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Over the last few years a number of stock exchanges in Asia, including in China, Taiwan, Singapore and Malaysia have introduced requirements or “encouragement” to listed companies to report on their sustainability activities. Does mandating or encouraging companies to produce sustainability reports make any difference to their environmental, social and governance (ESG) performance over time? In addition to giving a snapshot of what Asian exchanges are currently doing to promote corporate social responsibility, I’ll take a look at evidence to show that mandatory reporting improves sustainability performance over time.
Let’s first take a look at what the major exchanges are currently doing in the Asia region:
China: Both the Shanghai Stock Exchange and Shenzhen Stock Exchange have issued sustainability reporting guidelines. While the Shenzhen Stock Exchange has yet to issue mandatory requirements around ESG disclosure, the Shanghai Stock Exchange requires all listed companies to report on environment protection activities. The Shanghai Stock Exchange also launched a social responsibility index in August 2009.
Hong Kong: The Hong Kong Stock Exchange launched reporting guidelines in 2012 and, while these guidelines are currently voluntary (earmarked simply as ‘recommended best practice’), the Exchange plans to raise this obligation to ‘comply or explain’ standards by 2015. In 2010 the Hang Seng Index launched a Corporate Sustainability Benchmark Index.
Taiwan: The Taiwan Stock Exchange does not have any reporting guidelines, however, under the Corporate Governance Best Practice Principles, companies are required to produce CSR reports to disclose the status of the implementation of their CSR policies.
Malaysia: Bursa Malaysia requires listed companies to report on CSR performance but does not stipulate the form in which disclosure should be presented. Bursa Malaysia has issued sustainability reporting guidance documents but companies are not required to follow its recommendations.
Singapore: In 2011 the Singapore Stock Exchange (SGX) released a Sustainability Reporting Guide and Policy Statement, encouraging listed companies to report on ESG matters. While reporting is currently voluntary, the SGX has stated that that ‘there will be progress towards mandatory reporting through regulations and rules in the future’. In May 2012, the Monetary Authority of Singapore (MAS) issued a revised Code of Corporate Governance to broaden the responsibility of company boards to include sustainability and ethical standards, encouraging them to ensure management embeds them in company processes and management systems.
Thailand: In June 2012 the Stock Exchange of Thailand’s (SET) Corporate Social Responsibility Institute (CSRI) released guidance documents for listed companies and other interested organisations. These documents are one of the most comprehensive set of documents released by a stock exchange in Asia.
Indonesia: The Indonesia Stock Exchange was the first stock exchange in South East Asia to introduce a sustainability index. Currently there are no sustainability reporting guidelines nor is reporting mandatory in Indonesia.
South Korea: There are currently no sustainability guidelines for Korea’s Stock Exchange (Korea Exchange) and sustainability reporting is voluntary. There is, however, a sustainability index.
Philippines and Vietnam: Reporting is voluntary, there are no sustainability guidelines nor sustainability indices.
Summary of Stock Exchange Activities on Sustainability
|
Guidelines Issued? |
Sustainability Index? |
Reporting: Mandatory or Voluntary? |
|
| Singapore |
Yes |
No |
Voluntary |
| Hong Kong |
Yes |
Yes |
Voluntary |
| China |
Yes |
Yes |
Mandatory |
| Taiwan |
No |
No |
Mandatory |
| Malaysia |
Yes |
No |
Mandatory |
| Thailand |
Yes |
No |
Voluntary |
| South Korea |
No |
Yes |
Voluntary |
| Philippines |
No |
No |
Voluntary |
| Indonesia |
No |
Yes |
Voluntary |
| Vietnam |
No |
No |
Voluntary |
So what difference does mandatory reporting make? This question has been thoroughly researched by an October 2012 Harvard Business School working paper. Ioannou and Serafeim examine the impact of mandatory reporting using data for 58 countries and show that after the adoption of mandatory laws or regulations:
- Social responsibility of business leaders increased
- Sustainable development and employee training became a higher priority
- Corporate governance improved with companies implementing more ethical practices with the result that bribery and corruption decrease and managerial credibility increases.
In conclusion, it is clear that mandatory reporting improves sustainability performance but we know that this does not happen overnight. In fact arguably performance is stagnant for many years as companies simply report on the status quo rather than start to look at improvements. In Asia, where mandatory sustainability reporting is a relatively new development I think that it is worthwhile for companies, not for profits, and research organisation (including CSR Asia) to encourage local stock exchanges to move towards mandatory reporting in order to improve national and regional sustainability outcomes.
