With investors and stakeholders increasingly coupling the value of a business with its ability to navigate climate risk and opportunities, companies across Asia Pacific are showing progress in their sustainability reporting, a new survey finds.
But more needs to be done, according to "Sustainability Counts II: Sustainability reporting in Asia Pacific", conducted by PwC Singapore and the Centre for Governance and Sustainability (CGS) at the National University of Singapore Business School.
Analysing the sustainability reports of the top 50 listed companies by market capitalisation across 14 Asia Pacific jurisdictions, the study reveals that critical reporting and disclosure gaps remain for businesses to demonstrate that they have a viable and robust pathway to reach net zero by 2050, and highlights the evolving challenges facing businesses.
"While we are encouraged by the increased disclosure of climate-related risks and opportunities, it is crucial to remain vigilant about critical gaps such as net-zero targets, transparency in emissions reporting and sustainability training," said Prof Lawrence Loh, director of the CGS.
The study found a rise in the disclosure of identified climate-related risks and/or opportunities in companies' sustainability reporting, from 77% in 2021 to 88% in 2022. This goes hand-in-hand with their disclosure of processes for managing these risks and/or opportunities, up from 66% (2021) to 74% (2022). Integrating climate-related risks into overall risk management rose from 36% in 2021 to 58%.
The climb in the disclosure rate can be attributed to the increased adoption of the framework of the Task Force on Climate-Related Financial Disclosures (TCFD), formed as a response to the failings of the 2015 Paris Agreement.
At the same time, the findings suggest that compared to a year ago, companies are increasingly readjusting their business strategies and models to mitigate current climate issues and evolving expectations of stakeholders as well as regulators.
SCIENCE-BASED TARGETS
More than nine in 10 companies studied (92%) disclosed sustainability targets in 2022. However, among them, only 51% have disclosed net zero targets. Just 42% reported that their net zero targets are based on the Science-Based Targets initiative (SBTi) framework, with only 16% having had their targets verified by SBTi.
Considering that the majority of the jurisdictions examined in the study have committed to achieving net zero between 2050 to 2070, the results suggest the need for greater alignment between companies' climate goals and actions with their national sustainability agenda.
The measurement of Scope 1 (direct emissions from a company) and Scope 2 (indirect emissions from electricity purchased and used) emissions are found to be reaching maturity, with a significant 80% of companies studied having disclosed their Scope 1 and Scope 2 greenhouse gas (GHG) emissions.
However, just 50% of companies studied disclosed their Scope 3 (indirect emissions from a company's value chain) GHG emissions.
With regard to providing stakeholders with credible information on the company's sustainability performance to engender confidence in the business, the number of companies obtaining external assurance from an independent party for their ESG disclosures rose from 37% in 2021 to 49% in 2022.
"There's an increasing number of listed companies in Thailand that are putting in place sustainability reporting," said Chanchai Chaiprasit, CEO of PwC Thailand.
"Almost all of Thailand's top 25 SET companies have published sustainability reports, while SET50 and SET100 companies are aiming to publish reports due to the increasing awareness of the impact of climate change on the world, society and organisations.
"Despite this progress, only six companies in 2023 were certified by the SBTi and 27 companies had TCFD-compliant climate-related financial risk disclosures.
"It's a positive sign that more Thai-listed companies are showing an interest in sustainability reporting, but the number of companies seeking external assurance by an independent third party, such as an auditor or a consultant is still relatively low partly because sustainability reporting isn't widely practised in Thailand. It should take at least five years from now to see listed companies widely auditing their sustainability reports."
Mr Chanchai said Thai business leaders must urgently recognise and understand the need for a carbon emissions reduction strategy, also known as a Net Zero Company, to mitigate environmental impacts. It's particularly pressing for exporters to the EU, which adopted the Carbon Border Adjustment Mechanism (CBAM) as part of the European Green Deal to reduce greenhouse gas emissions by 55% in 2030.
The CBAM will affect Thai exporters to the EU in the five main business sectors -- electricity services, cement, fertiliser, iron, and steel and aluminium. Companies operating in these areas and exporting to the EU will need to accelerate their sustainability reporting to be ready for when the measures come into effect on Oct 1, 2023.
What's more, he noted, more countries in the Asia Pacific region are also seeking to issue climate change measures and policies to address sustainability challenges.