Financial stock exchange market display screen board on the street
FOR years, the sustainability conversation has swung between hype and hesitation, championed by some as a moral revolution and dismissed by others as a passing trend. As we close 2025, one thing is clear: ESG is no longer an aspirational slogan. It is becoming a financial discipline, a regulatory expectation and a test of leadership credibility.
Across Asean, the evidence is undeniable. Investors, regulators and corporations are converging on a shared goal to make sustainability measurable, comparable and investable.
From moral choice to market standard
Despite global political noise, investor confidence in sustainability has not only held steady but strengthened. According to recent sentiment data, more than 85% of institutional investors globally have maintained or increased their ESG allocations, even amid economic uncertainty and political backlash in the United States.
In Europe and Asia, this conviction runs even deeper. Sustainable funds in these regions continue to record net inflows, signalling a fundamental shift as investors now reward companies that demonstrate integrity, accountability and measurable transition progress.
In Asean, this trend has matured faster than many expected. Over the last few years, Singapore and Malaysia have pushed ahead with regulatory mandates for corporate reporting, supported by clearer disclosure frameworks and guidance. This consistency has reduced investor ambiguity and improved comparability across investee companies.
However, this is not only about compliance. It is about competitiveness. Sustainability has become a lens through which investors assess a company’s management quality, governance structure and future resilience. It is now the new language of credibility.
Regulation reshapes the investment map
Globally, ESG regulation is undergoing its most dramatic transformation yet. Europe’s widely debated Omnibus Proposal, introduced in February 2025, has scaled back key directives such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), reducing reporting scope by nearly 80% and delaying compliance timelines by two years. This rollback, including the removal of sector standards and continued limited assurance, has raised concerns among investors about transparency and data availability.
Asia, however, is charting a more nuanced course. Singapore’s Green and Transition Taxonomy, Malaysia’s Bursa Malaysia sustainability reporting rules and Thailand’s Securities and Exchange Commission ESG guidelines are setting a new regional benchmark for disclosure clarity.
The Singapore Exchange (SGX), while originally planning to mandate ISSB-aligned climate reporting by 2025, has relaxed its implementation timeline, adopting a phased approach to accommodate smaller and non-listed entities. This pragmatic shift reflects Singapore’s balancing act between maintaining global alignment and avoiding overburdening businesses in an evolving regulatory environment.
Overall, the region’s momentum remains strong. While Western policymakers debate deregulation, Asean markets are consolidating ESG credibility, positioning Asia as a potential leader in next-generation sustainability reporting.
The due diligence revolution
Disclosure alone is no longer enough. Investors now demand proof that ESG claims hold financial weight. This is where ESG due diligence, once a peripheral exercise, has become central to capital allocation. It has been studied that around 80% of dealmakers include ESG assessments in mergers and acquisitions, while 70% reported its importance increasing in the past 18 months. Yet, budgets for ESG due diligence remain disproportionately low compared to financial or legal audits, a structural gap that limits depth and verification.
Investors now use sustainability data to value risk, price opportunities and identify hidden liabilities. ESG is no longer about reputation; it directly affects valuation multiples, integration planning and access to capital. In Asean, sovereign funds and private equity players are leading this evolution. They are integrating climate risk models, biodiversity footprints and supply-chain resilience into investment appraisals, not because regulators require it, but because markets reward it. The message is clear that ESG is now a deal-maker, not a disclosure afterthought.
Private markets: The quiet climate engine
The most dynamic story of 2025 may be unfolding outside public markets. According to Morgan Stanley Capital International’s (MSCI) Sustainability and Climate Trends to Watch 2025 report, private markets have expanded their low-carbon portfolios at a 17% compound annual growth rate, nearly double the pace of public markets.
Cumulative five-year returns for private low-carbon investments reached 123% as of mid-2024, outperforming both traditional public benchmarks and broader ESG indices. Private capital is increasingly financing renewable energy, storage and green mobility, sectors critical to the transition and underserved by public funding.
In Asia, this capital momentum is accelerating. Institutional and sovereign investors are reallocating towards transition-enabling assets, seeing them as a hedge against policy uncertainty and a source of superior alpha. However, as MSCI warns, scaling must come with data integrity and assurance. Without standardized reporting and credible verification, the same capital that fuels transition could just as easily amplify greenwashing risk.
Governance as new growth strategy
Ultimately, ESG maturity is not about producing more reports; it is about producing better decisions. Sustainability is becoming core business DNA, not a side function.
Financial institutions are now industrialising climate risk modelling, embedding sustainability metrics across credit, market and operational risk frameworks.
The focus has shifted from disclosure to integration, building systems where ESG drives lending, underwriting and portfolio construction.
Boards are also evolving. Investors increasingly expect governance structures that embed transparency, accountability and long-term value. Majority voting rights, climate-linked remuneration and ESG assurance are becoming benchmarks for corporate legitimacy.
Across Asean, this governance transformation is tangible. Banks and insurers are incorporating ESG key performance indicators into incentive systems, linking executive pay to climate targets and aligning capital decisions with transition pathways.
Governance, once seen as the “G” in ESG, is now the engine of execution.
From compliance to credibility
Asean’s ESG transformation is not without its challenges. Data fragmentation, inconsistent assurance standards and the complexity of multi-jurisdictional rules persist. Yet the trajectory is unmistakable. Sustainability has outgrown its reputation as a compliance exercise—it is now a strategic discipline tied directly to competitiveness and value creation. The next stage of ESG leadership will be defined by those who combine regulatory rigour with strategic foresight.
Companies that maintain double materiality standards even if global regulation relaxes, integrate ESG due diligence early in M&A (mergers and acquisitions) and financing cycles, and invest in risk systems that connect scenario analysis to financial exposure, will set the benchmark for credible corporate governance.
The cultural shift from reporting to action will separate genuine leaders from those merely following compliance trends.
The winners of this new era will not be those who disclose the most but those who do the most, who link purpose with performance and sustainability with strategy. 2025 is not just another reporting year. It is the year ESG grows up and Asean is quietly, confidently leading the way.
