In an effort to motivate companies to disclose their environmental, social and governance (ESG) credentials efficiently, stock exchanges around the Asia-Pacific region have been exploring and implementing schemes to guide companies in their sustainability journey.
However, the regulation patterns in different Asia-Pacific markets vary greatly and, currently, there is no unified framework that exchanges in respective jurisdictions can use to evaluate and compare their efforts and effectiveness in promoting enhanced ESG disclosure rules, making it more difficult for regional exchanges to achieve high-quality regulation.
Nevertheless, there a common thread of three attributes that stock exchanges in the region should consider adopting to enhance the level of ESG disclosure, which is becoming a key requirement for institutional investors worldwide.
The first attribute is the level of commitment, that is, how exchanges set their standards on ESG reporting. The most stringent exchanges require companies to disclose both ESG and climate-related information, while the least stringent ones keep ESG reporting on a voluntary basis.
In between, the exchange can take a partial focus on mandatory disclosure of certain elements under the E, S or G topics. For example, effective from January 2022, the Singapore Exchange (SGX) has strengthened its prevailing requirement for ESG reporting by mandating corporations to adopt climate-related information disclosure in accordance with the Taskforce on Climate-related Financial Disclosure (TCFD) recommendations on a phased approach.
The second attribute is alignment. This asks if exchanges are referring to, or incorporating, any suggestions or recommendations from internationally-recognized standards, such as those of the Sustainability Accounting Standard Board or TCFD, when building their own ESG reporting policies.
The exchange can implement local standards based on local needs, but the incorporation of one or more international framework would increase the comparability of the reporting quality in the capital market.
The most developed exchanges should integrate the international standards and local requirements, thereby balancing the need of both investors and regulators. For instance, the Hong Kong Exchanges and Clearing (HKEX) requires listed companies to report a series of environmental and social key performance indicators and make cross-reference if companies have adopted other international standards.
The Taiwan Stock Exchange (TWSE), by comparison, requires corporations to report using the Global Reporting Initiative framework. Contemplating on the alignment direction and degree is a more micro and practical matter for exchanges, once they have set their level of commitment.
Finally, there should be clear support from the exchange. The most ambitious goal and the most intricate design can fall short without proper support. The level of support can be measured by the variety of resources and the accessibility of those resources.
On this matter, several Asia-Pacific exchanges have taken the lead by building a visible and centralized hub consisting of a series of knowledge sharing products that include detailed guidance, case studies, and seminars or roundtables.
Companies and other interested parties can easily find instructions from their respective hub and achieve compliance with minimum researching efforts. Therefore, enhancing the level of support is critical for exchanges to implement their ESG reporting policies effectively.
To this end, the SGX and HKEX have launched platforms – Sustainability Knowledge Hub and ESG Academy, respectively – which serve to facilitate stakeholders’ understanding of ESG-related matters.