Lack of Clarity on ESG Hinders Businesses and Investors in Pursuit of Sustainability in Asia

3 mins read

4 July 2023

Gain insights into how this confusion hampers the quest for a more sustainable future and explore the implications for the region’s sustainability goals.

In a groundbreaking collaboration between Hong Kong-based law firm Stephenson Harwood and certified B Corporation PIE Strategy, a comprehensive study was conducted to identify the needs of businesses and investors in their sustainability goals and how the legal sector can support them. The resulting white paper sheds light on a significant stumbling block for decision-makers: the confusion surrounding the definitions of Environmental, Social, and Corporate Governance (ESG) and sustainability. By delving into the perspectives of industry experts and decision-makers, the research offers valuable insights into the challenges, opportunities, and practical steps needed to drive change.

The Challenge of Misconceptions

The study’s interviews with 26 key stakeholders, including asset managers, financiers, impact investors, business executives, and in-house general counsel, revealed unanimous agreement that a low-carbon transition is inevitable. However, the path to achieving this transition remains unclear. Decision-makers face uncertainties regarding the speed of transition, required investments, and profitable strategies. Crucially, widespread misconceptions surrounding the definitions of ESG and sustainability impede investment decisions and hinder the pace of change. This divide is particularly evident between traditional investors and those seeking to incorporate impact influences into their portfolios.

The Role of the Legal Profession

Evangeline Quek, managing partner, Greater China of Stephenson Harwood, highlights the vital role that the legal profession can play in clarifying these definitions. By assisting clients in understanding the potential meanings of regulations and documents, the legal sector can help gauge risk exposure and ensure commitment to the transition. Moreover, legal advisors are uniquely positioned to aid companies in preparing for future regulatory environments and navigating the implications they entail. The white paper emphasizes the need for legal professionals to help businesses establish fair and binding relationships, transforming goodwill gestures into tangible, accountable actions.

Challenges in ESG Disclosures

Insufficient and inconsistent quality of ESG disclosures by listed companies emerged as another hurdle in the path towards sustainable investment. Investors face difficulties in accurately assessing risk exposure and growth potential due to inadequate disclosure practices. Complicating matters further are government regulations, particularly in Hong Kong, which lack a clear climate transition blueprint and deterrent measures for non-compliance. The white paper underscores the potential for legal advisors to contribute significantly by facilitating the development of improved disclosure frameworks and ensuring compliance.

Establishing Tangible Accountability

Presently, commitments to emissions reduction targets are often viewed as mere goodwill gestures, lacking accountability. Here, the legal profession has a unique opportunity to assist businesses in establishing fair and binding relationships that translate goodwill efforts into measurable actions. By leveraging their expertise, legal advisors can aid in creating frameworks that hold organizations accountable for their sustainability commitments.

A Case Study in the Shipping Industry

To illustrate the insights gained from the research, the white paper focuses on the shipping industry. This choice stems from the industry’s fast-changing fuel choices and its far-reaching impact on logistics and supply chains. By adopting an ecosystem perspective, the study highlights the importance of both common and differentiated responsibility within the industry. It underscores the need for collaboration and systemic change to facilitate a sustainable transition.

With its Asian perspective complementing the international dialogue on ESG and climate transition, this white paper serves as a valuable resource for businesses and decision-makers seeking practical guidance. By identifying challenges, addressing misconceptions, and emphasizing the role of the legal profession, the research offers actionable insights to help navigate the complexities of ESG and sustainability. Ultimately, the white paper aims to resolve the question of “how” businesses and decision-makers can drive change and usher in a sustainable future.

Latest from Blog