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SUSTAINABLE INVESTING

Time for Asia’s transition

BlackRock's take on the acceleration of ESG data in the region, and why it is time for Asia’s transition.

It’s no surprise Asia Pacific (APAC) faces increasing pressure to change how it treats the environment – it is at the frontline of climate change mitigation and adaptation. The region creates around 45% of the world’s greenhouse gas (GHG) emissions1, with China, India, Indonesia, Japan and South Korea among the top polluters globally. 

The physical climate impacts are now also too big to ignore. Aon, for example, reported US$72 billion in related losses in APAC in 20212. Along with a dominant population, the social disruption and economic losses are far-reaching.

“If Asia doesn’t get the transition to net zero right, the world doesn’t,” said Emily Woodland, Head of BlackRock Sustainable Investing for APAC.

Leader or laggard?

Achieving this is easier said than done. Investors, regulators and other stakeholders need enough transparent and accurate ESG information to be able to drive change.

But is APAC up to the task? We believe so. The perception of a data shortfall in the region no longer reflects reality. Environmental and social disclosures by corporates in most APAC countries are in line with, or more advanced than, their counterparts in North America. And they are catching up with those in the EU.

This is clear from the surge in support for the Taskforce on Climate-related Financial Disclosures (TCFD) to guide ESG reporting legislation across APAC. Out of 3,400 pledged TCFD supporters worldwide, nearly 25% of the companies are in Japan, with around 10% from across Australia, Singapore, India, Hong Kong and Mainland China3.

The trend is similar for the number of companies based outside the US that are now using Sustainability Accounting Standards Board (SASB) standards; Asia accounts for 10.5% of reporting companies4.

Cumulative TCFD supporters

Source: TCFD, https://www.fsb-tcfd.org/supporters/, August 2022

Local regulations are also fostering stronger ESG disclosure regimes across the region. Key milestones include:

  • New Zealand became the first country in the world, in October 2021, to pass a government legislation ensuring financial organisations disclose and ultimately act on climate-related risks and opportunities.

  • Hong Kong and Singapore announced plans for mandatory TCFD-aligned climate disclosures for listed issuers in late 2021.

  • China issued new environmental disclosure rules that require domestic entities to disclose a range of environmental information annually, effective February 2022.

  • Japan enhanced the enforceability of existing mandatory climate risk disclosure in April 2022.

At a corporate level, business leaders now view sustainability as a way to fuel innovation, create a competitive advantage and boost returns. Investors are also recognizing that sustainable business practices and models could lead to excess returns compared with the broader market5.

Investing in Asia’s transition

The spotlight on sustainable investing is having the desired impact on data: better disclosure should translate to better-quality data, says Woodland, in turn spurring more reporting going forward.

To add to the mix, boutique local data providers that specialize in their respective markets and/or certain asset classes are growing in number. New technologies are also helping meet the rising demand for high-quality and alternative ESG scoring data.

“This all enables better analysis and decision-making, and benefits both the companies and their investors,” said Shinbo Won, Head of BlackRock Investments Stewardship, Asia ex-Japan.

Of course, the depth and quality of information reported in APAC still needs to improve, to overcome challenges such as inconsistent disclosures. Plus, there are language barriers when data providers scrape for alternative insights such as stakeholder sentiment from local social media platforms.

This is where investors need to play their part, in enhancing transparency and standardization for issuers.

“For us, engagement is a mechanism to provide companies with feedback from the perspective of a long-term shareholder,” explained Won. “In practice, this may mean having conversations with companies early in their reporting journey to advocate why it is important to align disclosures to frameworks such as TCFD.”

Emily Woodland
Head of Sustainable and Transition Solutions, APAC
Shinbo Won
Head of BlackRock Investment Stewardship, Asia ex-Japan