Special Report

ESG Reporting

by Charles Yonts, CLSA & Jamie Allen, ACGA / Dec 1, 2018

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The availability and quality of environmental, social and governance (ESG) data in Asia has continued to increase at a rapid clip over the past two years. Based on a 2018 survey from KPMG, the share of Asian companies reporting on ESG jumped from 49% in 2011 to 78% in 2017. While we would not vouch for the average quality in the region matching Europe’s, there has been a dramatic rise in Asian sustainability reports prepared to the exacting standards of the Global Reporting Initiative (GRI). In 2017, 42% of all GRI sustainability reports came from Asia, versus just 25% in 2011.

Exchange requirements have been a big driver of this pick-up in ESG reporting. All of the major markets have enhanced corporate governance, ESG or sustainability reporting or corporate governance/stewardship codes in the past two years. For example, last year Japan revised its Corporate Governance Code with changes including the need for greater transparency around individual cross-shareholdings, while Malaysia made it a requirement for all listed companies, regardless of market capitalisation, to include sustainability statements in their annual report by the end of 2018.

Mandatory move
Most Asian markets also continue to ratchet up reporting standards from ‘comply or explain’ to ‘mandatory.’ In a fit of optimism, one could even argue that there is a ‘race to the top’ in reporting (though not necessarily standards). For example, Hong Kong Exchange (HKEX) and market regulator, the Securities and Futures Commission, are clearly feeling pressure to move beyond ‘comply or explain’ for environmental/social reporting as China makes environmental disclosures mandatory in Shanghai and Shenzhen by 2020. At the end of last year, HKEX said it plans to launch a consultation in mid-2019 in response to “increased demand for effective ESG reporting frameworks”.

Turning to CLSA’s 2018 bottom-up ESG rankings, while Australia retained its lead, Singapore pushed ahead to second place ahead of Japan, which was runner up in 2016. The controversial dual-class share structure for the former hasn’t yet had any impact on our ratings, while the latter got hit by our stricter interpretation of board independence and diversity.

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