When it comes to ESG in Asia, the devil is in the details

by Geneviève Hilton

When it comes to ESG in Asia, the devil is in the details

It’s hard to know what to make of the ESG phenomenon (ESG is the common abbreviation for the Environmental, Social and Governmental factors that are thought to have an impact on corporate sustainability). On the one hand, businesses in Hong Kong can’t stop talking (and boasting) about it. On the other hand, headlines over the course of the past year have made absolutely sure we know that “ESG will not save the planet” – that “ESG investing is just a fad” – that “ESG can’t square with fiduciary duty” – and that, in any case, ESG is dead1. RIP to ESG2

Yet the original reason for the booming interest in ESG, and the subsequent backlash, stem at a basic level from the same belief: that it is important to evaluate the performance of a company with more than what can be found on its balance sheet, and that it is therefore important that this evaluation be both accurate and relevant.

However, it can be astoundingly difficult to nail down the details required, because they are hidden inside the specific, low-level, on-the-ground processes of manufacturing, sourcing, hiring, logistics, construction, finance, sales, marketing, and every other corporate activity. It is in this sense that Asia Pacific markets, which often end up with the hard work of actually implementing corporate sustainability strategies policies developed elsewhere, can be the source of both enormous challenges and vital insights.

A corporate net zero goal made in Chicago or Berlin is worthless without practical implementation in Shenzhen or Mumbai: Asia Pacific is where the (sustainably-sourced) rubber meets the (smart pavement) road. At the same time, as the home to the majority of the global population, the longest coastlines, and the bulk of the world’s manufacturing, the Asia Pacific region has the biggest effect on, and is the most affected by, such strategies.

Is a company sustainable, in the most literal sense – in other words, can it continue its business over the long term?3 This lies at the heart of every corporate sustainability strategy, and every company’s ESG rating. Relevant parameters include climate impact; human rights; labor conditions; public health; environmental impact on air, water, and land; and the corporate governance structures that underlie all of these. Serious, long-term goals tend not to be derailed by temporary market setbacks; in fact, it has been heartening to note that customer interest in sustainable corporate behavior kept chugging along in Hong Kong – and even increasing – during the past several years of the pandemic.

However, as every businessperson in Hong Kong knows, there can be a vast gulf of understanding between the head office and the local market.

A global sustainability director for a chain of restaurants, for example, can set a goal for reducing food waste. But only the local restaurant manager in Hong Kong or Tokyo will know how it really works in the local market. Can local vendors deliver the desired packaging? Will the customers accept it? Can the right ingredients be sourced? Is there space for composting, and is there a market to sell the resulting compost? Are the restaurant workers prepared for the challenge?

An American head office might set a target for employee diversity, based on an understanding of societal norms in the United States. But will that target work in a place like Malaysia, where affirmative action for majority indigenous communities is enshrined in local law? What about in locations where the concept of gender is fundamentally different from that of the head office?

This is why it is so important for Asia Pacific markets to be closely involved with setting locally-relevant key performance indicators that also match global standards, and also with the process of measuring and reporting on them regularly. The challenge is to find a way to bring insights from Asia Pacific markets to head offices, or the other way around, for companies headquartered here.

This can be a confusing process. The Global Reporting Initiative (GRI) standards were the first global standards for sustainability reporting. However, listed companies also report financial information according to the IFRS standards, and IFRS Foundation set up the International Sustainability Standards Board (ISSB) in 2021 to create a separate standard for sustainability reporting. Neither of these was written in Asia. Now, there is a move to consolidate: in 2022, GRI and IFRS announced that they would align ISSB standards with the GRI standards, and IFRS opened its first ISSB office in Beijing in June of 2023. But the path forward is uncertain.

Fortunately, navigating multiple standards and complex interactions between multiple stakeholders is exactly what Hong Kong is good at. Hong Kong has a relatively deep bench of expertise in ESG reporting, investor relations, and, in general, managing multiple rules in multiple jurisdictions.

At the same time, businesspeople in Hong Kong have the practical instincts to identify what sustainability issues are most material to a company. These can vary widely, depending on the market and the industry. Stakeholders of a chemical company will readily define environmental impact as the most important of their concerns; for a technology company, it might be data privacy; for a staffing company, labor conditions will be paramount.

Hong Kong also has a large and sophisticated group of communications professionals, whose support is crucial to ensure that the process is not derailed by misunderstanding, nor discredited by greenwashing. Given the complexity and difficulty of addressing multiple sustainability expectations, which apply in different ways to different industries, it can be tempting to try to over-simplify or over-claim. For this reason, we too often see advertising claims that throw around the word “SUSTAINABILITY” on their advertising without any explanation, or, worse, claim “green” credentials that they do not merit. Hong Kong’s communications professionals can help avoid this.

For those not in a position directly related to sustainability or ESG, it is important to note that each function of a company also has the opportunity to further the business by getting to know this topic in more detail.

Market research teams can focus on better understanding consumer demand for sustainable products. The finance team can investigate the impact of budgeting over a longer time horizon. The marketing team can commit to inclusive imagery in its advertising. The sales team can set higher targets for sales of products that have a positive sustainability impact at the customer level. The events team can focus on minimizing the environmental impact of its activities. The research and development team can seek new products that solve customers’ sustainability challenges.

Asia Pacific is a region where business is already done with the long (i.e., sustainable) game in mind. Calculating, quantifying, and codifying this process, and managing expectations between local and global stakeholders, is Hong Kong’s sweet spot, and Hong Kong’s opportunity for the future.

  1. Last year, financial institutions in the United States launched a number of “anti-ESG” exchange-traded funds. Some are more serious; others have entertaining codes like BAD, VICE, and YALL.
  2. Unfortunately, most opponents conflate the narrower, technical definition of ESG – which relates to standards for gathering, presenting, and assessing information for investors – with a general, vague sense of business feel-goodism. The increase in visibility of ESG ratings products, changes in regulatory requirements for corporate disclosures, and a backlash against several egregious cases of greenwashing were all swept up with the same broom.
  3. While it is perpetually difficult to prove definitively that companies who pay attention to such topics do better than those who don’t, it is axiomatic that companies who pay attention to what’s happening in the long term are more likely to be around to see the long term. ↩︎

Geneviève Hilton has worked in corporate affairs and sustainability in the Asia Pacific region since 1994. Most recently, she led the communications functions for Lenovo in Asia Pacific and supported the company’s ESG transformation strategy. Prior to this, she was Head of External Communications and Corporate Citizenship at BASF for 11 years. In her earlier career she led Client Services at Ketchum Greater China, and held a variety of agency roles in Hong Kong and Vietnam.