WHILE companies in Asia-Pacific have mostly gotten the basics of climate reporting right, many are still not disclosing advanced metrics required under the reporting standards developed by the International Sustainability Standards Board (ISSB), indicated a report by financial data provider LSEG.
This shows that they are not ready for the full-scale implementation of ISSB-aligned climate reporting that is set to come into effect in stages from 2025 in several jurisdictions in the Asia-Pacific, noted the report released on Monday (Dec 9).
The authors of the report mapped ISSB reporting requirements against climate-related indicators from LSEG’s own environmental, social and governance (ESG) data sets, and distilled them down to 31 core indicators before using them to analyse the 2022 sustainability disclosures of more than 7,000 companies in the Asia-Pacific.
It found that the lack of disclosures of advanced metrics among companies in the region revolved mainly around strategic and financial metrics.
For example, the report found that while 10 per cent of companies disclosed a transition plan, only 2 per cent made known the measures needed to implement the plan, and 1 per cent provided a detailed breakdown of how these measures could help them achieve their emissions reduction targets.
There was also a lack of ambition in some climate goals, noted the report, with only 1 per cent of companies in the region having a transition plan to address material Scope 3 emissions, which refer to indirect emissions arising from a company’s supply chain.
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Scope 3 emissions typically make up the biggest portion of a company’s total carbon emissions, but most companies are only equipped in reporting Scope 1 and 2 emissions, which refer to emissions from their operations and purchase of electricity.
Companies in the Asia-Pacific also rarely disclose management measures, such as having a named position responsible for overseeing climate-related matters at the board level, or incorporating climate change performance as a key performance indicator in determining the remuneration of company executives.
Financial metrics are scarcely disclosed even though these are central to climate-related financial disclosures. The report found that only 16 per cent of Asia-Pacific companies reported their financial exposure to physical and transition risk associated with climate change, even though this is one of the most foundational data points required by investors looking to integrate climate considerations into their investment allocation strategies.
Only 2 per cent of companies reported on the impact of climate risks and opportunities on financial planning, while 1 per cent integrated their transition plans into financial planning. This shows that climate issues are still not being integrated into companies’ everyday financial management practices, said the report.
About 4 per cent of companies reported their green capital expenditure (capex). But more concerning is that only 1 per cent have a green capex target, and only 0.2 per cent have committed to aligning their capex plans with their long-term emissions reduction target, noted the report.
“Available climate-related disclosures fail to fully align with ISSB standards and do not provide the metrics that would make the data useful for investment management decisions. This fragmented disclosure landscape not only hampers the comparability of corporate climate performance against a baseline but also lacks the financially material metrics that can meet investors’ information needs,” said the report.
Nevertheless, Asia-Pacific companies have high average disclosure rates for certain core metrics required under the ISSB framework, including board oversight of climate issues, Scope 1 and 2 emissions, as well as emissions reduction targets.
The report noted that Asia-Pacific companies have an average ISSB disclosure rate of about 15 per cent – second to Europe which has a rate of 19 per cent.
It also found that Asia-Pacific companies disclosed an average of 7.8 indicators out of the 31 core indicators, while European companies averaged nine.
“These disclosures indicate a solid understanding of the basics of climate reporting by Asia-Pacific companies, which can be attributed to climate regulations in Asia-Pacific jurisdictions, increasing maturity of corporate sustainability practices, and longstanding support for TCFD recommendations,” said the report.
TCFD refers to the Taskforce on Climate-related Financial Disclosures, which had earlier come up with a framework on how companies can disclose climate-related risks and opportunities. This framework was built upon by the ISSB to develop its own standards.
Several companies in Singapore were already making disclosures based on TCFD recommendations. The Singapore Exchange Regulation had previously required companies to align their disclosures with the TCFD recommendations in a phased approach from financial year 2022, before it decided to update its requirements in September this year for sustainability reporting to be in line with ISSB standards from 2025.
