Monday, 26 October 2020

Half of SG and HK executives say their companies fall short in ESG reporting

By Chris Georgiou

Only 55% and 49% of surveyed Singapore and Hong Kong executives believe their companies do a good job in disclosing ESG metrics, according to a survey by Workday.

  • One quarter of Triple Bottom Line (TBL) and sustainability reporting in Singapore and almost a third in Hong Kong companies is conducted by corporate communications or marketing teams, indicating style over substance
  • With TBL reporting not a regulatory requirement, a lack of resources is a barrier for many companies in not securing wider adoption
  • Manufacturing is seen as the most important sector for ESG with over half in both hubs of respondents ranking it in the top three industries, with finance in second.

A recent survey released by Workday reveals that while the majority of finance leaders for large companies in Singapore (83%) and Hong Kong (82%) are producing triple bottom line (TBL) reports, only around half of executives believe their companies do a good job disclosing environmental, social and governance (ESG) metrics.

The report titled ‘Finance Disrupted: Finance for a Better Future - People, Planet, Profit’ interviewed 337 executives of companies with 1,500 or more employees from a range of industries in Australia, New Zealand, Singapore and Hong Kong in February and March 2019.

With the detailed breakdown of Australia and New Zealand to be released in August, the report already  finds that there is a disconnect between intention and action on TBL and ESG reporting, especially when there is no uniting framework across multiple jurisdictions and business sectors.

This is perhaps indicative of the data where it emerged that one quarter of TBL and sustainability reporting in Singapore companies is conducted by corporate communications (14.9%) or marketing (10.9%), suggesting a greater emphasis on appearance over rigorous implementation. This ratio was even higher for Hong Kong with corporate communications (23.6%) or marketing (6.9%) taking the lead on reporting.

When asked which team they thought should lead on TBL and sustainability reporting, approximately half chose finance in Singapore (47.5%) and Hong Kong (52.9%) indicating dissatisfaction with the current structure of reporting, and a belief that the finance department has the most effective tools to measure and disclose the wider impact of their business activity.

Only 15.8% of Singaporean and 7.8% of Hong Kong respondents think that the CEO’s office should take the lead, less than the current case of 19.8% and 12.7% respectively.

The major role played by the communications and marketing teams in TBL reporting is understandable, given that there is currently not a regulatory requirement in many jurisdictions, particularly for non-public companies.

The lack of regulatory mandate is cited as the biggest barrier (23%) to securing wider adoption, according to the finance leaders surveyed in Singapore. The country last revised its Code of Corporate Governance in 2012, and currently practices a ‘comply or explain’ regime for all listed companies. Without this regulatory imperative, respondents indicated a lack of both resources (21%) and support from internal stakeholders (19%) to improve approaches to TBL.

In Hong Kong, the lack of regulatory mandate was also cited as a top barrier (19.6%), perhaps symptomatic of the most popular cited barrier that the general public do not see it as important (20.6%) and therefore deprioritised by management (18.6%).

Currently, 83.2% of Singapore and 82.4% of Hong Kong companies produce integrated or TBL reports broadly in line with the other markets surveyed by Workday, which averaged 82.8%. New Zealand, however, trailed with only 62.5% of companies engaging in this kind of reporting.

Notwithstanding the equitable performance on producing integrated reports, a significant divergence in the proclivity of reporting emerged between the two financial hubs with Singapore ahead in all other types of reporting, including: stand-alone sustainability report (81.2% to 70.6%), sustainability section in company annual report (70.3% to 51.0%), standalone CSR report (69.3% to 63.7%) and CSR section in company annual report (65.3 to 54.9%).

While a cumulative 64.7% of leaders in Hong Kong believe they are doing a good job when reporting ESG metrics, 15.7% of that bracket say they could be doing better. Almost a third of respondents, 29.4%, say their company is not doing a good job reporting ESG metrics but have not indicated an intent to improve. Only 5.9% of respondents say they intend to improve their situation within the next 12 months.

Whereas in Singapore, 14.9% stated that they think their company is currently not doing a good job reporting on sustainability. Only a further 2% thought the same but will invest time and resources to improve in the next 12 months. A cumulative 83.2% of surveyed executives believe their company does a good job reporting aspects of sustainability, although within that bracket, 28.7% believe they could be doing more – meaning 54.5% overall are not satisfied.

While it is encouraging to see strong adoption of TBL reporting, it is concerning that so many business leaders still do not fully buy into the benefits of holding their companies accountable to more than just profits. In the face of such a dynamic and changing business environment, companies need to explore how new technologies can empower them in their reporting,” Lee Thong Tan, Workday’s regional financials lead for ASEAN and North Asia, said.

In terms of the industry-specific importance attached to TBL reporting, unsurprisingly, considering Hong Kong’s border with the global manufacturing hub of Guangdong Province in Mainland China, manufacturing (45.0%), finance (38.2%) and professional services (29.4%) were cited as the top three most important sectors requiring a broader analysis beyond financials.

Manufacturing (52.5%) and finance (38.7%) were also seen as the two most important sectors for respondents in Singapore. Interestingly, transport and logistics – which ranked in third place for Singapore with 34.7% – did not make it into the top six sectors for Hong Kong respondents despite the territory’s role as an international transportation hub and trade entrepot.

Agriculture, where irresponsibly managed agricultural operations, such as degradation of land, deforestation, loss of biodiversity and potentially toxic waste products came, in Asia and globally, was voted the fourth most important industry for TBL reporting in Singapore and Hong Kong, perhaps due to both hubs’ distance from source as a net importer of agricultural products.

More broadly, the impact that portfolios have on the world is becoming inextricable to the world’s impact on portfolios. Proof of this is how stock markets are progressively launching new product offerings and services as a response to the rising demand for ESG information as well as the growth of green bonds and other sustainability-focused debt products.

In addition to providing guidelines on how sustainability labels translate into application of the financial products involved, exchanges are communicating these methods through sustainability and integrated reporting. The Stock Exchange of Thailand is a pioneer in this area with its sustainability reporting practice dating back to 2001.

ESG indices were the first sustainable products adopted by financial markets with the goal of providing a common platform to regulate and standardise ESG and sustainability labelled products. More recently, however, stock exchanges have worked with the Sustainable Stock Exchanges Initiative to launch specialised labelling and sustainability-focused bond segments to make these products more accessible.

Key developments include:

(1)   Mandatory listing rules requiring ESG reporting;

(2)   Published written guidance on ESG reporting;

(3)   An annual standalone ESG report or integrated into their financial report;

(4)   A sustainability-related index specific to the market the exchange operates in, which may include environmental, social or ESG indices as well as specific themes, including low carbon or general sustainability indices; and

(5)   A dedicated green or sustainable bond segment providing rules and regulations allowing for sustainability bonds to be listed, and provides a separate segment for listing, making the bonds easy to find and identify.

The growing number of sustainable products and services launched by stock exchanges has started to provide the infrastructure necessary for financial products to work towards tackling climate and sustainability issues at scale. Certified Climate Bonds and Labelled Green Bonds, as recognised by the Climate Bonds Initiative, are continuing their exponential growth momentum. Newly issued bonds hit a record $257.5 billion in 2019, whilst new issues are predicted to reach $350 billion in 2020.



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