Hong Kong, Japan, and Malaysia Lead Asia in Adopting ISSB Standards

Hong Kong, Japan, and Malaysia are the first Asian markets to commit to fully converging their sustainability reporting guidelines with the International Sustainability Standards Board (ISSB) standards, a move towards global convergence of corporate green disclosures. The ISSB, which was set up by the International Financial Reporting Standards (IFRS) Foundation, issues standards that enable companies to disclose their environmental, social, and governance (ESG) effects in a clear and comparable manner. The action responds to growing calls from regulators and investors for genuine reporting on how companies are responding to climate threats and opportunities. The adoption in these three regions becomes a model for the rest of Asia, where sustainability reporting is on the rise with rising climate worries.

The June 2023 ISSB standards include two overall frameworks: IFRS S1 on overall sustainability-related disclosures and IFRS S2 on climate-related disclosures. They can make reporting simpler by presenting a single, cohesive approach, eliminating the complexity created through different regional frameworks. These guidelines have also been adopted by Hong Kong, Japan, and Malaysia, which mandate listed firms to make climate-related disclosures publicly, including physical risks due to extreme weather and transition risks of moving towards a low-carbon economy. The guidelines also call for reporting of the governance, risk management, and metrics such as greenhouse gas emissions. This convergence allows companies in these jurisdictions to give standardized and clear information so that investors can better determine their sustainability performance.

Hong Kong has revised stock exchange listing guidelines to incorporate ISSB standards, with listed businesses required to disclose from 2025. The Hong Kong Monetary Authority has encouraged this move, highlighting the importance of open disclosure in the management of climate change financial risks. Japan, the leader in corporate governance reforms, has adopted ISSB standards into its guidelines of the Financial Services Agency to be implemented in phases from 2024 for significant listed companies. Malaysia also required ISSB-harmonized disclosure by public companies via its securities commission, with an emphasis on facilitating the country's attainment of its net-zero emissions by 2050. These countries have adapted the standards to fit local conditions but retained their fundamental principles to facilitate global comparability.

The issuance of ISSB standards fills a crucial space in Asia, where sustainability reporting has been patchy. Prior to the ISSB, corporations had been responding to a patchwork of voluntary guidance, including the Task Force on Climate-related Financial Disclosures (TCFD), and so came out with uneven information that deceived investors. ISSB standards are grounded in a framework that permits regional variation, so nations can respond to regional issues such as biodiversity or social impacts and yet fulfill international expectations. In Hong Kong, for example, regulators have emphasized supply chain emissions disclosures due to the city's status as a trade center. Japan has already put its mind to integrating ISSB rules with its current corporate governance code, and Malaysia has paired them with its national climate strategy.

The rest of the Asian jurisdictions are in motion but trailing behind. Singapore has suggested making mandatory ISSB-compliant reporting by listed companies no later than 2025, albeit with voluntary take-up underway already. China has laid out ISSB model voluntary guidelines but is still in talks for its broader adoption as it has a complicated regulatory framework. South Korea is under public consultation to implement ISSB with a view to mandating reporting in 2026. India, Thailand, and the Philippines are considering but are constrained by issues like capacity and heterogeneity of corporate preparedness. These variations are a manifestation of the varying rate of adoption in Asia, with Japan, Hong Kong, and Malaysia taking the lead.

ISSB adoption is not just compliance but has more advantages. Firms which become aligned with them will find that they have better investment access because international money more and more targets ESG performance. Clear reporting also enables firms to spot and avoid climate risks, e.g., supply chain collapses or regulatory fines. For instance, Hong Kong's finance firms are able to gauge the exposure of carbon-emitting industries, while Japanese producers are able to plan for transitioning energy. ISSB disclosure in Malaysia enables the palm oil sector to provide evidence of sustainable operations and deforestation problems across the world. Nevertheless, there are challenges like the demand for technical expertise, information collection systems, and training for smaller organizations with low resources.

Wider ISSB uptake is the portion of international trends. More than 20 jurisdictions globally, including the European Union and Canada, have committed to applying ISSB standards, which account for more than half of the world economy. Hong Kong, Japan, and Malaysia are regional players in Asia whose importance can influence others to follow suit, propelling regional momentum towards sustainable finance. The standards also complement international pledges such as the Paris Agreement, under which countries can measure progress toward climate goals. With increasing investor demand for ESG information, the territories that head ahead of others in embracing ISSB rules can have a competitive advantage in attracting capital.

Hong Kong, Japan, and Malaysia's en masse adoption of ISSB standards mark a turning point in the development of sustainability reporting in Asia. By harmonizing with international standards, these jurisdictions are increasing transparency and facilitating a move towards a low-carbon economy. Although capacity building and regional coordination issues remain, their leadership is one to emulate. As more Asian countries make a move towards ISSB alignment, the region can be at the forefront of global action to mitigate climate change by making improved corporate disclosures possible. Active cooperation among regulators, companies, and investors will be the driving force behind this momentum.

Source: Eco-Business, "Hong Kong, Japan, and Malaysia lead Asia in fully aligning with ISSB rules" (https://www.eco-business.com/news/hong-kong-japan-and-malaysia-lead-asia-in-fully-aligning-with-issb-rules/)