ESG reporting is becoming more urgent for companies doing business in Asia Pacific (APAC). There are more than 200 ESG regulations across Asia, in addition to similar initiatives in Australia and New Zealand. Businesses recognize that sustainability is essential for them to compete successfully in the region. Is your company ready to comply with ESG requirements in APAC?
In all, there are more than a thousand ESG regulations now in place worldwide, a twofold increase since 2016, according to a report by Invesco, an Atlanta-based investment management company with 13 offices across the region.
The requirements in APAC consist largely of ESG disclosures, ESG reporting standards, legislations or government policies, and green taxonomy, referring to a list of environmentally sustainable activities for businesses.
A report by International Data Corporation (IDC), a global provider of IT market intelligence and advisory services, forecasted that ESG performance will become a standard component for third-party risk assessment beginning this year. It is estimated that about 20% of Asia-based 2000 (A2000) companies will be placing greater weight on third-party risks than security, financial, or operational risks.
IDC also forecasted that the number of A2000 companies that will capture their carbon data and report their enterprise wide carbon footprint using quantifiable metrics will increase from 30% in 2023 to 50% by 2024.
While IDC’s report cites the top Asia-based 2,000 companies, the term APAC typically refers to countries in eastern and southern Asia that touch the Pacific Ocean, plus Oceania, Australia, and New Zealand. Bloomberg’s Asian Pacific Stocks list consists of 19 countries and jurisdictions: Japan, China, Hong Kong, South Korea, India, Taiwan, Australia, Pakistan, New Zealand, Malaysia, Indonesia, Singapore, Thailand, Vietnam, Bangladesh, Mongolia, Laos, Philippines, and Sri Lanka.
ESG Initiatives in APAC
“In Asia, the regulations moving sustainability/ESG performance disclosures from voluntary to mandatory, presence of regional agreements and high-level sustainability commitment projects, and mainstreaming of sustainability have changed how products and services are produced, procured and consumed,” according to IDC.
Many APAC countries have adopted the Global Reporting Initiative’s standards (GRI) and the UK’s Task Force on Climate-Related Financial Disclosures (TCFD) framework as the basis for ESG reporting. Singapore, Japan, China, and Australia are leading the region in ESG initiatives.
The Singapore Exchange’s climate disclosure rules require issuers to prepare an annual sustainability report, while Japan’s corporate governance code recommends that all companies listed on the Tokyo Stock Exchange produce sustainability reports.
The China Securities Regulatory Commission encourages companies to voluntarily report their sustainability risks and impact, such as emissions, biodiversity, and social risks. Australia’s corporate governance code recommends that publicly listed companies disclose environmental and social risks. The country’s Sustainable Finance Roadmap has also issued sustainability recommendations for the financial sector. In New Zealand, large financial market participants are mandated to disclose their climate-related risks, opportunities, and greenhouse emissions.
Japan, China, and Singapore all have green taxonomies that define what’s considered environmentally sustainable investments. The Association of Southeast Asian Nations (ASEAN) is currently developing a similar taxonomy. Malaysia will launch ESG framework by end of 2023.
At the COP27 summit (Conference of the Parties of the United Nations Framework Convention on Climate Change) in 2022, a breakthrough agreement to launch a loss and damage fund for developing countries galvanized APAC countries to focus more on ESG.
Out of the world’s 100 environmentally riskiest cities, 99 are located in Asia. The conference highlighted the need for companies in the region to make transparent their sustainability efforts through quantifiable actions that can be reported and shared.
Acceleration in ESG Technology Investments
Even as businesses in APAC adopt ESG compliance strategies, they face major challenges in adhering to numerous reporting standards and frameworks. The lack of a single global reporting standard means every company must choose and develop the most suitable process. Unlike financial reporting, which uses universally understood key performance indicators, a company’s ESG performance consists of so much more quantitative and qualitative data points.
It’s perhaps no surprise that more companies are switching from manual to automated processes to support their ESG compliance efforts. The IDC report predicted an acceleration of sustainability strategy and technology investments in APAC.
“By 2024, 30% of A2000 companies will leverage ESG data management platforms to steer ESG KPIs via a centralized system of record for reporting purposes and real-time operational decision-making support,” according to the report.
Improve Your ESG Reporting Capabilities
In APAC and elsewhere, it’s now common for regulators, investors, consumers, and employees to expect ESG disclosures and credentials. The old way of manually collecting and analyzing information necessary for ESG reporting won’t cut it in the face of increased requirements in more jurisdictions. Manual processes are time-consuming, prone to errors, and simply inadequate.
It behooves you to automate and streamline your processes by choosing a complete third-party risk management (TPRM) platform. Choose a configurable solution that can be tailored to your company’s ESG reporting and business needs and applied across your value chain. Your TPRM platform should provide a detailed supply chain ESG report, including a benchmark for each third party in key areas. It should provide you with a complete view of your value chain’s ESG risks, resilience factors, and areas for improvement.
Increased ESG focus in APAC is a welcome development that can drive innovation and boost growth. APAC’s economy is expected to remain healthy despite global challenges. The International Monetary Fund projected that the region will contribute more than 70% of global growth this year as its expansion accelerates to 4.6% from 3.8% last year.
In as much as APAC’s attention on ESG implies new compliance burden, it can also bring new opportunities for companies with the right TPRM platform and tools. Gaining transparency and demonstrating sustainability can help attract more investors, as well as build consumer and employee trust.