ESG Disclosure Lags Behind Investment in Asia Pacific

CFA says much work remains to be done to raise quality of ESG information.

While Asia Pacific investors continue to pour money into ESG investments, the high-quality relevant information on such investments is lagging, according to the CFA Institute.

The CFA, an association of investment professionals, said in a report that there has been an increase in demand for high quality, comparable, and relevant ESG information. It said that regulators and exchanges are driving changes in disclosures by listed companies through policies, regulations and guidelines. But the report also said a lot of work still needs to be done in the region to raise the overall quality and utility of ESG disclosures to the investment community.

“Asia Pacific markets overall have shown a growing awareness of the value of ESG integration in their investment decision making and management processes,” Mary Leung, CFA’s head of advocacy for Asia Pacific, said in a statement. “Having said that, it is still unclear to many companies what ESG information investors would like to see and why, and how timely and consistent ESG disclosures can deliver strategic benefits to them.”

The Global Sustainable Investment Alliance notes that global sustainable assets under management totaled $30.7 trillion in 2018, a 34% increase from the $23.9 trillion assets under management in 2016. Asia Pacific markets such as Japan, Australia and New Zealand accounted for 9.5% of the total, said the CFA,

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“We believe a more thorough consideration of ESG factors by financial professionals will improve the fundamental analysis they undertake,” said Leung.

“We focus on the quality and comparability of ESG information provided by issuers and will continue to monitor developments in this area and set the standard for professional excellence with credentials that encourage professionals to follow.”

The CFA report found a lack of continuity among the approaches to reporting ESG information by Asia Pacific markets, regulators, and stock exchanges. For example, reporting is voluntary in some markets such as Australia and Japan, while the reporting obligation is on a comply-or-explain basis in Hong Kong and Singapore. China, where disclosure is currently voluntary, will introduce mandatory reporting in 2020.

A trend to tighten reporting obligations in the region has led to an increase in the volume of ESG disclosures, the report also said.  But not all of the disclosures are of high quality and useful to investors, said the CFA. The group said that issuers should recognize that the process of preparing ESG disclosure offers strategic benefits, such as making boards and management more aware of ESG related risks and opportunities. It also said disclosures improve communications with investors to allow them to make better decisions and to improve the efficiency of their capital allocation.

The report offered three key recommendations for asset manages, governments, and issuers regarding ESG disclosure:

  • Asset owners and investment managers should encourage investee companies to upgrade the quality and consistency of ESG information. There should be more details on what is material ESG information, and how it may affect valuation and future corporate performance.
  • Government, regulators, and stock exchanges need to ensure meaningful, accurate, timely, and comprehensive disclosures. They also need stay current with global standards and developments and work toward standardization. They should also articulate clearly how disclosure benefits issuers and offers guidance and training to less resourceful companies.
  • Issuers need to educate the board and senior executives to more fully integrate ESG and report on how it fits into the company’s strategic outlook. They should also ensure all relevant and material ESG information and related key performance indicators are communicated to the company’s stakeholders, including employees and investors.

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