Key themes and observations across APAC
ESG reporting requirements
Investors, asset managers and financiers have been demanding better quality and comparable ESG-related disclosures from corporates as such disclosures may impact on their capital allocation and risk assessment, as well as their own reporting obligations. This has been a key driver for some jurisdictions to move towards making ESG corporate reporting mandatory and more decision-useful. We explore below the extent to which APAC jurisdictions are following suit and the extent of any convergence around the sustainability and climate-related reporting standards[1] of the International Sustainability Standards Board (ISSB), which were issued on 26 June 2023.
Observations across APAC
- A substantial majority of the covered jurisdictions have legal or regulatory requirements in place for companies to make comprehensive ESG-related disclosures on a mandatory or comply-or-explain basis, with most jurisdictions applying these requirements to listed companies and, in some cases, financial institutions.
- Singapore is potentially going further by proposing to apply ISSB-aligned climate-related disclosures to larger non-listed companies, while Australia applies modern slavery reporting requirements to larger non-listed companies. This trend is in line with the EU approach of applying corporate sustainability reporting requirements to larger entities whether listed or not.
- A small minority of jurisdictions apply ESG-related reporting obligations only to specified entities or projects with larger ESG impact (for example, Cambodia and Myanmar). South Korea has announced it will move from a voluntary disclosure regime for listed entities to a mandatory regime.
- We observe a range of reporting frameworks and standards. Most jurisdictions’ reporting standards have taken elements of international standards, such as TCFD, GRI and SASB. Jurisdictions with more bespoke reporting requirements (which are not heavily drawn from international standards) currently include Cambodia, Indonesia, Myanmar and Mainland China (although in practice, many companies listed in Shanghai and Shenzhen prepare their disclosures with reference to international standards and frameworks).
- Climate-related issues are a key focus in multiple jurisdictions, with jurisdictions including Hong Kong, Japan, Malaysia, New Zealand, Taiwan and Singapore having incorporated or taken the TCFD recommendations into account in their local reporting requirements or having announced plans to do so.
- Importantly, we can see the potential of convergence around the ISSB standards, with over half of the profiled jurisdictions having indicated they will incorporate or consider the incorporation of one or both of the ISSB standards into local reporting rules. They are Australia, Hong Kong, Japan, Malaysia, New Zealand, Philippines, Singapore, Taiwan and South Korea. However, the precise extent of ISSB alignment in these jurisdictions remains to be seen as the rules are still being developed. A degree of fragmentation within the region will likely remain, at least in the short term, as other jurisdictions have not given similar indications.
- A minority of jurisdictions (New Zealand and Taiwan) have assurance requirements in relation to aspects of ESG disclosures, with Singapore and India planning to introduce assurance requirements. We can expect further jurisdictions to consider moving towards requiring external assurance of certain ESG disclosures (particular on GHG emissions).
Transition planning
Corporate 'transition plans' set out how businesses plan to transition to a low carbon economy. The EU is starting to require certain large and listed entities to disclose their transition plans under its Corporate Sustainability Reporting Directive. The UK currently requires listed companies to disclose such plans on a ‘comply-or-explain’ basis and is expected to introduce similar requirements for large private companies. The UK has also set up a Transition Plan Taskforce to develop a ‘gold standard’ for corporate transition plans. While such developments are not yet in place throughout APAC, it would be helpful to understand whether and how these concepts are developing in the region.
Observations across APAC
- Governments in all the covered jurisdictions have announced net zero or decarbonisation commitments.
- Outside of specific sectors or heavy emitters, none of the jurisdictions have introduced mandatory requirements to adopt or implement transition plans or independently set climate-related targets. However, many have disclosure requirements touching on aspects of such plans or targets. For jurisdictions that are proposing to implement the ISSB climate standard, the mandatory disclosure of corporate transition plans will be a key aspect of ISSB-aligned reporting.
- Australia, Indonesia, Mainland China, New Zealand and South Korea have compliance-based carbon markets whereby certain higher-emitting entities / sectors are subject to emission caps / allowances, with India and Japan also expected to implement such markets soon. Vietnam requires specified entities from high-emitting sectors to adopt and implement GHG reduction plans.
- A number of jurisdictions (Australia, Cambodia, Hong Kong, Mainland China, Malaysia, Japan, Singapore and Thailand) already have voluntary carbon markets in place and more are expected to be launched.
- Going forward, as more jurisdictions adopt the ISSB climate-related standard and as expectations harden, there will be more detailed disclosure requirements on how a reporting entity plans to address climate-related risks, which will have a knock-on pressure for entities to put in place credible transition plans and targets in order to demonstrate to stakeholders that they have developed a robust strategy.
Greenwashing
As requirements on ESG reporting and transition planning generally harden, the risks of greenwashing claims are likely to increase.[2] We will explore in this publication the extent to which this has translated into any material litigation or regulatory action in APAC and the grounds for such action.
Observations across APAC
- With the exceptions of Australia, and to a lesser degree, New Zealand and Singapore, there are no known examples of significant legal claims or regulatory enforcement against greenwashing across the covered jurisdictions.
- Australia has been the most active in this regard – it has seen its securities regulator instigate legal proceedings, as well as regulatory interventions, against alleged greenwashing conduct (including claims about emissions intensity of products), and there is a Senate inquiry underway on whether further regulation is required. Australia has also seen the first court proceeding globally to challenge a net zero target – this was instigated by a shareholder advocacy NGO against a gas company.
- In Singapore, a complaint was made to the Singapore Stock Exchange by an Australian climate activist group against a power generator on misleading disclosures related to a bond issue on the Singapore Stock Exchange.
- New Zealand’s consumer regulator and financial markets regulator have taken some enforcement action, primarily in relation to unsubstantiated environmental claims of certain products. Some minor regulatory actions have also been taken in South Korea and the mainland of China in relation to product-related environmental claims (including a claim of carbon neutrality based on the use of carbon credits).
- All jurisdictions have grounds on which greenwashing proceedings or action can potentially be launched, with many answers noting that greater scrutiny against greenwashing conduct is expected as disclosure requirements are enhanced.
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This material is provided for general information only. It does not constitute legal or other professional advice.
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