EIRIS’ State of Responsible Business (Asia) report focuses on 786 Asian companies – 56 in China, 122 in Hong Kong, 47 in Singapore, 111 in South Korea and 450 in Japan to assess how well they are addressing key ESG challenges and compares their performance to their European and North American peers.
Launched at the 10th Anniversary Conference of the Association for Sustainable and Responsible Investment in Asia, EIRIS’ report finds that companies in Japan and South Korea have the highest overall performance on environmental, social and governance (ESG) issues. Improvements in these countries have been bolstered through local initiatives such as the recent introduction of Seoul’s “Low Carbon, Green Growth” initiative – which outlines a plan to reduce carbon emissions – along with a similar program in Japan.
Companies based in Hong Kong, China and Singapore, however, have failed to make significant progress on ESG factors. The world’s second largest economy, China, has made limited improvements on environmental issues but still lags behinds its peers in most areas. Only 5% of the 56 Chinese companies analysed have strong environmental policies in place and just 2% displayed any proof of making progress in this regard.
Key findings:
EIRIS analysis shows that over 90% of the world’s 2,090 largest companies have left at least one ESG risk unmanaged.
Japanese companies demonstrate the strongest ESG performance in Asia, closely followed by those in South Korea. Companies in China still lag behind others in Asia.
Asian companies perform well on climate change, but still need to address other ‘material’ environmental risks arising from water management and biodiversity.
Social stakeholder issues remain a key challenge. Almost all (90%) of Asian companies with operations in countries relevant for human rights concerns have no human rights policies in place.
Mark Robertson, Head of Communications at EIRIS said: “There is a growing focus on ESG in Asia, driven by interest in the region from global investors and nascent demand from local institutions. But more work is needed if companies, particularly those based in China, are to respond to investors and meet the governments’ aim of enhancing corporate reputations through enhanced policies, management systems and reporting systems on ESG issues”.
When comparing Asian companies to their global peers an uneven picture emerges. More than 40% of Asian companies’ environmental policies were assessed as good or excellent, compared to two-thirds of companies in Europe. However, only a quarter of North American companies received similarly high scores.
“It’s encouraging to see that that companies in Asia are making progress on ESG and are overtaking their global peers in some areas. Looking ahead, increased regulatory pressures, greater reporting requirements and the development of sustainability have the potential to be the biggest drivers of ESG” added Mr Robertson.
EIRIS research concludes that there is a huge opportunity for companies and investors to exploit the first mover advantage presented by enhanced social and governance disclosure in Asia. Increased coverage of social and governance issues will expose Asian companies to a broader investment base, particularly outside Asia, where responsible investment is more established.