Lee Weilin, head of sustainability at Rajah & Tann Singapore, shares how ESG regulations can help Asian companies rebuild in a post‑pandemic world
Asia was at the golden age for the 21st century when the global pandemic struck as a black swan event. The Asian economies were hard hit by border closures and lockdown measures, which brought air travel to a standstill and disrupted the movement of goods and services in the global value chain.
The Covid-19 crisis brought about a labour crunch and a downturn on manufacturing, and as the “factory of the world”, the Asian economies suffered. This brought to focus how existential threats can cripple industries, and with such realisation, business leaders and governments in Asia started to put an even greater emphasis on environmental, social and governance (ESG) considerations in businesses and economies.
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Such focus and recognition is an important first step for Asian businesses—as owners must look beyond short-term profits, as natural disasters, social unrest or economic disparity can damage long-term prosperity.
The next step of identifying the ESG considerations that would affect businesses, however, may be a complex one and can be in some ways, for the short-term, costly. This is bearing in mind that in Asia, and particularly Southeast Asia, where the countries are emerging economies and many businesses are small and medium-sized enterprises (SMEs), the focus on short-term bottom line is important because it is a matter of survival. On the other hand, this must not be the reason or an excuse for Asian businesses to hold back on adopting ESG factors in their business decisions.
ESG regulations in Asia can be seen as a tool to bridge these two positions and to push forward the ESG momentum. On the outset, regulations are often regarded as being interventionist to the free market and an increase in compliance costs. A closer look at recent ESG regulations in Asia would show that a general emphasis is placed on ESG disclosures and, taking into consideration the costs on SMEs, they are generally imposed on the larger corporates and the financial industry to spur greater initiatives in the marketplace for the adoption of good ESG practices.
Some examples of ESG disclosure regulations in Asia include the introduction by the Singapore Stock Exchange, starting from 2022, of a phased approach to mandatory climate reporting for Singapore-listed issuers based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD); the upgraded disclosure requirements on Hong Kong-listed companies in relation to ESG reports; and the creation of a label in Japan to identify companies that are reporting on ESG performance.
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