Critical reporting and disclosure gaps remain for businesses to demonstrate that they have a viable and robust pathway to reach net zero by 2050, according to a study by PwC Singapore and the Centre for Governance and Sustainability (CGS) at the National University of Singapore (NUS) Business School released on June 6.
While PwC Singapore and CGS noted progress in climate-related risks and opportunities disclosure, setting science-based net-zero targets remains a challenge and more effort is required around measuring Scope 3 emissions.
In addition, sustainability upskilling for board and management remains low, according to the findings of the “Sustainability counts II: Sustainability reporting in Asia Pacific” study.
The study analysed the sustainability reports of the top 50 listed companies by market capitalisation across 14 Asia-Pacific jurisdictions: Australia, Mainland China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand and Vietnam.
A total of 700 listed companies were studied, spanning 11 industries: communication services, consumer discretionary, consumer staples, energy, financials, healthcare, industrials, information technology, materials, real estate and utilities.
It found a rise in the disclosure of identified climate-related risks and opportunities in companies’ sustainability reporting, from 77% in 2021 to 88% in 2022.
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This goes hand-in-hand with their disclosure of processes for managing these risks and opportunities, up from 66% in 2021 to 74% in 2022, and how they integrated climate-related risks into their overall risk management, up from 36% in 2021 to 58% in 2022 for 13 jurisdictions with the exception of South Korea.
PwC Singapore and CGS attribute the climb in the disclosure rate to the increased adoption of the Task Force on Climate-Related Financial Disclosures (TCFD) framework, where the disclosure of integrating climate-related risks into overall risk management is one of the reporting components.
The findings suggest that compared to a year ago, companies are increasingly re-adjusting their business strategies and models to mitigate current climate issues and evolving stakeholder and regulator expectations.
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Science-based net-zero targets still a challenge
Over nine in 10 companies studied (92%) disclosed sustainability targets in 2022. However, among them, only 51% have disclosed net-zero targets.
A lesser 42% reported that their net-zero targets are based on the Science-Based Targets initiative (SBTi) framework, with only 16% reported having their targets verified by SBTi, which is important for companies to demonstrate that they have in place a science-based pathway for their business to reach net zero.
Considering that the majority of the Asia-Pacific jurisdictions examined in this 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, say PwC Singapore and CGS.
More effort required to measure Scope 3 emissions
The measurement of Scope 1 (direct emissions from a company) and Scope 2 (indirect emissions from electricity purchased and used) emission measurements are found to be reaching maturity, with a significant 80% of companies studied having disclosed these areas.
However, a lesser 50% of companies studied disclosed their Scope 3 emissions, or the indirect emissions from a company’s value chain.
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Among companies that disclosed Scope 3 emissions, only 5% reported having carried out a comprehensive level of disclosure, which is essential for understanding the fuller picture of a company’s carbon emission and effectively influencing change across their value chain, say PwC Singapore and CGS.
Sustainability upskilling remains low
Meanwhile, 36% of companies studied reported their board of directors or management have attended or received sustainability training in 2022, up from 24% in 2021.
“While there is progress made, the rate remains low and points to the need for sustainability upskilling at the leadership level for them to effectively carry out their roles in overseeing the company’s sustainability strategy, progress and governance,” say PwC Singapore and CGS.
That said, the study noted an increase in companies obtaining external assurance from an independent party for their environmental, social and governance (ESG) disclosures, up from 37% in 2021 to 49% in 2022.
Professor Lawrence Loh, director at CGS, says: “The study highlights both the progress and gaps in corporate sustainability reporting across the Asia-Pacific region. 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.”
Loh adds: “As expectations for ESG rise, companies must prioritise resolving these gaps and make the necessary resource commitments. They can then serve as exemplary enterprises on a successful green journey, embodying accountability and resilience.”
Fang Eu-Lin, sustainability and climate change leader at PwC Singapore, says: “The challenges businesses face around the interoperability of key sustainability reporting standards, and across multiple jurisdictions, will require companies to develop a strategic roadmap and an operationalisation plan, while prioritising assurance in sustainability reporting to address rising expectations from investors and stakeholders.”
