworks are currently less well-established than those in the European Union and North America, which are both evolving. There is no clear and consistent taxonomy, and global ESG initiatives, frameworks, and standards are not widely adopted. Over time, improved regional coordination and harmonization amongst regulatory agencies will help in the solving of some of these issues. However, many companies anticipate continuing to rely on specialized advisors with global perspectives in the meantime.
The Future for ESG Regulation In Asia
Most countries have Green Plans for 2030 which are sustainable development agendas and charts to map out a countries Green plan over the coming years. The Green Plan includes targets for Singapore to become a leading centre for green finance in Asia and globally. Various requirements were identified for green finance to work effectively: a consistent set of global disclosure and reporting standards must be implemented; the quality, availability and comparability of data must be improved; and taxonomies for green and transition activities must be developed.
The ESG market is growing rapidly across the globe, all driven by a combination of investor demand and government regulation, organisations are scrambling to get their hands on the roadmap to comply with ESG regulations and requirements.
How Storm4 Can Help You
Leaders in global GreenTech recruitment, we are on a mission to help scale businesses at the cutting edge of clean technology to curb the climate emergency pressing today’s conversations. Storm4 are ESG recruitment experts and we have been pivotal in building the key senior hires in these companies to supercharge their operations and make a significant impact on the climate.
If you are looking for a recruitment partner in North America, Europe or APAC, don’t hesitate to get in touch. We are always on the lookout to expand our remit and support more GreenTech’s driving a sustainable future with the very best talent on the market.