In evaluating local ESG practices with other counties in the APAC region, this report will offer a high-level view of how the SSE and SZSE compares with other exchanges in ESG reporting requirements using data from the Sustainable Stock Exchanges Initiative (UN SSE). The UN SSE is an organization that has formed from several UN bodies partnering together, including the United Nations Conference on Trade and Development Division on Investment and Enterprise (UNCTAD), the UN Global Compact, United Nations Environment Programme Finance Initiative (UNEP-FI) and the PRI. The UN SSE aims to have stock exchanges worldwide provide listed companies with guidance on ESG and/or sustainability reporting. It works with exchanges directly around the world, and as of publication, 56 out of 105, or 53% of the exchanges that the UN SSE tracks have offered companies ESG guidance.
These datapoints were pulled from the UN SSE to provide reference to how China’s stock exchanges compare to other APAC countries in terms of ESG guidance documents, stringency of reporting, and how recently such policy was updated.
The Australian Securities Exchange (ASX), and Japan Exchange Group (JPX) reference four ESG instruments, but do not require ESG reporting from listed companies. Although ASX does not have ESG reporting required as a listing rule, in its ASX Corporate Governance Council’s Principles and Recommendations, ASX requires companies to disclose ” material exposure to economic, environmental and social sustainability risks” and company plans on how the risks would be managed. In another listing rule, ASX makes it mandatory for listed companies to release corporate governance statements on a yearly basis, stating how closely the company has followed ASX Corporate Governance Council recommendations. JPX also requires companies to release information on how their corporate governance is organized in a pre-set format.
Stock Exchange of Thailand (SET), Singapore Exchange (SGX), Bombay Stock Exchange (BSE India) and HKEX all require some level of ESG reporting from listed companies, and also reference at least two ESG instruments. SET has mandatory sustainability reporting requirements, in its Sustainability Development Road Map for Listed Companies while SGX requires sustainability reporting at the “comply or explain” level. Should a company comply with policy, disclosing is optional; however, if a company has deviated from policy, then the company should explain why it was unable to comply. With BSE India, company reporting requirements depend on the size of the company.
For HKEX, companies are required to report annually on ESG indicators with the same timeframe as their annual corporate reports. Reporting should follow standards such as GRESB or SASB. There are two kinds of disclosure requirements, the first being required reporting, and the second “comply or explain.” Revised guidelines in 2019 improved transparency of what Independent Non-Executive Directors (INEDS) would look like with the company, board and gender diversity, and better dividend transparency rules.
In stark contrast are the SSE, and SZSE, which currently do not allude to any ESG frameworks or standards, nor require mandatory ESG reporting. Moreover, related policies to sustainability reporting have not been updated in over a decade. SSE and SZSE do offer some type of training and guidance, compared to ASX, which does not appear to offer any. JPX and SET offer the largest number of resources for listed companies and investors to navigate ESG reporting and disclosure expectations.
Overall, compared to other areas in the APAC region, the SSE and SZSE have a lot to work on in terms of requiring companies to improve in their ESG disclosure. Most investors and listed-companies have been waiting for guidelines, and some policies regarding ESG information disclosure are released in 2020. Although the level of specificity of the requirements remain unclear, ESG proponents are hopeful of more strict policy, especially in light of the direction HKEX went in in 2020.
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