A newly published white paper has unveiled a lack of clarity surrounding the definitions of Environmental, Social, and Corporate Governance (ESG) and found sustainability poses a significant obstacle to decision-making, hindering businesses and investors in their pursuit of sustainability goals.
The study, a collaboration between Hong Kong-based law firm Stephenson Harwood and PIE Strategy, a certified B Corporation, involved in-depth interviews with 26 key decision-makers from various sectors across the Asia-Pacific region.
The interviews revealed unanimous agreement that a transition towards a low-carbon future was inevitable, but the means to achieve it, the required pace, investment amounts, and profitability were all unclear. The primary cause of this confusion was found to be widespread misconceptions regarding the definitions of ESG and sustainability, resulting in compromised investment decisions and hampering progress.
The divide on this issue was particularly evident between traditional investors and those who are actively looking to integrate impact considerations into their investment decisions. While sustainability was viewed as a clear requirement, the vague nature of ESG left asset managers uncertain about its inclusion in their portfolios.
“By clarifying these definitions, we can take a significant first step in resolving misunderstandings,” said Evangeline Quek, the managing partner for Greater China at Stephenson Harwood. “The legal profession can play a crucial role in helping clients understand the possible interpretations of regulations and documents, enabling them to assess risk exposure accurately and demonstrate their commitment to achieving a sustainable transition.”
According to the study, insufficient and inconsistent ESG disclosures by listed companies further compound the problem, as investors struggle to assess risk and growth potential accurately, discouraging investment decisions. Contributing to the challenge are the inadequate government regulations, particularly in Hong Kong, which lack a clear climate transition roadmap and fail to provide sufficient deterrents for non-compliance.
The interviewees also emphasised that legal advisors could significantly assist companies in not only preparing for existing regulations but also anticipating a more stringent regulatory landscape and navigating its implications effectively.
Natalie Chan, the principal sustainability consultant at PIE Strategy, added: “This White Paper offers an Asian perspective to supplement the global discourse on ESG and climate transition. Through in-depth interviews with industry experts and decision-makers, we aimed to explore the practicality of driving change. It is crucial to acknowledge that businesses and decision-makers understand the ‘why,’ and with this paper, we aspire to assist them in resolving the ‘how’.”
As a case study, PIE Strategy leveraged the network of Stephenson Harwood and focused on the shipping industry, given its rapid fuel-related changes and the extensive impact the industry has on logistics and supply chains. By adopting an ecosystem perspective to comprehend the dynamics and identify opportunities for systemic change, the White Paper underscored the significance of shared and differentiated responsibilities within the industry ecosystem to facilitate transformation.
A link to the full report can be found here.
ESG issues not restricted to Asia
A recent survey conducted by British multinational professional services network Deloitte, also found 52% of Irish chief financial officers (CFOs) identify the absence of in-house reporting capabilities as the primary obstacle to implementing their environmental, social, and governance (ESG) reporting strategy.
Furthermore, a CFO magazine survey found 94% of CFOs and executives are feeling social and political pressure to prioritise ESG, as leadership continues to face goals for 2023. The report surveyed 500 SMEs to understand how finance leaders, their teams, and their executive peers interpret and are responding to Q2’s economic trends.
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