Meaningful ESG change in Asia limited without better governance: report

Jamie Allen, secretary-general of the ACGA, laments Asia's superficial levels of ESG discussion and says basic governance issues must be ironed out.
Meaningful ESG change in Asia limited without better governance: report

Stock market regulators in Asia should strengthen environmental, social and governance (ESG) reporting guidelines, as fragmented governance mechanisms and resistance to ESG practices limit the region's progress.

The Asian Corporate Governance Association (ACGA) told AsianInvestor that ESG discussions in the region remained superficial and that resistance could cause the region's financial centres to lag behind others.

ESG standards in Asia have improved, but "corporate governance mechanisms remain fragmented and connections between corporate governance and ESG policies are unclear," Jamie Allen, Hong Kong-based secretary general of the ACGA, said in reference to the association’s new report about governance standards in the region.

“I don’t think there is any meaningful debate at all. Over the past six years we’ve seen a rise in ESG reporting guidance in many markets,” he told AsianInvestor. But the fragmented mechanisms and policies limit meaningful efforts by companies, investors and policymakers, he said. 

Jamie Allen, ACGA

For instance, company boards are recognised as having an important role in terms of oversight, but ESG guidance fails to go beyond that and "the corporate governance code makes just a high level reference to boards needing to think about ESG and sustainability risks and opportunities.

“We don’t think it’s enough, because companies in Asia are still grappling with the basic governance issues," he said.

He believes companies should be encouraged to adopt simple concepts of assessing ESG risk and climate change risk; whether they should set up sustainability committees and how they should retrain directors. “In other words, is their board fit for purpose?”

Allen acknowledged how institutional investors are voting and how engagement is changing. Other stakeholders are also trying to encourage or compel companies to become more accountable.

“Civil society groups are becoming more active, financial regulators continue to sharpen their enforcement tools and audit regulation is becoming more sophisticated and transparent.”

But it still only scratches the surface, he said.

“Investors are asking the questions, but I would say that companies are not, by and large, answering those questions. After reading a standard GRI (Global Reporting Initiative)-style report, are investors any the wiser about a company’s climate change activity?"


As the biggest economy in the region, China’s capital markets should be under scrutiny for their corporate governance rules and practices. But levels of transparency are well behind the curve, said Allen.

“The thing that [ACGA] members are looking for is ESG reporting,” he said. “But they are not getting it because there is no ESG reporting guidance in China. It’s been on the policy agenda for a number of years. We understand there is a guidance document that’s been written, but it’s not been released yet.”

The quickest win for China would be for the China Securities Regulatory Commission (CSRC) to release some form of guidance, he added.

“Also, it would be useful if companies were more willing to meet with shareholders. As part of the whole stewardship framework, investors are seeking meetings with companies to discuss all these issues and it’s a struggle. ”

In his view, the Hong Kong authorities should be concerned that China’s creeping influence could have a negative impact on its future as a leading global and regional financial centre.

“One of the problems in Hong Kong is that it’s very conservative and slow to adapt to more modern expectations around governance and ESG.”

“Hong Kong is promoting ESG reporting, but we are still seeing formulaic governance reporting and a resistance of companies to basic governance ideas.”

Allen reports a “huge resistance” in Hong Kong on issues such as independent directors.

“It’s a fairly simple, sensible idea, but a huge amount of energy in Hong Kong goes into resisting reform. It would be a lot easier if companies put that energy into implementing the reforms, then they would benefit from them.”

The ACGA also has concerns about overseas-listed issuers in Hong Kong, particularly a secondary issuer, such as Alibaba, which doesn’t have to follow the primary listing rules there.

“The problem is that some of these secondary issuers like Alibaba are huge – and yet it doesn’t have to do any ESG reporting, which is quite surprising.”

“So we do have concerns that the pace of improvement in Hong Kong will slow and there are many areas that aren’t improving. It’s up to the regulator to demand more accountability. The danger is that other markets will continue to move ahead and if Hong Kong stays static it will fall behind," he said.


The ACGA report is based on a biannual survey on macro corporate governance quality, carried out independently in 12 Asia Pacific markets, and a separate CLSA survey on the corporate governance practices of around 1,200 listed corporations.

Australia is the regional leader according to the survey criteria which covers different sectors. Hong Kong and Singapore rank equal second.

Seungjoo Ro, CLSA

Despite a marked improvement in scores across the region, each country has its weak points. Hong Kong and Singapore, for example, exhibit weaknesses in their public and corporate governance systems.

Malaysia and Thailand have suffered badly from political upheaval, cronyism and corruption during 2020. "Malaysia is the saddest case, since its direction of travel two years ago was widely seen as one of the region’s bright spots."

Improvements in ESG reporting can have a material impact on investors, according to Seungjoo Ro, regional head of ESG research at CLSA.

“Good governance can drive outperformance. We continue to see a positive correlation between stock returns and governance scores, with companies in the top quintile of ESG scores outperforming those in the bottom by 7.5% over the past five years," said Ro.

“Among the ESG pillars, governance has the highest positive correlation to returns, providing strong evidence that it remains the most important area for investors to focus on.”

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