Progress and challenges in creating a standardised sustainability reporting landscape in Asia Pacific
Robertsbridge
Changing business, for good. We work to enable the shift towards sustainability for businesses.
Our Senior Consultant, Sophie Humphrey , explores how governments across the Asia Pacific region are considering implementing mandatory climate-related disclosures for companies.
Sustainability and climate action are at a critical juncture in the Asia Pacific (APAC) region. Recent findings from the 2024 Southeast Asia Green Economy report indicate a significant gap in national climate action, with most countries, including three of the four highest emitters, not on track to meet their climate targets. Targets which are already falling short of scenarios that limit global warming to 1.5oC.
Singapore is the only country of the ten Southeast Asian nations assessed as likely to achieve its climate goals. However, it’s one of the region's smallest emitters, so its efforts won’t significantly reduce the wider region's emissions. This stark reality underscores the urgent need for transparent reporting on environmental impacts and progress to help Southeast Asia and the broader APAC region tackle these pressing challenges.
Mandates and Movements Towards Better Environmental Reporting
Within Southeast Asia, Singapore has set a precedent this year by mandating that from 2025, listed and large non-listed companies will need to start sharing climate-related disclosures, which are aligned with the IFRS' International Sustainability Standards Board (ISSB) standards. This shift towards a more transparent and accountable corporate environment begins with Scope 1 and 2 emissions reporting, expanding to Scope 3 by 2026.
Following Singapore's lead, Malaysia initiated a month-long public consultation in March on adopting ISSB's disclosure standards, suggesting that 2025 could also be the starting point for major listed companies in the country. This move reflects a broader regional trend, with Australia, Japan, Hong Kong, New Zealand, and the Philippines implementing similar disclosure standards or launching consultations on the issue.
ASEAN’s Collaborative Efforts to Enhance ESG Compliance
Outside the world of reporting disclosures, the launch of the ASEAN-Interconnected Sustainability Ecosystem (ASEAN-ISE) marks a significant step forward for the region’s stock exchanges, creating an integrated platform for ESG compliance. This initiative aims to synchronise efforts across regional stock exchanges, including the Singapore Exchange (SGX), Bursa Malaysia, the Indonesia Stock Exchange (IDX), and the Stock Exchange of Thailand (SET). ASEAN-ISE's vision is to foster a business environment where sustainable practices are not only promoted but are also financially rewarding for companies. More significantly, as part of ASEAN-ISE’s implementation, participating Exchanges have committed to adopting and implementing the “ASEAN Exchanges Common ESG Metrics” in their ESG reporting platforms, helping to create uniformity in a space with myriad variations and expectations for companies.
Challenges in Alignment and Standardisation
While ASEAN-ISE has committed to adopting a common set of metrics, the region still faces challenges in aligning and standardising these new reporting requirements, especially around non-listed companies and the need for external assurance to prevent greenwashing. Countries such as Hong Kong, the Philippines, and Japan are yet to provide guidance on whether companies will be required to obtain assurance for their disclosure. Meanwhile, Australia and New Zealand are setting precedents by requiring a baseline level of assurance for all scopes of emissions right from the start.
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Singapore has erred on the side of caution, requiring firms to obtain limited assurance for just their Scope 1 and 2 emissions two years after they begin disclosing them, with plans to consult on the timeline for reasonable assurance at a later stage after reviewing the implementation experience of Australia and New Zealand whose reporting disclosures begin this year and next.
Divergent Approaches in Sustainable Finance
Divergences also appear in other sectors, such as finance. Recent updates to Indonesia’s Financial Services Authority's "Indonesian Taxonomy for Sustainable Finance" sparked controversy by classifying financing for coal-fired power plants as a 'green' activity. This highlights the varying interpretations of what sustainability can mean to different governments and shows the delicate balance many Southeast Asian countries are trying to enact between growing their economies and decarbonising them.
Looking Ahead
As Southeast Asia moves towards mandatory sustainability reporting, companies must navigate a complex landscape of opportunities and challenges. The transition demands robust preparation and strategic thinking.
Challenges such as compliance complexities, resource allocation?for system upgrades, and data integrity must be meticulously addressed. Companies must also be vigilant against the risk of greenwashing and adapt to diverse regional standards—factors that can complicate cross-border operations.
However, these challenges come accompanied by significant opportunities.?Clear and accountable reporting can enhance a company’s reputation, attract new investors, and unearth operational efficiencies?that reduce costs and environmental impacts. Furthermore, the push towards sustainability can stimulate innovation, driving companies to explore new technologies and sustainable business models and positioning them as industry leaders in increasingly eco-conscious markets.
To prepare for these impending changes, companies should consider several proactive steps:
Lastly,?transparent communication?about environmental impacts, company policies, and ongoing challenges should be maintained to keep all stakeholders informed and engaged.
Navigating this complex but vital transition effectively can not only ensure compliance but also unlock new avenues for corporate growth and leadership in sustainable development. Companies that rise to the occasion will not only meet regulatory demands but also contribute profoundly to a sustainable future for the region and beyond.