CFA report reveals Growing Emphasis on ESG Disclosures in Asia
A CFA Institute report has revealed the in demand for issuers to provide high quality, comparable and relevant ESG information, as the Asia Pacific investment community increasingly integrates material ESG factors into the investment management process.
The CFA Institute (CFA) believes that much work remains to be done in the region to raise the overall quality and utility of ESG disclosures to the investment community, despite regulators and stock exchanges driving changes in reporting and disclosures by listed companies through policies, regulations and guidelines.
According to the Global Sustainable Investment Alliance, global sustainable assets under management was USD30.7 trillion in 2018, compared with USD23.9 trillion in 2016, a rise of 34%. Key Asia Pacific markets such as Japan, Australia and New Zealand accounted for 9.5% of the total, experiencing the highest growth rates, as quoted by a CFA press release.
“Asia Pacific markets overall have shown a growing awareness of the value of ESG integration in their investment decision making and management processes,” said Mary Leung, Head, Advocacy, Asia Pacific, CFA Institute.
“Having said that, it is still unclear to many companies what ESG information investors would like to see and why, and how timely and consistent ESG disclosures can deliver strategic benefits to them,” she added.
The value proposition of ESG disclosure needs to be better articulated to motivate issuers to strive for improvements, instead of treating it simply as a box-ticking exercise, according to the CFA press release.
“We believe a more thorough consideration of ESG factors by financial professionals will improve the fundamental analysis they undertake. We focus on the quality and comparability of ESG information provided by issuers and will continue to monitor developments in this area and set the standard for professional excellence with credentials that encourage professionals to follow,” Leung explained.
In order to combat the treatment of “ESG disclosure as a box-ticking exercise,” as described by the CFA,” the CFA has recommended that Government, Regulators and Stock Exchanges need to ensure meaningful, accurate, timely, and comprehensive disclosures, considering the characteristics of companies operating in different industries.
The CFA has also stated that these entities need to keep current with global standards and developments, work toward harmonisation, standardisation and clearly articulate how disclosure regimes benefit issuers as well as offer guidance and training to smaller, less resourceful companies.
The CFA also states that Issuers need to educate the board and senior executives to more fully integrate ESG and report on how it fits into the company’s strategic outlook, risk management framework, and corporate accountability to steer the company accordingly. They should ensure all relevant and material ESG information and related KPIs are communicated to the company’s stakeholders, including employees, investors, and other capital providers in a consistent and timely manner.
Asset Owners and Investment Managers should encourage investee companies to upgrade the quality and consistency of ESG information, including more details on what is material ESG information and how it may affect valuation and future corporate performance.
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