Regulatory enforcement is one of the top ESG-related concerns of businesses in Asia Pacific, according to a report by Baker McKenzie.
The law firm found regulatory enforcement and investigations were high on the list for 57% of the 800 respondents surveyed across Hong Kong, Mainland China, Malaysia, Singapore, Indonesia, Australia, India, Japan and Thailand.
The authors of From Strategy to Action — Advancing ESG in Asia Pacific stated new regulation was a top ESG risk for 44% of respondents and changing buyer behaviour was a priority ESG concern for 33%.
Of those asked, 52% said they were approaching sustainability more seriously and with more urgency.
The report found evidence ESG is prominent to business decisions with 90% of respondents saying ESG is at least part of the discussion when their companies consider investment activities, including acquisitions.
The businesses Baker McKenzie spoke to spanned six sectors – technology media and telecoms; healthcare and life sciences; consumer goods and retail; industrial, manufacturing and transport; financial institutions; and energy, mining and infrastructure.
Baker McKenzie said the reason ESG has become established as vital to business in the region was, “rising regulatory enforcement, increased consumer focus on environmental and social issues, along with G7 countries pushing forward climate-related financial reporting.”
However, the firm also pointed out there are challenges stemming from the variations in ESG regulations across jurisdictions in Asia Pacific. There are inconsistencies in the taxonomies used and in how global initiatives and standards are being adopted.
Baker McKenzie, Hong Kong partner Robert Wright said some players are in need of help making sense of the landscape: “Increased investor demands and the roll out of mandatory disclosure requirements are driving improved ESG review and reporting practices across the region.
“However, while it is encouraging to see many global asset managers well advanced on ESG due diligence protocols and governance regimes, there are concerns that others outside the large institutions may require greater support in areas such as ESG training, access to data and analytical tools to evaluate ESG risks.”
These findings suggest that there is great potential in the region to accelerate ESG strategy and action, pending more clarity on ESG regulation and enforcement.
Ilona Millar, Baker McKenzie global head of climate change is optimistic about the prospect of further ESG growth in the region: “It is clear that few companies have yet built ESG frameworks and processes that are sufficiently advanced and rigorous for the realities of today’s marketplace.
“Given the growing importance of external factors, including consumer demand for improved ESG standards, Asia Pacific businesses now need to move particularly quickly to resolve shortfalls and gaps.
“This will also help with region-wide progress on ESG regulation harmonization and collaboration, which can in turn, have positive impacts on the economic recovery and renewal in the region.”