Asia’s largest economies are stepping up their efforts to increase the emphasis on ESG and shift the focus onto green initiatives. ‘We hold a positive outlook for ESG and green finance in Asia Pacific. It’s an area of growth in the region,’ says Nadira Lamrad, director of sustainability and ESG advisory at Business Environment Council, Hong Kong SAR.
Among those economies pushing ahead in its green efforts is mainland China, which has put ecological protection at the heart of its economic and development policy, including bans on fishing along the Yangtze River and on imports of a solid waste. The aim is to reduce emissions of greenhouse gases per unit of GDP by more than 65% from 2005 levels by 2030, with an overall goal to be carbon neutral by 2060.
‘Businesses can no longer consider ESG a nice-to-have or compliance-driven topic’
Future growth
In March, as part of the annual ‘Two Sessions’ meeting of the National People’s Congress and the Chinese People’s Political Consultative Conference in Beijing, President Xi Jinping highlighted the concept of a ‘green GDP’, signalling the direction of future growth.
Chinese regulators also want mandatory ESG disclosures from listed companies.
Accounting firms are making their own efforts in this area. KPMG China recently released its first ESG report, which highlighted activities in four key areas: principles of governance, prosperity, planet and people.
‘Businesses can no longer consider ESG a nice-to-have or compliance-driven topic; instead they should integrate ESG into their core business operations to stay competitive and resilient,’ said Honson To, chairman of KPMG Asia Pacific and KPMG China, in a media statement.
Reporting guidelines
Meanwhile, Hong Kong Exchanges and Clearing (HKEX) has been ramping up ESG reporting requirements for several years.
In 2012, it called on listed companies to voluntarily report key performance indicators (KPIs) on ESG and in 2016 made it mandatory for those listed on the main and Growth Enterprise Market boards.
‘Issuers have also gone from reporting only around 20 KPIs to around 40 today. This serves to increase transparency of ESG risks from HKEX's point of view,’ says Melissa Fung, partner in risk advisory at Deloitte China.
‘Both investors and issuers desire ESG data to be more transparent, standardised and accessible’
Reporting guidelines updated in 2020 require virtually all listed companies to provide comprehensive ESG reports, starting this year.
The guidelines also require board oversight of ESG issues as well as disclosures around climate change and related risks, including disaster recovery plans and environmental KPI targets.
Last December, HKEX launched an online portal, STAGE, that showcases green bonds and other products that meet ESG standards. (See ‘Hong Kong goes green’, AB, February 2021)
ESG platform
The Singapore Exchange (SGX) has led the way in insisting that boards acknowledge ESG reporting requirements. In February 2021, service platform provider OneConnect Financial Technology, an associate of Ping An Insurance Group, entered a memorandum of understanding with SGX to create an ESG platform.
‘With the development of Ping An’s own artificial intelligence-driven ESG framework in China, we see the synergy in sharing and integrating our expertise in ESG into a platform that can be adopted by other companies, thereby bolstering the ESG culture across Asia Pacific,’ Jessica Tan, co-CEO of Ping An Group, said in a media statement.
‘Both investors and issuers desire ESG data to be more transparent, standardised and accessible,’ Michael Syn, senior managing director and head of equities at SGX, added. ‘The data and workflow platform will help SGX-listed companies report with more effective alignment to major disclosure standards.’
CFOs are recognising the impact of ESG performance on their cost of capital
Stronger focus
Not to be outdone, Japan wants to eliminate gas-powered vehicles in 15 years, according to a plan announced last December, with the target of carbon neutrality by 2050.
While ESG has had a slower start in the country, Japan’s Government Pension Investment Fund – the biggest public pension fund in the world – pioneered a stronger ESG focus when it signed the UN’s Principles for Responsible Investment in 2015.
Over the years, momentum has built. The Japan Sustainable Investment Forum (JSIF) found that the total assets invested according to sustainable principles rose 45% year-on-year to ¥336 trillion (US$3.09 trillion) in 2019.
According to PwC Japan, CFOs are recognising the impact of ESG performance on their cost of capital, clearly placing ESG in the remit of the corporate finance function.
Responsible investing
In South Korea, meanwhile, the Korea Exchange (KRX) launched a platform in 2020 dedicated to socially responsible investment (SRI) bonds.
The KRX also plans to provide guidance to listed companies on ESG disclosures to promote voluntary disclosures by 2025.
And earlier this year, in January, South Korea’s Financial Services Commission released a series of measures to improve corporate disclosure rules, including initiatives to promote ESG and responsible investing.
ESG predictions
In March, PwC Hong Kong asked its partners to identify key trends for environmental, social and corporate governance (ESG) in the Year of the Ox.
The goal of net-zero emissions will be a big driver in 2021, as both governments and corporations move from idea to implementation. Governments will also begin introducing tradable emissions permits, following the lead of carbon credits.
More rigorous rules and regulations for financial institutions over climate risk management and ESG reporting will be introduced.
Accurate, comprehensive and standardised data will become necessary to enable better ESG reporting and risk management.
And, the private sector will drive ESG resulting in more relevant fundraising as the focus shifts from sustainability to impact.
