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Asia-Pacific Companies Raising Their ESG Game

Asia-Pacific Companies Raising Their ESG Game

30 September 2022

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In 2022, companies around the world are fielding hard questions about their environmental, social and governance (ESG) plans, and those in the Asia-Pacific region are not immune to these pressures.

Throughout Asia as elsewhere, global investors and asset managers are demonstrating a growing willingness to divest or take voting action when companies fail to meet their disclosure and performance standards on a wide range of issues, says Jana Jevcakova, Head of ESG International at the global shareholder engagement and governance advisory firm Morrow Sodali.

"Across APAC, we are seeing an accelerating shift away from treating ESG as a box-ticking exercise within the audit and compliance process," says Jevcakova.

"Investors, shareholders and the global community more broadly now expect boards of directors to demonstrate that they are responsible stewards of their organisations and the environments within which they operate."

On matters ranging from corporate governance, human capital management to modern slavery, environmental and social initiatives, companies need to show a proactive approach through setting targets and developing concrete action plans. In the case of climate reporting, for example, it's no longer sufficient to simply ‘set and forget’ a 2050 net-zero carbon emissions goal, says Jevcakova.

"Companies are accepting that they need to develop and publish detailed net-zero transition plans," she says. "These should include short and medium-term targets – 2025 or 2030, for example – as well as clear explanations of how these will be achieved."

While APAC’s regulators are increasingly aligning with those of Western markets in areas such as climate reporting – jurisdictions including Japan, Singapore, Hong Kong and New Zealand are all in the process of mandating new reporting standards based on the recommendations of the Task Force on Climate-related Financial Disclosures – they are not driving change so much as reflecting a sharpening focus on sustainability within their wider societies.

"Whether they are looking to secure capital, to stay competitive or to build good, strong relationships with stakeholders, companies are being pushed from all sides to go further in terms of ESG transparency, disclosure, data and detail," says Jevcakova.

 

And when constructive engagement with companies fails to yield results, shareholders and investors are increasingly prepared to deploy escalation plans, says Daniela Jaramillo, Director of Sustainable Investing for global investment and asset management company Fidelity International.

"Our objective at Fidelity is always to bring companies along with us through conversations at board and management level," says Jaramillo.

"With regard to climate change, we have our own internal carbon reduction targets to meet – net zero by 2050, and a 50% reduction by 2030 – so we’re looking for portfolio companies that can help us to achieve these standards.

"In those sectors most exposed to climate risk, we expect companies to disclose their emissions; disclose their targets; have a clear climate policy; and demonstrate board oversight of that policy. In cases where they do not meet these criteria we are prepared to consider acting, including by voting against directors rather than simply divesting, which does little to bring about real and lasting change."

Global investors such as Fidelity may focus primarily on listed companies, but this doesn’t mean that the family-owned businesses, state-owned enterprises and tightly held conglomerates which still dominate some sectors of APAC markets are immune to ESG reporting pressures, says Angus Booth, Morrow Sodali’s Senior Managing Director, APAC.

"Companies across Asia have had a patch quilt approach to ESG initiatives and reporting, largely a result of specific market regulatory requirements, their corporate structures and shareholder base. What is now evident is the catch-up game many companies and capital markets are playing across the region to ensure their ESG initiatives and reporting requirements continue to attract investors, providing access to capital, but also their social license to operate."

Recent announcements like the Singapore Stock Exchange partnership with the New York Stock Exchange, which is designed to collaborate on the dual listing of companies, will also identify and develop new ESG products and services as well as introduce new capital inflows into southeast Asian companies. These investors will expect a higher standard of ESG reporting and ESG initiatives not seen in this part of the world before.

"Whether they’re trying to build relationships with Millennial consumers, attract high-quality talent or compete for international capital, companies across Asia are being forced to do more, and reveal more, about the wider environmental and social impacts of their operations," says Booth. "Today, no company globally is judged alone by the traditional financial and operational performance metrics, and those companies across Asia that grasp this opportunity early will deliver greater enterprise value in the long term. Like in other global markets, I can see a situation evolving in markets like Singapore, Korea and Hong Kong where investors and climate activist groups will seek to hold directors accountable come re-elections at annual shareholder meetings."

 

Headquartered in New York and London and with offices around the world, Morrow Sodali operates the leading shareholder engagement and ESG advisory business across the APAC region, with specialist teams based in Japan, Hong Kong, South Korea and Australia, servicing these markets as well as clients in Singapore, Taiwan, Indonesia and New Zealand. They include sustainability experts and former proxy advisors, who assist corporations to develop long-term sustainability strategies, improve their disclosures and better engage with their shareholders and other stakeholders.

With the backing of private equity giant TPG, which acquired a majority stake in Morrow Sodali this year, the company is aggressively pursuing both organic growth and acquisitions throughout the Asia-Pacific and has set itself the goal of becoming a one-stop solution for not only consulting on ESG and sustainability-related issues, but all the challenges companies face today with respect to investor relations and stakeholder engagement.

Globally, their client base includes over 1100 corporations in 80+ countries, including many of the world’s largest multinationals, so meeting the growing requirement for strategic advice to corporations on ESG reporting matters has been a natural extension of Morrow Sodali’s service suite, says Booth.

"But it’s also a highly specialised discipline in its own right, and we have been actively hiring top people in that space," he says. "It is an incredibly competitive environment at the moment, and for us it’s even more niche because we really need practitioners who are good at being what we've always excelled at, which is understanding investor policies and expectations and to work with companies and their boards to explain and provide context to what international investors are looking for, and what best practice looks like."

Booth says the growing focus on ESG practices and disclosure in Asia and globally should be seen by companies as an opportunity.

"We are seeing across our client base in Asia, that those companies who recognise the transition to a more equitable and sustainable global economy requires new solutions and ways of doing things – they are not thinking only in terms of risk and protecting the bottom line; it’s about assessing companies’ ability to leverage new avenues for innovation and growth too."

Summary

In this article, we explore why companies across APAC are increasing their investment in ESG and sustainability planning this year.

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Sodali & Co

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