ESG critical for Asia-Pac firms but most at early stage of integration

The majority of Asia-Pacific companies see ESG issues as being critical to the long-term success of their business, but most are lagging in integrating ESG measures, according to Aon. A survey by the broker published earlier this year found that only 29% of companies surveyed include ESG-related goals and key performance indicators for their c-suite and just 34% of companies have a dedicated ESG function. Aon’s 2023 Asia Pacific Corporate Governance and ESG Survey found that most companies in Asia Pacific are still in the early stages of using ESG metrics and developing their ESG profile. It found that more than 40% of survey respondents report that their company is in the very early stages of linking ESG with business strategy in a meaningful or measurable way. The survey also showed that compared to privately held companies, listed companies’ ESG strategies are more likely to include plans for board education, ESG-linked incentives, and a dedicated sustainability committee. The survey also found that a quarter of private companies and half of listed companies have a dedicated ESG team. And Aon found that across Asia Pacific, compliance is not the primary driver of action on ESG because the regulatory environment is still evolving in most of the surveyed markets. “While regulatory requirements are important, they sometimes represent the bare minimum criteria needed to demonstrate progress and merely act as a guide for companies that are yet to commence a transition,” said Aon. “Incorporating ESG performance criteria into executive compensation plans means ESG metrics are more likely to align with the company’s overall strategy and compensation plans. It is becoming clear that failing to address and integrate ESG metrics in the future will expose companies to reputational risk, financial impacts and regulatory consequences as they navigate new forms of volatility,” said report author Boon Chong Na, advisory partner and corporate governance and ESG lead, human capital solutions for Asia Pacific at Aon. He added: “However, while improving ESG metrics, companies need to manage both the financial and non-financial aspects, as shareholders expect them to do well while also doing the right thing.” Compared with privately held companies, listed companies are twice as likely (48%) to have clearly defined ESG metrics and to link them to c-suite performance. Aon partner and head of people solutions for Australia Simon Kennedy said that while it is difficult to make the transition to linking metrics depending on where listed or private companies are in the process of their ESG journey, it is no longer enough to commit to targets that are not tied to either a financial incentive or disincentive. “The first step is to align ESG targets with business strategies and goals. Companies can retain their existing measures, no matter how simple, and enhance them as they move forward. Ideally, ESG targets need to be as measurable as financial targets, preferably using audited numbers based on established standards,” said Kennedy. While 61% of respondents reported that they involve their entire board in decisions concerning ESG, 41% do not have a formal process or training programme in place to educate board members about contemporary ESG topics, said Aon. It noted that 61% of boards are actively monitoring diversity, equity and inclusion. “Among survey participants, most companies currently conduct only one or two education sessions on ESG per year for their boards,” said Kennedy. “While directors are expected to be deeply involved in developing and overseeing ESG strategy, training is required to ensure board members are adequately informed and capable of making sound judgements about the ESG risks and opportunities under their governance.” Na said: “In Asia Pacific, companies around the region are taking steps to improve their performance on ESG, either to become more attractive to investors or as an aspirational endeavour unrelated to regulatory requirements. It is not a homogenous market, though countries such as Australia and Singapore are ahead of the curve in terms of ESG maturity.” He added: “To achieve ESG improvement, companies need to learn from best practices across the region and extend their ESG thinking and behaviours beyond the boardroom so they make better decisions that permeate the entire organisation. Integrating financial incentives and a greater focus on education, together with enabling technologies and analytics, reinforced by converging ESG standards, will ensure companies are not left behind as improved ESG performance gains pace in the region.” Aon surveyed senior leaders of both private and publicly listed companies across all industry sectors between October and December 2022 from more than 255 companies from Australia, India, Singapore, Japan, Malaysia, and China.

ESG critical for Asia-Pac firms but most at early stage of integration

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