Asia’s stock exchanges outstrip even their peers in developed markets when it comes to disclosure requirements, according to Trista Chen, head of investment stewardship for Asia ex-Japan at LGIM.
“We see disclosure as an important window for companies to communicate with their strategy, their action, their target and their progress to the external stakeholders including investors,” she said.
“We also notice the stock exchange in Asia, starting from Hong Kong and Singapore for example and even in China, are very supportive when it comes to ESG compared to some of the other European markets.”
Her comments show the extent to which Asian bourses have adopted a top-down approach when it comes to ESG.
For example, Hong Kong Exchanges and Clearing introduced rules that will require listed companies to have at least one female board member by the end of next year.
The move has drawn praise from a number of market commentators as an example of effective top-down regulations, even though many expressed consternation that the reforms did not go far enough.
Overall, Chen is adamant that the perception of Asia for having lacklustre corporate governance is often not justified, citing Korea as an example of a country that is far ahead of where it is perceived to be.
“The perception that Korea may not be the best often comes with the share structure they have, the chaebol system, the crossholdings. This is not just in Korea but also in Japan and other Asian markets, where we see that the key shareholdings will be either state or cross-holdings or family offices,” she said.
“For Korean corporate governance, often it has been perceived as, let’s say, we use the Western expectation of corporate governance, that is not exactly in line with how we want to see things. But what I mean with the disclosure eagerness of the Korean companies is they recognise the business opportunity of embracing ESG into their strategies.”
Chen says that LGIM uses a mixture of carrot and stick when it comes to dealing with companies when it comes to ESG.
“On the stick side, should they not meet our requirements then we escalate. On the carrot side, part of their drive to decarbonisation aside from either the compliance driven or companies’ internal motivated net zero commitments is that they see this as a major business opportunity,” she said.
“You can see this in the Chinese auto sector and in the renewable energy sector in China and India. And companies have clearly expressed to us why they are committed to climate change and it’s because of the opportunity set. We want to leverage a combination of the carrot and stick in bringing out the conversation with companies.”
