Asia has world’s lowest ESG transparency rate: report

Firms in Asia have the lowest environmental, social, and governance (ESG) transparency compared to their global peers as the region grapples with a lack of understanding, resources, and time, according to a report by Preqin.

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The ESG transparency rate of Asian businesses sits at 5%, which is the lowest globally. This roughly translates to an average disclosure of four out of 37 indicators, the report noted.

Meanwhile, firms in Europe and Australasia are ahead of the curve in terms of ESG transparency, with average scores of 17.8% and 17.2%, respectively.

The increasing focus on ESG comes amid a growing public awareness around environmental impact issues, pushing private capital managers to balance financial gains and ESG-related efforts.

The lack of transparency among Asian firms has also pulled up the threat of “greenwashing,” which refers to the practice of making unsubstantiated, misleading, or exaggerated claims related to ESG.

“In the context of private capital, this [greenwashing] means overselling the sustainability merits of funds or investments,” the report said. “Greenwashing poses a challenge to institutional investors given that it makes it more challenging to assess risks that impact financial returns.”

While investors are taking ESG more seriously, their priorities differ from region to region: Corporate governance has gained the most traction in Asia, while US investors focus more on social issues and workforce equality.

See also: What it takes for Gojek to go entirely green

Most Asian investors are doubling down on corporate governance as it plays a key role in evaluating venture capital and growth. However, nearly 59% of them carried out their ESG assessment only by reviewing documentation, the report found.

Moreover, only 9% of Asian investors ask for essential reporting metrics to evaluate the company’s progress against ESG goals, whereas 19% of European investors require key metrics not only to mitigate risks but also to identify value creation opportunities and improved returns.

The study revealed that the desire to integrate ESG principles ran high with private asset investors and managers – 76% of global investors have seen an increase in demand for their organization’s ESG capabilities over the past 12 months.