Building Digital Platforms for Enhancing ESG Reporting

With the global market’s increasing emphasis on responsible practices and sustainability, it is imperative for businesses to embrace environmental, social and governance (ESG) practices.

Firms need to demonstrate a real commitment to improve the way they operate their businesses, reduce their environmental footprint and maintain a healthy relationship with stakeholders.

In order to communicate their ESG practices and performance effectively, firms around the world, including in China and Asean member states, need to adopt proper ESG disclosure and reporting.

A growing number of firms have demonstrated a strong awareness of ESG disclosure, evident in the increasing publication of such reports. For instance, China, one of Asia’s mostdynamic green finance regions, is regarded as a prominent player in the global ESG market.

As of 2020, the total value of green loans from China’s major domestic banks amounted to US$1.69 trillion, while its green bond market was ranked as one of the largest in the world.

In the same year, a report by the World Economic Forum highlights that there were 1,021 Chinese A-share firms, i.e., firms listed on the Shanghai and Shenzhen stock exchanges, that published their annual ESG reports, as compared to a mere 371 firms in 2009.

At the same time, 86% of the CSI300 constituent firms, i.e., the top 300 largest and most liquid A- share stocks, had released their reports.

In the post-Covid 19 pandemic era, there appears to be a global convergence of views that strong ESG practices can pave the way for better business resilience and assist firms in attracting more capital investments.

Hence, firms are urged to move beyond generic statements of corporate responsibility and steer towards comparable, concrete and financially relevant ESG reporting in order to communicate their ESG performance more effectively to their stakeholders.

However, one of the major challenges encountered by firms in ESG reporting is the lack of comprehension of what to measure, what good data and targets look like and how to report them in an effective manner.

Often, these ESG-related data are contained across multiple systems and managed by different parties.

Firms may lack the resources, expertise and processes to gather and analyse the vast amounts of data from these fragmented data sources to produce robust ESG reporting.

Moreover, firms may find it challenging togenerate accurate, up-to-date and reliable ESG reports.

In response to the challenges of ESG reporting, regulators and firms in numerous countries, including China and ASEAN member states such as Malaysia and Singapore, have resorted to adopting digitalisation and new technologies to enhance ESG reporting and measurement.

For instance, PwC Mainland China offers an ESG Reporting Tool that simplifies and enhances the quality of ESG reporting. This tool maintains a centralised data platform which streamlines ESG data management by allowing firms to collect both quantitative and qualitative inputs in one place.

Besides, this tool offers automated data analysis by generating ESG disclosure metrics as well as automated ESG report generation, which guides the firms through the required disclosures and provides a full audit trail for verification purposes.

Another important feature of this tool is it visualises major ESG trends in an interactive dashboard, which enables firms to provide more transparent and informative ESG insights to their stakeholders.

Similarly, Bursa Malaysia recently launched its ESG Reporting Platform in December 2023, with the aim of enhancing sustainability disclosures among public listed companies (PLCs) in Malaysia.

This platform serves as a repository for sustainability disclosures in a prescribed format and generates a summary performance table, including indicators and data related to the PLCs’ material sustainability matters

. This platform, which is free and accessible through the Bursa LINK system, shall be utilised to comply with the enhanced sustainability reporting requirements introduced by the regulator in 2022.

Prior to this initiative, Bursa Malaysia collaborated with the London Stock Exchange Group to develop a sustainability reporting platform, i.e., the Centralised Sustainability Intelligence (CSI) Platform.

The CSI Platform is designed to promote an inclusive and diverse ecosystem, where it serves as a centralised repository for both PLCs and non-listed small and medium enterprises to disclose their sustainability practices in a standardised manner which conforms with local and global frameworks and standards as well as to manage their carbon emissions.

The platform also facilitates decarbonisation by providing access to green financing by financial institutions while encouraging sustainability practices across the supply chain.

To conclude, the ESG reporting capabilities of firms are expected to be enhanced with the introduction of these digital reporting tools and platforms, hence enabling them to better fulfil the escalating expectations of greater transparency and disclosure of ESG performance from regulators and other stakeholders.

A sound ESG reporting system helps promote the country’s sustainable growth and transition to a green economy.

In China’s case, this may accelerate the country’s aspiration towards a low-carbon economy as investors channel funds to firms that are climate-resilient and on the correct path for transitioning to a lower- carbon business model.

Similarly, Malaysia’s transition to a green and sustainable economy may be smoother with the aid of digitalisation in ESG reporting.

On the way forward, regulators around the world, including China and Asean member states, are urged to make more concerted effort in developing common standards for determining ESG performance and disclosure as well as building shared digital platforms for ESG reporting to promote a sustainable future for the region and the world.

Dr Chow Yee Peng is an Assistant Professor at Tunku Abdul Rahman University of Management and Technology.

The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the Southeast Asia Research Centre for Humanities (SEARCH) and Tunku Abdul Rahman University of Management and Technology (TAR UMT), in conjunction with the 10-year anniversary of the Belt and Road Initiative.