ESG Regulatory Landscape in Asia

ESG Regulatory Landscape in Asia

September 2023

Consideration of Environmental, Social and Governance (ESG) factors are becoming hard to ignore amongst businesses in the region and the evolving regulatory landscape is playing a significant role in shaping how companies approach and report on ESG related issues. This article explores the latest ESG regulatory developments across key markets in Asia and assesses what these mean to businesses.

Inaugural International Sustainability Standards Board (ISSB) standards

In recent years, Asia has seen significant efforts by regulators to enhance the adoption of global sustainability and ESG standards through mandatory disclosure. The highly anticipated release of the International Financial Reporting Standards’ (IFRS) inaugural ISSB standards in June, placed renewed attention on the ESG regulatory landscape. The introduction of the ISSB standards will streamline the reporting process for companies, consolidating the fragmented landscape of sustainability standards.
The ISSB standards consolidates the guidelines of the Task Force for Climate-related Financial Disclosure (TCFD), the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council, and the CDP’s Climate Disclosure Standards Board (CDSB).
It will also enhance the connection between sustainability disclosures and financial reporting, making it easier for investors and other stakeholders to assess the sustainability practices of companies. While adoption of the ISSB standards is voluntary, it is likely to become mandatory across several jurisdictions from 2025.

The key components of the ISSB standards are:

• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information outlines how entities should disclose all sustainability-related risk and opportunities, governance processes and past performance on sustainability.

• IFRS S2 Climate-related Disclosures establishes clear requirements on disclosing climate-related risks and opportunities and sets out processes to weigh climate impacts in business valuations.

Taskforce on Nature-related Financial Disclosure (TNFD)

Businesses may soon be required to report on their nature-related financial risks through the TNFD disclosure framework. The final version of the framework will be released on 18 September with ‘nature-positive’ likely to become as important to investors as being ‘net-zero’.
The TNFD is an international initiative that builds on a model developed by the TCFD. The latter has been well received by companies and investors alike – almost 4,000 companies have expressed support for the TCFD guidance – and the same is expected of the TNFD framework. Once the final TNFD recommendations are issued, businesses and investors will have a common language to determine capital flows into nature positive pathways.

Updates from Asia ESG markets

Several key Asian markets are formalising their regulatory standards. Here are some key highlights:

ASEAN

• Six of Southeast Asia’s largest stock exchanges – Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam – recently collaborated to produce a set ESG metrics aimed at encouraging more sustainable investments in the region. ASEAN Exchanges released their full set of core sustainability, which saw the inclusion of 10 governance metrics, including focus on areas such as business ethics, board responsibility and the treatment of shareholders.

Singapore

• Singapore will mandate ISSB standards for listed companies from 2025. Private companies reporting annual revenues of SGD 1 billion or above are expected to adopt these standards in 2027, replacing the current “comply or explain” approach. It is intended to bolster Singapore’s position as a global business hub and help implement the nation’s Green Plan 2030 as part of the UN’s 2030 Sustainable Development Agenda (UNSDGs).
• The Monetary Authority of Singapore (MAS) alongside two partners, have signed a statement of intent to embark on an initiative which will simplify the ESG reporting process for micro, small and medium-sized enterprises (MSMEs). The initiative, known as Project Savannah, will allow companies to submit key ESG data to business partners, strengthening their ability to gain access to global financing and supply chain opportunities.

Malaysia

• In June, the Security Commission Malaysia (SC) and Bursa Malaysia, the country’s stock exchange, introduced a mandatory sustainability onboarding programme for directors of companies listed on the exchange. Known as the Mandatory Accreditation Programme’s (MAP), it will help the SC achieve its priorities of helping boards to address sustainability considerations more efficiently amid raising stakeholder awareness.

Hong Kong

• The Hong Kong Stock Exchange has recently concluded a consultation paper seeking market feedback on proposals to enhance climate-related disclosures. The proposed framework would make it mandatory to align disclosures with ISSB standards and help make climate-related disclosure mandatory for financial institutions by 2025.
• Hong Kong policymakers are discussing ways to integrate the city’s sustainable finance development with the Greater Bay Area.

China

• In 2023, the country introduced 33 ESG-related measures at the party, national, and provincial levels, covering aspects including regulatory disclosures, technology, and achieving carbon neutrality. It remains the world’s top builder of installations generating wind and solar power and is home to more than 34% of the world’s renewable energy plants.
• ESG reporting requirements for Chinese companies remain modest and fragmented, however. Ambitions remain to standardise frameworks in the future.

Key takeaways for businesses

With ESG and green financing gaining momentum in Asia, companies wishing to drive sustainable growth and join the global push toward net zero should keep abreast of the changing regulatory landscape and be prepared for new developments. Here are four aspects that executives need to stay on top of:

• Check for market-specific regulations

As a company or an investor, you need to be aware of the latest regulations in the jurisdictions where you operate. Each market has a different set of ever-evolving policies and priorities, so it is vital to understand and be familiar with the details. You will need a clear plan on how your company and its operating markets will implement these principles and plan to view these as more than a box ticking exercise.

• Refine the intentionality of your business’ ESG initiatives

Before committing to an ESG strategy, it is critical that you clarify your rationale and your intended impact or outcome beyond regulatory fulfilment or profit. Ensuring intentionality is the only way to achieve meaningful, sustainable action and avoid greenwashing or superficial regulatory fulfilment.

• Refining purpose statements and narratives

Once you have made an ESG-related decision, your priority will shift to controlling and disseminating an authentic narrative. This will galvanise your company’s purpose and set the tone for external communications. To be effective and avoid accusations of greenwashing, your narrative needs to focus on initiatives that demonstrate real impact. This requires clear and transparent storytelling, backed up by credible data.

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