Asia-Pacific (APAC) companies demonstrate “solid” disclosure of basic International Sustainability Standards Board (ISSB) requirements, such as having a broad oversight of climate issues, Scope 1 and 2 emissions and emissions reductions targets.
However, “significant gaps” remain when it comes to disclosure of advanced metrics required by ISSB standards, according to a new report by the London Stock Exchange Group (LSEG).
According to LSEG, these missing disclosures include strategic metrics that inform stakeholders how they will achieve their targets, including concrete and ambitious measures to implement transition plans or management measures to navigate the transition.
Most APAC companies are also lacking financial metrics that provide information useful for investment processes and financial decision-making, says LSEG, including financial exposure to climate risks, impact of climate change on financial planning, or details of capital allocation to climate-related products and services.
Essentially, APAC companies currently excel at disclosing the emissions arising from their operations and their emissions reduction targets. However, they have not shared their plans on how to achieve the goals they have set.
See also: ISCA, SGX RegCo launch mock sustainability report as guide for companies
According to LSEG’s State of ISSB Regulations and Disclosures in APAC report, released on Dec 9, only 10% of companies disclose transition plans, with just 2% providing detailed implementation measures and only 1% providing a detailed breakdown of how those measures combine to achieve the company’s overall emissions reduction target.
On financial metrics, only 16% of companies in APAC disclose their financial exposure to climate physical and transition risks, creating barriers for investors to even begin actively embedding climate considerations into their investment processes.
See also: Glasgow Financial Alliance for Net Zero making changes after opt-outs
With regards to capital allocation, only 4% of companies in APAC report current green capital expenditure. However, more concerning is that only 1% of companies have a green capex target, and only 0.2% explicitly commit to align their capex plans with their long-term emissions reduction target, says LSEG.
LSEG drew data from 2022 from over 7,000 companies in the region. East Asia leads in disclosure rates within APAC, followed by Oceania, Asean and South Asia.
Coming requirements
The ISSB issued its two inaugural standards, IFRS S1 and S2, in June 2023. IFRS S1 sets out the overall requirements for a reporting entity to disclose sustainability-related financial information about its sustainability-related risks and opportunities, while IFRS S2 requires an entity to disclose information about its climate-related risks and opportunities.
In March, Singapore Exchange Regulation (SGX RegCo) consulted the market on details of how the ISSB standards are to be incorporated into its sustainability reporting rules for climate-related disclosures. In September, SGX RegCo announced that all listed companies must adopt ISSB standards from FY2025.
However, the regulator also flagged challenges, especially for smaller issuers, such as the evolving measurements and reporting methodologies for the disclosure of Scope 3 emissions. Measuring Scope 3 allows firms to understand and map their value chain, calculating the emissions arising from activities such as purchased goods and services, capital goods, franchises, business travel and employee commuting.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
Hence, SGX RegCo will review issuers’ experiences and their readiness before establishing the implementation roadmap for reporting Scope 3 emissions. This does not factor in the one-year transition relief for Scope 3 emissions disclosures, which is already built into the IFRS sustainability disclosure standards.
Singapore is not alone in rolling out these requirements for listed companies. Hong Kong, Taiwan, Malaysia, the Philippines, Pakistan, Bangladesh and Sri Lanka have already adopted ISSB regulations and rules that will be implemented in 2025.
China, Japan, South Korea, Australia and India have either issued exposure drafts for regulations incorporating the ISSB, or are expected to adopt localised versions of ISSB standards, in 2025 or later.
This indicates that there will be a further, phased implementation beginning in 2025, with the APAC region preparing for a new wave of ISSB-aligned, climate-related financial disclosures, says LSEG.
Alexis Rocamora, sustainable finance and investment lead, APAC at LSEG, says the region is making “significant progress” in incorporating ISSB standards into regulatory requirements starting from 2025.
She adds: “However, while APAC companies get the basics of climate reporting right, there is still more to be done for advanced disclosures involving strategic and financial metrics. The region demonstrates strong potential in climate leadership, but companies must continue to enhance their climate-related financial disclosures so as to fully align with the ISSB standards’ goal of meeting investors’ information needs.”
Charts: LSEG
Read more about how Singapore is adopting the ISSB standards:
- ISCA, SGX RegCo launch mock sustainability report as guide for companies (October)
- SGX RegCo will require ISSB-aligned climate-related disclosures from all listed issuers starting FY2025 (September)
- ‘Huge momentum’ in Asia for ISSB adoption, says vice-chair of climate reporting standards body (September)
- SGX RegCo launches consultation on incorporating ISSB standards into sustainability reporting rules (March)
- Large private companies must report annual climate-related disclosures from FY2027: Acra, SGX RegCo (February)
- SGX RegCo to seek feedback by year-end on mandating ISSB-aligned climate reporting (September 2023)
- ISSB standards 'best chance we have' at consistent sustainability reporting: SGX RegCo (July 2023)
- ISSB issues inaugural standards, creating common language for climate-related impact on companies (June 2023)
