As investors across the globe have become more concerned with sustainability and ethics, companies within the Asian markets have been forced to adapt their IR strategies.
As international attention has increasingly turned towards environmental and social issues, Environmental, Societal, and Governance (ESG) focused business practices have quickly become an essential consideration for investors. It’s no longer enough for companies to produce profitable returns for their shareholders — now, they must also demonstrate their commitment to sustainable business practices or face the wrath of activist investors. According to the U.S. Social Investment Forum, the incorporation of ESG initiatives by institutional investors increased by more than 60% between 2012 and 2014, and continues to trend upwards.
In the international market, players the world over are realizing that ESG-focused investment isn’t just a passing fad. Surprisingly, it’s not just established markets in the West that are concerned about sustainable business practices; emerging markets, particularly in the Asian business landscape — which has traditionally been less regulated — are ramping up their ESG focus as well.
Asian Markets and ESG
The past few years have seen a marked increase in ESG practices and disclosure in Asia. In 2013, Bloomberg listed 4,685 Asian companies with ESG disclosure scores in its database. While the governance aspect of the criteria didn’t perform very well, posting scores of 47 out of 100 on average, the environment and social portions were even worse at 18 and 22, respectively.
According to Frances Liu, a Bloomberg Asia ESG analyst, “Data on corporate governance tend to be standardized and available in annual reports, but since many countries don’t have compulsory rules for ESG data disclosure, companies often release environmental and social data in differing formats, if at all… Many Asian companies currently don’t understand what it is, or why they would want to do it, but due to pressure from government and investors, awareness will be higher in five years.”
Three years into the projected timeframe, ESG reporting is already having a major impact on Asian markets. Last year, The Taiwan Stock Exchange (TWSE) mandated publishing sustainability reports for large companies and certain sectors with a goal to expand to about 90% of members by market cap in 2017. Bloomberg explains how two of the worst rated countries for environmental disclosure among developed markets, Hong Kong and Singapore, have made moves to shore up their practices in light of international sentiment.
The Stock Exchange of Hong Kong (HKex) strengthened its standard ESG reporting guidelines to kick off 2016, as BSR reports, while Singapore’s reforms will be enacted in 2017 — which is important for the market’s long term success, because according to Bloomberg, more than 90% of investors surveyed by Singapore Exchange said they do consider environmental, social and governance factors, according to IR Magazine.
For a broader regional view of ESG progress, Bloomberg Professional compiled a helpful chart to demonstrate how Asian markets have implemented their new guidelines.
What Asian IROs Need
To comply with these new standards for ESG reporting, then, Asian IROs must adjust to the market regulations and demands of the shareholder base. Typical reporting methods have shifted, with IROs focusing on promoting a complimentary corporate image and employing “integrated thinking,” a wholesale approach to integrating ESG practices within the corporate operating and reporting structure.
To streamline the reporting process, transparency and proactivity is absolutely essential for these IROs. This likely requires a more forward-thinking, tech-savvy approach, enabling up-to-the-minute updates so that the company can tailor its narrative, especially to foreign investors. By taking advantage of social media networks and mobile apps, IROs can reach investors with the frequent ESG updates they’ve come to expect.
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