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Investors in Asia Discouraged by “Insufficient and Inconsistent Quality of ESG”

Confusion over the definitions of environmental, social, and corporate governance (ESG) and sustainability poses a significant hurdle for decision-making, according to a new whitepaper jointly released by law firm Stephenson Harwood and sustainability consultancy PIE Strategy.

The whitepaper, aimed at identifying the needs of businesses and investors in achieving their sustainability goals, also explores the role of the legal sector in supporting these effort.

As the independent researcher, PIE conducted in-depth interviews with 26 decision-makers. They ranged from asset managers, financiers and impact investors to business executives and in-house general counsel, to identify their needs and understand the challenges and opportunities they face in regards to ESG.

All of the interviewees agreed that a low-carbon transition was inevitable but was unclear on how to achieve the transition, how fast to go, how much to invest and how to do it profitably. Widespread misconceptions over the definitions of ESG and sustainability were a major factor in the confusion, affecting investment decisions and hampering the pace of transition.

Incorporating ESG

This divide was clearer between traditional investors and those with a clear interest in assimilating impact influences into their investments. While sustainability could be a mandate perceived as explicit, the implicitness of ESG left asset managers unsure if they should incorporate it into their portfolios.

“Clarifying these definitions could be a substantial first step in clearing up misunderstandings. This is where the legal profession could help clients understand the potential meanings of terms of regulations and documents, to better gauge their risk exposure and ensure their commitment to achieving this transition,” says Evangeline Quek, managing partner, Greater China of Stephenson Harwood.

Insufficient and inconsistent quality of ESG disclosures by listed companies makes it more difficult for investors to accurately assess risk exposure and growth potential, discouraging investment decisions. Government regulations, particularly in Hong Kong, did not help in this regard. Neither set out a clear and coherent climate transition blueprint nor deterrent measures for non-compliance.

Interviewees also agreed that legal advisors could play a more significant role. They can help companies prepare not just for present regulations but provide foresight in anticipating a tougher regulatory environment. Consequently, navigating the subsequent implications.

More than just greenwashing

At present, commitments to emissions reduction targets are seen as goodwill gestures which lack accountability. The legal profession has the unique opportunity to help businesses establish fair and binding relationships to translate goodwill efforts into tangible and accountable actions.

“This White Paper provides an Asian perspective to complement the international dialogue on ESG and climate transition. The research was conducted through in-depth interviews with industry experts and decision-makers to understand the practicability for driving change. It is significant to note that businesses and decision makers know ‘why’, with this Paper we hope to help them resolve ‘how’,” says Natalie Chan, principal sustainability consultant of PIE Strategy.

As a case study, PIE leveraged the network of Stephenson Harwood and focused on the shipping industry due to fast-changing fuel choices and the far-reaching implications of the shipping industry’s impact on logistics and supply chains. By delving into an ecosystem perspective to understand the dynamics and explore opportunities to drive system change, the paper highlighted the importance of common and differentiated responsibility within the industry ecosystem to facilitate change.

Author

  • Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.

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