ESG investing: Asian listed firms have a lot of catching up to do in climate impact disclosures, survey shows

Companies listed in Hong Kong, Shanghai, Singapore, Tokyo and Mumbai fare poorly in disclosures
Between 28 and 52 per cent of them failed last year to inform investors about their greenhouse gas emissions and their mitigation plans

Business of climate change

Eric Ng

Published: 8:00pm, 2 Mar 2022

Why you can trust SCMP

Asia’s publicly traded companies lag behind companies in the United States and Europe in their climate impact disclosures, underscoring the work that remains to be done to get them to comply with investors’ expectations.

Stocks listed on the exchanges of Hong Kong, Shanghai, Singapore, Tokyo and Mumbai fare poorly in disclosures, where between 28 and 52 per cent failed last year to inform investors about their greenhouse gas emissions and their mitigation plans, according to a survey by ESG Book.

In contrast, the delinquencies in New York, London and Frankfurt were between 4.5 and 17.6 per cent of listed companies, according to the compiler of sustainability data.

“The scores reflect how ready the companies are for climate transition and how much they are aligning their business models to a net-zero carbon emission economy by 2050,” ESG Book’s chief executive Daniel Klier said in an interview with South China Morning Post. “Companies that are not aligned face higher risks as they are not changing in ways that global investors and policymakers are intending to move the economy.”

Can Hong Kong help cut through the alphabet soup of global ESG rules?

Non-disclosures last year made up 27.7 per cent of Hang Seng Index stocks and 44 per cent of Shanghai’s 50-stock SSE Composite Index. In Singapore, 51.7 per cent of the Straits Times Index members failed to disclose, while the proportion was 29.4 per cent of the Nikkei 225 in Japan, and 35.3 per cent of the BSE Sensex 30 in Mumbai.

The UK had the most proactive companies, with only 4.5 per cent of stocks on the FTSE 100 failing to disclose, while Germany’s DAX 40 had 10.7 per cent and the S&P 500 had 17.6 per cent delinquency.

China’s carbon neutrality goal

ESG Book was established in Frankfurt in 2018. Its founding partners include the International Financial Corporation, investment advisory Arabesque, Hong Kong Exchanges and Clearing Limited (HKEX) and HSBC. Klier is a former global head of sustainable finance of HSBC.

Its scoring method takes into account companies’ emission trend in the past five years, emission intensity relative to peers and decarbonisation targets.

Also considered are whether their climate ambitions have been validated by third parties – such as the Science Based Targets initiative – as being in line with efforts sufficient to contain global warming to 1.5 degrees Celsius by 2100, besides whether the right corporate structures exist to deliver on them.

Sweltering heat in Hong Kong, extreme weather show need to act now, scientists say

The world faces unavoidable disruptive climate hazards as global warming reaches 1.5 degrees Celsius within two decades from pre-industrial levels, according to the Intergovernmental Panel on Climate Change (IPCC). Human activities have already caused an average temperature rise of 1.1 degrees since 1850.

Between 21.4 and 28.6 per cent of companies that make up the S&P 500, FTSE 100 and DAX 40 were aligned with the 1.5 degrees ambition last year, according to ESG Book.

This compares with 4 per cent of the SSE 50, 10.6 per cent of the Hang Seng Index, 6.9 per cent of the Straits Times Index, 23.5 of the Sensex 30 and 29.9 per cent of Nikkei 225.

“The good disclosures in Europe are not yet driven by regulations, which are just coming,” Klier said. “It is driven by a lot of investors’ engagement. That level of engagement is not seen in Asia yet. We should see more coming.”

Asian firms’ greater exposure to energy-intensive manufacturing – including sectors with hard-to abate emissions – relative to their more service and technology-oriented Western peers also partly explains the score differences, he added.

Hong Kong’s stock exchange has made corporate climate related disclosures mandatory for financial years commencing on or after July 1, 2020. Singapore’s bourse has proposed to make it mandatory for companies’ sustainability reports from January next year in key sectors.

Launched three years ago, ESG Book’s climate impact scores cover over 9,000 listed firms globally, including 960 listed in mainland China and Hong Kong. It has operations in New Delhi, Tokyo, Singapore, Frankfurt, London and Boston.

While the scores are free to the public, asset managers and banks pay fees to download the data, or use its analytics software to assess climate readiness of their investment portfolios, Klier said.

“Our scores are less forgiving [relative to our competitors],” he said. “Only one in five companies [globally] are aligned to 1.5 degrees, which is not surprising given we have been through a lot of commitments and very little progress in the last five years.”

Other firms that also provide analytics to help investors estimate companies and portfolios’ degree of alignment with global temperature targets include MSCI.

Post