Asia’s companies are facing increasing pressure to report the environmental and social impacts of their businesses, and many are missing their chance to show investors they are prepared for upcoming risks, said experts at a CSR conference in Malaysia on Tuesday.
Sustainability experts, speaking to an audience of over 400 professionals at a two-day corporate social responsibility (CSR) conference this week in Kuala Lumpur, said that Asian companies face rising expectations from investors to report on risks to their businesses from environmental and social issues.
Dr Richard Welford, chairman of CSR Asia – the sustainability consulting firm that hosted the event - told Eco-Business in an e-mail interview that pressure for companies to produce sustainability reports is coming primarily from stock exchanges around the region.
Companies also face pressure from governments, employees and, to a lesser extent, consumers, he added.
In many cases, companies that are not disclosing sustainability impacts and risks are missing opportunities to prove they are prepared for environmental and social risks. “If you assume the principle that ‘you can only manage what you measure,’ then the significance of sustainability reporting is clear: to manage environmental and social risks, one must measure and monitor key indicators,” said Dr Welford.
Companies can demonstrate this measure-and-manage approach to their stakeholders by producing it in sustainability report, he noted, adding: “It proves that they are proactively managing the risks to the company.”
A CSR Asia report launched earlier in the day, which rated companies on how well they reported, or disclosed, their performance and policies on environmental, social and governance (ESG) matters, found that Asian firms tended to perform much better on governance issues – with an average score of 60 per cent - than in other sustainability categories.
Most Asian firms publicly provide information on governance issues, such as accountability and responsible management strategies, due to requirements for listed companies from governments and stock exchanges.
Corresponding requirements for social and environmental reporting do not exist in much of Asia, although stock exchanges are beginning to move in that direction.
Dr Welford noted that exchanges in locations such as Singapore and Hong Kong are encouraging listed companies to improve their sustainability disclosure, and that Bursa Malaysia is going one step further by setting up its own ESG index, due to be launched in December.
China, which moved up three places in this year’s ranking to the number seven spot, has new regulations and guidelines in place from its stock exchanges and from government agencies.
According to the CSR Asia report, called the Asia Sustainability Rating (ASR), fewer than 20 per cent of companies provided any meaningful disclosure to show how they are addressing environmental risks.
The companies rated in the report achieved an average score of 23 per cent for disclosure on environmental impact and 31 per cent for reporting on social issues.
Benjamin McCarron, head of research at Responsible Research - the Singapore-based independent research firm that co-wrote the report – told Eco-Business: “There is an increasing trend of investors considering environmental risks and opportunities in terms of how these issues can affect corporate earnings.”
He noted that the earnings of highly carbon intensive industries would likely be affected by carbon taxes in the future, and companies such as power producer CLP from Hong Kong, which rated first overall in the ASR report, were taking a proactive stance to reduce risk.
Mr McCarron said that CLP has significant coal and nuclear assets – both of which have significant environmental and social impacts - however, the company has committed to a long term carbon intensity target and will only build coal-fired power with flue gas desulphurisation. “This reduces long term risks to its assets from potential legislation,” he added.
Another looming risk is unreliable water supply, according to Mr McCarron, who said that many companies – including power generators, food and beverage producers and electronics manufacturers - rely on ready access to water, either in large quantities, or at high levels of purity. “Yet very few companies even in these sectors report on their water usage,” he noted.
The ASR report, now in its third year, rated 750 publicly listed companies from 10 Asian countries based on 100 sustainability indicators.
South Korea’s companies ranked first with an average score of 48 per cent, followed by companies from Thailand and Malaysia. With scores ranging from 34 to 38 per cent Indian, Taiwanese, Singaporean and Chinese firms rated in the middle of the pack. Coming in last were listed companies from Indonesia, Hong Kong and the Philippines, which had the low score of 26 per cent.
From 2010 to 2011, the average score for all companies in the index rose slightly from 35 to 36 per cent.
Executive Director at CSR Asia, Erin Lyon, said in a statement that even this small increase was good news and a step in the right direction.
“We expect to see greater disclosure across the region in the future,” she noted, adding that this is an issue that companies will have to respond to sooner rather than later to meet investor demand for transparency.
