Regional Summary: Asia-Pacific

Introduction: A complex web of climate regulation

Asia-Pacific is a diverse region, spanning many levels of economic development and types of political and economic regime. This translates to a broad array of approaches and regulation around climate issues, speakers from across the region told delegates, making it challenging for businesses trading in the region.

In China, policy on climate action is dictated very much from the top, according to Veronique Lafon-Vinais, Associate Professor of Business Education, Department of Finance at the  Hong Kong University of Science and Technology. It is also shaped by social considerations and Chinese Government philosophy of common prosperity, Ivan Diaz-Rainey, Professor of Finance at Griffith University  added. Consequently, the transition to renewables is expressed in terms of its impact on people or the health benefits of reduced air pollution.

Ernest Lim Professor and Vice Dean at the National University of Singapore noted that Hong Kong and Singapore are increasingly aligning their reporting requirements with international standards such as the Task Force on Climate Related Financial Disclosures (TCFD) recommendations or the new standards from the International Sustainability Standards Board (ISSB), while in Malaysia the principles of Islamic law and finance exert a strong influence, Lafon-Vinais added.

ESG requirements increasingly mandatory

While there was agreement that mandatory requirements and directors’ liabilities are growing, speakers felt there was less clarity around enforcement.

Jolene Lin, Associate Professor at the National University of Singapore gave delegates an overview of climate litigation across the globe. To date, most climate-related legal action has occurred in the US and Australia, with increasing litigation in Europe. Varottil felt that legal action under company law against directors in Singapore and India would be challenging due to limitations on the ability of shareholders to launch derivative actions. However, other speakers, including Lin, suggested that it was only a matter of time before companies in Asia were taken to court for failure to address climate issues.

Varottil felt that securities regulators were much more likely to take enforcement action, as they already had done in Australia, though he sensed they were still ‘testing the waters’ and deciding on the best enforcement approach.

Cristian Rodriguez Chiffelle, visiting scholar at Harvard University, commented that failure to address climate issues is now legally considered a dereliction of fiduciary duties in Singapore, potentially carrying a prison sentence. This has been clearly set out in a Legal Opinion on Directors’ Responsibilities issued in April 2021 by Jeffrey Chan S.C., Lin noted[i]. To date, no director has been sent to jail in relation to a company’s climate

The role of founders and entrepreneurs

Unlike some other parts of the world, Asia-Pacific is characterised by a very high proportion of small non-listed companies and founder-led, family-owned businesses . According to Lafon-Vinais, just 8% of companies are publicly listed. This is also shaping the approach to ESG and climate action in the region.

Family-owned businesses tend to take a longer-term view of issues; they want to be able to pass the business to their children and grandchildren. Lafon-Vinais noted that second and third generation company leaders increasingly view sustainability as a differentiator, not just for the business but in terms of the impact that they can personally have on the company.

Christoph Nedopil, Associate Professor of Economics at Fudan University agreed, noting that there are also a lot of founder-led businesses in China and that these founders exert a strong impact on the company and its approach to ESG. This can be both a positive driver for action, but also stall progress, with ESG issues pushed down the agenda until they become material, e.g. limiting a business’ access to capital and investment.

Conclusion 

ESG approaches vary significantly across Asia depending on historic market characteristics. There is significant top-down pressure in China, while the call for action comes much more from investors, shareholders and regulators in other countries. However, the number of mandatory requirements is growing, coupled with increasingly stringent penalties for failing to act. It is increasingly difficult for directors who treat ESG as a pure compliance issue to keep pace with developments, while those who look for the strategic opportunities will be on the front foot as regulation continues to evolve.

[i] Chan, J. W. T., 14 April 2021, Legal opinion on directors’ responsibilities and climate change under Singapore law, available at: https://www.pdlegal.com.sg/wp-content/uploads/2021/04/Legal-Opinion-on-Directors-Responsibilities-and-Climate-Change-Under-Singapore-Law-1.pdf

Acknowledgements

This summary is based on expert contributions to the International conference on ESG and Climate Governance from:

• Cristian Rodriguez Chiffelle, visiting scholar at Harvard University
• Ivan Diaz-Rainey, Professor of Finance at Griffith University
• Arjuna Dibley, Head of Sustainable Finance Hub, University of Melbourne
• Julia Mao, Director of International Cooperation at the Central University of Finance and Economics
• Rajiv Lall, Senior Research Fellow at Singapore Management University
• Ernest Lim Professor and Vice Dean at the National University of Singapore
• Jolene Lin, Associate Professor at the National University of Singapore
• Christoph Nedopil, Associate Professor of Economics at Fudan University
• Abigail Payne, Director of the Melbourne Institute of Applied Economic and Social Research
• Umakanth Varottil, Associate Professor at the National University of Singapore
• Veronique Lafon-Vinais, Associate Professor of Business Education, Department of Finance at Hong Kong University of Science and Technology
• Yao Wang, Director General of the International Institute of Green Finance (IIGF) at the Central University of Finance and Economics.

[1] https://climate.ec.europa.eu/eu-action/climate-strategies-targets/2050-long-term-strategy_en#:~:text=The%20EU%20aims%20to%20be,action%20under%20the%20Paris%20Agreement%20.

[2] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022L2464