Environmental, Social, and Governance (ESG) considerations have become pivotal for companies worldwide, with the Asia-Pacific (APAC) region playing a crucial role in this paradigm shift. As global companies extend their supply chains into the APAC region, ensuring adherence to ESG standards among suppliers is essential for maintaining sustainable and responsible business practices. This article explores why ESG in the APAC region is of paramount importance for European companies, delving into recent developments in China, Japan, and India — the top three jurisdictions engaging in business with Europe.

This article is written by Alim Abasi. Alim ([email protected]) is a senior manager and Asia desk leader focussing on ESG strategy consulting within RSM Netherlands Business Consulting.

ESG considerations are gaining prominence in the APAC region as stakeholders increasingly demand transparency and accountability from businesses. These considerations encompass environmental issues like climate change, social issues such as human rights and diversity, and governance issues like corporate ethics and anti-corruption. Beyond being a matter of compliance and risk management, ESG is emerging as a source of competitive advantage and value creation in the APAC region.

China

China has been actively advancing its Environmental, Social, and Governance (ESG) reporting standards to align with its ambitious environmental goals, notably achieving peak carbon emissions by 2030 and carbon neutrality by 2060, while also focusing on enhancing social equality and corporate governance. This initiative has led to the introduction of stricter environmental disclosure mandates, particularly for industries with significant environmental footprints, alongside efforts to improve social governance through better labor rights and community engagement, and to strengthen corporate governance by promoting ethical business practices and investor confidence. These developments reflect China's commitment to integrating sustainable and responsible practices into its economic and corporate frameworks, aiming to foster a more transparent, equitable, and sustainable business ecosystem.

  • The Draft Amendment to Company Law, published for public consultation in December 2021, proposes to add a provision that requires companies to fulfill their social responsibilities and protect the environment in accordance with the law.
  • The Measures for the Administration of Legal Disclosure of Enterprise Environmental Information and the Format Guidelines for Legal Disclosure of Enterprise Environmental Information, issued by the Ministry of Ecology and Environment in February 2022, establish a mandatory environmental information disclosure system for certain enterprises.
  • The new rules on investor relations published by the China Securities Regulatory Commission in April 2022 require listed companies to disclose their ESG performance and risks and to engage with investors on ESG issues.
  • The Format Standards for Annual Reports and Semi-Annual Reports of Listed Companies highlight the environmental protection and social responsibility of listed companies by separating relevant ESG and CSR provisions into independent chapters.

Japan

Japan's approach to Environmental, Social, and Governance (ESG) standards primarily revolves around the application of soft-law rules, notably the Stewardship Code and the Corporate Governance Code, in the absence of specific ESG-related legislation. These frameworks encourage responsible investment practices and promote transparency, accountability, and sustainability in corporate governance, reflecting Japan's strategy to enhance ESG integration through voluntary compliance and best practice adoption rather than through mandatory regulation. This method underscores Japan's commitment to fostering a culture of ethical investment and corporate responsibility, aiming to achieve sustainable growth and investor confidence in its business environment.

  • The Stewardship Code, amended in March 2020, emphasizes institutional investors' responsibilities to enhance long-term investment returns by considering sustainability.
  • The Sustainability Standards Board of Japan (“SSBJ”) was established in October 2023 to develop sustainability disclosure standards for Japanese companies. The SSBJ is expected to draft the second stage of sustainability disclosure rules by April 2025, which will require companies to disclose their ESG performance and risks consistently.
  • The Ministry of Economy, Trade and Industry and the Financial Services Agency have also issued guidelines and principles to promote ESG integration and reporting among Japanese companies and financial institutions.

India

In India, the Securities and Exchange Board of India (SEBI) serves as the primary regulator for Environmental, Social, and Governance (ESG) reporting, issuing a range of guidelines and disclosure requirements for listed companies to transparently communicate their ESG performance and associated risks. Through these regulatory measures, SEBI aims to enhance the overall sustainability and responsibility of Indian businesses by encouraging comprehensive ESG disclosures. This approach facilitates informed decision-making among investors, promotes transparency in corporate conduct, and underscores India's commitment to embedding sustainable practices within its corporate sector, thereby contributing to a more sustainable and responsible investment landscape.

  • SEBI has mandated Business Responsibility and Sustainability Reporting (“BRSR”) to make ESG disclosures for the top 1,000 listed companies (as per market capitalization). The BRSR format is based on the nine principles stipulated in the “National Guidelines on Responsible Business Conduct” and covers various aspects of ESG, such as resource usage, emissions, waste management, social impact, diversity, consumer protection, anti-corruption, etc.
  • SEBI issued a consultation paper on ESG ratings in March 2023, seeking public comments on the need, scope, and framework for ESG ratings in India. The paper proposes to introduce a standardized and transparent methodology for ESG ratings, which would help investors, regulators, and other stakeholders assess the ESG performance and risks of companies and securities.
  • SEBI issued a circular in June 2023, directing the top 500 listed companies (as per market capitalization) to disclose their climate-related risks and opportunities in their annual reports. The circular is based on the recommendations of the Task Force on Climate-related Financial Disclosures, which is a global initiative to promote consistent and comparable reporting of climate-related information by companies and investors.

Forward thinking

ESG's impact on global trade is profound and continually evolving, reflecting changing global realities and expectations. Companies must actively monitor trends and assess the ESG implications for business trades worldwide, considering diverse economic development levels, political systems, cultural values, and environmental challenges. In the dialogue between Europe and the APAC region, the cultivation of strong ESG practices transcends a mere business strategy—it becomes a shared commitment to building a future where businesses not only thrive but also contribute meaningfully to environmental stewardship, social equity, and ethical governance. As Europe engages with the APAC region, the call for integrating ESG principles becomes not just a trend but an imperative for forging a resilient and responsible global business community. As Europe engages with the APAC region, integrating strong ESG practices is not only a strategic necessity but a pathway to sustainable growth and responsible business conduct on the global stage. It's crucial to stay updated with the latest developments, as the outlook for ESG in APAC is subject to regulatory changes, market dynamics, and global sustainability trends. The region's diverse economic landscape means that different countries may experience unique ESG challenges and opportunities. 

RSM is Thought Leader in the field of ESG Strategy for your company. Beyond conventional advisory roles, we take a proactive approach by facilitating workshops and consultations. This involves aligning our clients' business strategies with cutting-edge thought leadership in ESG. Our objective is to position ESG practices not merely as a strategic necessity but as a tangible pathway to sustainable growth and the embodiment of responsible global business conduct. At RSM, we empower businesses to embrace ESG not just as a compliance requirement but as a catalyst for lasting positive impact on a global scale.