Asian companies may still 'dance to their own tune', including when reporting non-financial performance, as national rules often account for local nuances. But they fully understand that tailwinds to more and better disclosure are truly global in nature.
The senior managers from Asian companies reporting environmental, social and governance (ESG) information are somewhat sandwiched between proponents of rules that allow for 'national' differences in performance standards, but 'Western values' still being applied when final judgements are made, practitioners at the recent RIMS/WTW Asia Pacific Risk conference said.
ESG disclosure rules recently published in China were consciously adapted to the country's specificities.
And governments from Japan to China to India have set quite distinct targets for greenhouse gas emissions neutrality, which will inform how national industries tackle, and report on, net-zero objectives.
Variety as spice of life – and disclosures
Hugh Andrew, managing director and responsible for the asset management, leasing and marketing, and property management of the Asia property fund portfolios at investor BlackRock, argues that cultural differences across jurisdictions need to be taken into considerations when looking at ESG reporting.
"We cannot just impose Western values – but, sadly, that is what we tend to see happen," he says. "We need to see the cultural issues [there], because investors come from those countries as well."
Shai Ganu, managing director & global practice leader, executive compensation & board advisory at WTW, said "particularly [in Asia] where we have a disproportionately large number of companies with a controlling shareholder which may be a sovereign wealth fund or a family, the definition of 'performance' and 'time horizon' is also very important" when measuring on ESG.
If experts largely agreed that national tinges should be allowed for in reporting rules, they also concurred some themes behind ESG reporting seemed universal.
These include the desire from investors for more of it, the pre-eminence of the 'E' and climate change in discussions, and the demand that risk managers spot risks globally, however regionally-nuanced their ultimate reporting requirements were.
Even if local flavors need to exist keeping an eye on global developments is important, according to Marisa Trasatti, general counsel at US medical device manufacturer Sciton.
Thinking local, watching global
"What the UK and EU is putting out there [...] eventually will come to the US, because the US looking at what the UK and EU are doing," she says "The Securities & Exchange Commission [in the US] is looking at multiple iterations of the ESG movement and at subjecting [US] companies to some of the requirements looking at what the UK and EU have already done."
She points also to the relevance to global firms of amendments, introduced into the UK House of Lords in mid-2021, to the UK's Modern Slavery Act, addressing "the lack of clarity and guidance on disclosure and transparency, to require organisations to publish and verify information about the country of origin in sourcing inputs to their supply chains".
Attaching to the 'S' in ESG, these revisions discuss having credible external audit, and introduce criminal liability for failure to meet the Act's requirements.
"While it is still percolating, it is food for thought. A risk manager's job is to look at the big picture and figure out where the gaps are in compliance, and where gaps are in terms of potential liability."
Taking steps to improve, and report on, ESG credentials, was arguably once a box-ticking exercise for some companies, but an increasing number "see [it] as the new competitive landscape, and for an organisation to be truly strategically competitive in the new economy, [ESG performance and reporting on it] is about opportunity as much as managing risk," Rowan Douglas, head, climate and resilience hub at WTW, says.
Much more than ticking boxes
At global real estate manager Swire Properties, senior sustainability manager, Patrick Ho says disclosures on ESG developments "used to be about meeting requirements under listing rules, but over the past few years [...] a lot of ESG-focused investors are interested in buying our stock [ because of our ESG actions and reporting on them and it] is more becoming a market differentiator when we promote our buildings to the market."
Reporting on ESG is feeding straight into Swire's earnings, insofar as informing its financiers that it has achieved annual improvements in agreed ESG targets, has meant "considerable [reductions] in interest rates" for Swire's sustainability-linked borrowing, and the loans' rates are tied, in part, to such ESG improvements. Perhaps unsurprisingly given this, Swire's financial officer wants to raise the share of green bonds from about one-third now, to 50% by 2025.
Looking to its tenants, Swire also sees a 'greenium', in the form of better rents it can ask, by fulfilling the various requirements of independent sustainability certification for its properties. Ho says 10% more rent can be charged in first-tier APAC cities, for real estate independently verified by the BREEAM standard for sustainability.
"These examples illustrate that exhibiting ESG gives us many benefits, short- and medium term, and helps us mitigate climate risk."
The uptick in interest in ESG is not only at property companies.
Wide-spread interest
Telling the outside world about one's ESG performance, by way of an ESG 'score', is increasingly important, Augusto Hidalgo, head of climate and resilience hub in Southeast Asia, says, "because your companies' ESG scores measure corporate performance - not in the same way accounting does - but certainly your boards care about corporate performance".
"The investment and regulatory community have already for a decade been looking at ESG scores, and there is a huge depth and breadth for rating and ranking methodologies available. It is an assessment, not the same as an accounting one, but still about corporate performance."