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Business strategy was noted to be the primary driver of action on ESG in Asia Pacific, as opposed to compliance requirements.
While companies surveyed indicated environmental, social and governance (ESG) issues as critical to their organisations, most are lagging in integrating measures to address them – either via aligning to goals and key performance indicators (KPIs), or allocating a dedicated function to monitor ESG issues.
Particularly, Aon's latest Asia Pacific Corporate Governance and ESG Survey showed that only 29% include ESG-related goals and KPIs for their C-suite, with most companies in Asia Pacific still in the early stages of using ESG metrics and developing their ESG profile. This is despite 58% of respondents stating ESG is critical to their long-term success.
The study surveyed more than 255 companies responded from 14 countries, primarily from Australia, India, Singapore, Japan, Malaysia, and China.
Going further, while only 34% of companies reported having a dedicated ESG function, business strategy was noted to be the primary driver of action on ESG in Asia Pacific, as opposed to compliance requirements. This is perhaps due to the regulatory environment still evolving in most of the surveyed countries.
Linking ESG to financial incentives
Per the survey, more than 40% of respondents report that their company is in the very early stages of linking ESG with business strategy in a meaningful or measurable way.
Accelerating and expanding ESG efforts require boards and management in the region to better understand the link between ESG and business strategies, and to use metrics and performance measures as their ESG maturity improves.
As the study suggests, incorporating ESG performance criteria into executive compensation plans means ESG metrics are more likely to align with the company’s overall strategy and compensation plans. However, it also also important to manage both the financial and non-financial aspects, as shareholders expect companies to do well while also doing the right thing.
Compared with privately held companies, listed companies are twice as likely (48%) to have clearly defined ESG metrics and to link them to C-suite performance.
While difficult to make the transition to linking metrics depending on where listed or private companies are in the process of their ESG journey and with some markets ahead of others in the region, it is no longer enough to commit to targets that are not tied to either a financial incentive or disincentive.
As ESG maturity improves, companies expect to focus on broader responsibilities, such as understanding the ESG performance of investments Currently, the top five priorities amongst companies observed were:
- Cyber security, tech, and operation risks
- Employee wellbeing
- Board independence
- Waste management
- Diversity
However, looking ahead, the top five future priorities were:
- ESG investment
- Supplier responsibility
- ESG monitoring
- Greenhouse gas emissions
- Risk mitigation
Board education is seen as key to integrating ESG
While 61% of respondents reported that they involve their entire board in decisions concerning ESG, 41% still do not have a formal process or training programme in place to educate board members about contemporary ESG topics.
In fact, most companies surveyed currently conduct only one or two education sessions on ESG per year for their boards. Whilst directors are expected to be deeply involved in developing and overseeing ESG strategy, training is required to ensure board members are adequately informed to make sound judgements about the ESG risks and opportunities under their governance.
Green talent are becoming a priority
Green talent were noted to also be an emerging key factor — nearly one-third of companies plan to introduce or expand ESG roles, with 76% of positions being hired at the mid-professional level.
Boon Chong Na, Advisory Partner and Corporate Governance and ESG lead, Human Capital Solutions for Asia Pacific, Aon commented: “Companies will need to embark on job redesign and upskilling initiatives and invest in their talent to meet this growing demand, either through external university programmes, micro-credentials, sustainability certifications or internally managed employee training.
"A comprehensive talent strategy is essential to keep businesses competitive, and a robust workforce reskilling programme can help build a more resilient workforce, enhancing the potential of existing employees even if external talent pools are shrinking."
Other key findings in the report include:
- 25% of private companies and 50% of listed companies have a dedicated ESG team.
- 30% of new initiatives in 2023 involve re-skilling or upskilling the workforce on ESG.
- 61% of boards are actively monitoring diversity, equity, and inclusion (DE&I).
Looking at DEI, the number one challenge was a low supply of talent suitable for particular fields/functions/ industry/locations (23%). This was followed by difficulty linking diversity and business goals (15%), and knowledge of industry peers’ DE&I practices (10%).
Overall, as highlighted, comapanies in APAC are taking steps to improve their performance on ESG, either to become more attractive to investors or as an aspirational endeavour unrelated to regulatory requirements. Still, it is "not a homogenous market, though countries such as Australia and Singapore are ahead of the curve in terms of ESG maturity", it was noted.
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