ESG in APAC: 3 Trends to Watch in 2024

14 min read

Faced with increased scrutiny by consumers, regulators, shareholders and boards, Environmental, Social and Governance (ESG) considerations have been at the forefront for multinational companies globally. Multinational companies based in the Asia-Pacific region (APAC) are no exception.

In this article, we highlight three key ESG trends to watch in the APAC region for 2024:

  • an increased risk of liability for greenwashing;
  • growth in sustainability reporting; and
  • greater focus on ESG due diligence.

Companies operating in APAC should be aware of these developments to ensure compliance with these new rules and regulations, and to effectively manage ESG risks.

Increased risk of liability for greenwashing

Advertisements and environmental claims by companies are increasingly scrutinised by regulatory authorities and NGOs, including for claims relating to social or environmental benefits, or greenwashing.1

South Korea: In September 2023, South Korea introduced new legally binding guidelines to prevent deceptive and misleading advertisements that relate to the environment (Guidelines). These Guidelines are subsidiary legislation supplementing the South Korean Advertising Act.2

Under the Guidelines, advertisements relating to the environment must be true, clear, capable of being substantiated and comprehensive — above all, the advertisements must not be deceptive or misleading. There are three noteworthy examples provided in the Guidelines:

  • First, it would be inappropriate for an airline purchasing carbon credits to offset its carbon emissions to claim that its flights contribute to a carbon-neutral, sustainable future. This may indicate that companies cannot rely on carbon credits to offset their carbon emissions and subsequently claim that their operations are "carbon-neutral" or sustainable.
  • Second, a clothing manufacturer cannot claim a "50% increase of recycled materials" when it increases its use of recycled materials from 2% to 3%. While this statement is technically accurate, this would still provide a misleading impression that there was a large absolute increase in the use of recycled materials.
  • Third, a manufacturing company cannot use fine print to downplay its carbon emissions. Specifically, if the majority of the company's carbon footprint comes from the transportation of its goods and it reduces the carbon footprint of its manufacturing process by 33%, it would be misleading for the company to advertise that it had reduced its carbon emissions by 33% and to state "exclusive of transport" in fine print.

A breach of the Advertising Act (as supplemented by the Guidelines) could lead to administrative, criminal and civil liabilities. This includes imprisonment of up to two years.

Singapore: In December 2023, the Advertising Standards Authority of Singapore (ASA) — for the first time — advised an electronics retailer to take down an advertisement for greenwashing concerns. The advertisement stated that the use of the retailer's air-conditioners was the "best tip" to "save [the] Earth". The ASA found that this advertisement was "not acceptable", because it breached the requirement in the Singapore Code of Advertising Practice (Advertising Code) that advertisements should not mislead in any way by inaccuracy, ambiguity, exaggeration, omission or otherwise.3

While compliance with the Advertising Code in Singapore is voluntary, this recent development also shows increased scrutiny towards environment-related advertisements in Singapore. In parallel, the Competition & Consumer Commission of Singapore also announced in November 2023 that it was developing a set of guidelines to provide greater clarity regarding potential greenwashing claims and that views from the public will be sought on the guidelines in due course.4

Australia: In December 2023, the Australian Competition & Consumer Commission (ACCC) issued a guide to businesses on the making of environmental claims. Under this guide, environmental statements must be accurate, true, easy to understand, supported by evidence, and most of all, not misleading or deceptive. For example, the claim that a business has "offset [its] emissions" is likely to be misleading or deceptive if it had purchased carbon credits to offset emissions generated by its head office, even though it had not done the same for its other operations (e.g., for delivering products or producing ingredients).5

Separately, the Australian Securities & Investments Commission (ASIC) has announced that greenwashing will continue to be an enforcement priority in 2024.6 This follows the enforcement actions taken by ASIC in 2023, where ASIC — for the first time — commenced court proceedings against investment funds for their allegedly misleading statements about the sustainable nature of their investments.7 Companies regulated by ASIC, including listed companies, banks, insurance companies, superannuation funds and other managed funds, should therefore be conscious of the increased regulatory risk associated with greenwashing and misleading statements to the public.

That said, the risk of greenwashing litigation is not limited to enforcement action by ASIC. In August 2023, a climate advocacy NGO — Parents for Climate — commenced a civil action in the Federal Court against EnergyAustralia, Australia's third-largest energy company.8 Parents for Climate claims that EnergyAustralia's marketing of its "Go Neutral" product as "carbon neutral" and having a "positive impact on the environment" had misled over 400,000 consumers about the climate impact of its products. This is believed to be the first litigation in Australia on whether consumer products can be marketed as "carbon neutral".

Growth in sustainability reporting

Another key ESG trend has been the mandatory sustainability reporting obligations imposed on companies worldwide.9

In the EU, large EU "public interest entities" must comply with the new sustainability reporting requirements in the EU Corporate Sustainability Reporting Directive (CSRD) for their financial years beginning on or after 1 January 2024.10 These requirements will also apply to non-EU parent companies (including parent companies in APAC) with: (a) an EU-established large subsidiary or a listed small-medium enterprise subsidiary; or (b) a large EU branch, for their financial years beginning on or after 1 January 2028. Even companies outside the scope of the CSRD are likely to encounter increased data requests from their European customers and business partners, as companies within the scope of the CSRD are required to, amongst other things, identify the sustainability impact of their operations and value chain.

In APAC, there are seven other noteworthy developments we expect to see in 2024 and beyond.

First, in June 2023, the International Sustainability Standards Board (ISSB) issued its inaugural standards for sustainability-related disclosures: the General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and the Climate-related Disclosures (IFRS S2). Several APAC jurisdictions, including Hong Kong, Japan and Singapore have indicated that they would consider and incorporate the ISSB's new sustainability disclosure standards into their reporting obligations from as early as 2025.11

Second, in Singapore, all issuers on the Singapore Stock Exchange (SGX) are already required to prepare an annual sustainability report on a "comply or explain" basis12. From this year, however, this report is mandatory for issuers in specific industries, namely: (a) the financial industry; (b) the agriculture, food and forest products industry; and (c) the energy industry, in respect of their operations for financial year 2023. From 2025, this report will also be mandatory for issuers in the materials and buildings industry and the transportation industry, in respect of their operations for financial year 2024.13 The requirement to submit an annual sustainability report is increasingly mandatory in Singapore. It remains to be seen whether this will be extended to other industries over time.

Third, three major stock exchanges in China — the Shanghai Stock Exchange, the Shenzhen Stock Exchange and the Beijing Stock Exchange — have announced new draft sustainability reporting guidelines. Under the draft guidelines, large, listed companies (including dual-listed companies) would be required to report on ESG matters, including initiatives to mitigate climate risks, protect biodiversity, use energy efficiently, and to ensure the integrity and resilience of supply chains. The relevant companies are expected to submit their sustainability reports for the first time in 2026.

Fourth, the Australian Government has released a draft bill that would introduce mandatory climate-related financial disclosures for the financial year beginning between 1 July 2024 and 30 June 2026.14 Public consultation for this draft bill closed on 9 February 2024 and the bill is expected to be introduced into Parliament later this year.

Fifth, the Korean Financial Supervisory Service has announced that, from February 2024, new disclosure standards apply to ESG-related funds. Amongst other things, an ESG-related fund must disclose its ESG objective(s), and the standards and processes used to select the underlying ESG investments.15

More broadly, in October 2023, the Korean Financial Services Commission also announced that certain other mandatory ESG disclosures would likely apply to listed Korean companies from 2026.16 The detailed standards of these disclosures are not yet known.

Sixth, in India, new rules for ESG funds will apply from 1 October 2024.17 Under these new rules, at least 80% of an ESG fund's assets under management (AUM) must be invested in line with its ESG strategy. The remaining 20% of its AUM must also be invested in companies that do not conflict with the fund's ESG strategy. Moreover, at least 65% of the fund's AUM must be invested in companies with comprehensive business responsibility and sustainability reporting disclosures, and which provide assurance on these disclosures.

Finally, there is expected to be an increased use of taxonomies in APAC, which will provide policymakers, regulators, financiers and companies with a common language for ESG matters.18 For example, Singapore launched the world's first multi-sector transition taxonomy in December 2023.19 This taxonomy is meant to create a consistent classification system, provide a benchmark for green activities and protect against greenwashing. Similarly, Australia and Hong Kong started developing their own taxonomies in 2023, and development is expected to continue in 2024 and 2025.20

Greater focus on ESG due diligence

Finally, there appears to be political impetus in APAC to introduce legislation requiring comprehensive ESG due diligence.

This follows several developments around the world, where the requirement on a company to conduct ESG due diligence on its supply chain is increasingly mandatory:21

  • In the EU, the EU Council and Parliament recently reached a provisional deal on the Corporate Sustainability Due Diligence Directive (CSDDD) in December 2023. The CSDDD is expected to introduce legally binding obligations on large companies regarding the environmental and human rights impacts of their supply chain.22 The scope of the CSDDD is likely to include large non-EU companies that generate turnover in the EU, so it may affect large APAC businesses with operations in the EU. Existing EU regulations already impose supply chain due diligence obligations on businesses operating in specific industries, including:
  • the EU Deforestation Regulation, which applies to businesses that place certain forest commodities on the EU market;23
  • the EU Batteries Regulation, which applies to manufacturers, producers, importers and distributors of batteries for the EU market;24 and
  • the EU Carbon Border Adjustment Mechanism, which applies to importers of iron and steel, cement, fertilisers, aluminium, electricity and hydrogen in the EU.25

Moreover, the EU's proposed Forced Labour Regulation would prohibit the sale of any goods made with forced labour in the EU.26 This is likely to affect how any company, which sells goods in the EU, would approach ESG due diligence and supply chain management.

  • In the US, there has long been a prohibition on the importation of goods produced wholly or in part with forced labour.27 However, the Uyghur Forced Labor Prevention Act, in force from 2022, established a "rebuttable presumption" that goods produced wholly or in part by certain entities and geographies have been produced with forced labour, creating a high burden of proof for importers to demonstrate otherwise.28 In addition, the Customs Trade Partnership Against Terrorism (CTPAT) Security and CTPAT Trade Compliance programmes include due diligence requirements on businesses that are voluntarily participating in these programmes (such as US importers and exporters) to prevent the use of forced or child labour in their supply chains.29

Depending on the nature of a business's operations, these due diligence requirements could also apply to APAC companies with subsidiaries, customers or business partners in the EU and the US.

In APAC, South Korea proposed a "Bill on the Protection of Human Rights and the Environment for the Sustainable Management of Companies" (the Bill) in September 2023. Under the current version of the Bill, large South Korean companies would be required to:

  • establish a human rights and environmental due diligence (HREDD) committee in their board of directors, appoint a HREDD manager, and introduce a HREDD policy;
  • review the human rights and environmental risks caused by their activities and the activities of the companies in their supply chain annually; and
  • prepare and execute action plans to mitigate their human rights and environmental risks, and to provide relief to the victims identified in their annual review.

While the contents of the Bill may change, the South Korean Congressional Strategy and Finance Committee published a generally positive review of the Bill in November 2023.

If introduced, this Bill will be a significant milestone for human rights and environmental due diligence in APAC and might herald the introduction of similar legislation in other APAC jurisdictions. In particular, this may drive legislative reform in Japan, which has already introduced non-binding guidelines on respecting human rights in responsible supply chains in September 2022.

1 "Greenwashing" refers to the act of providing the public or investors with misleading or false information about the environmental impact of a company's products and operations. In this article, we focus primarily on the standards applicable to non-financial products. There are often separate and/or additional regimes that address greenwashing in the financial sector.
2 Korean Law Information Center, item 10, available here; Act on Fair Labeling and Advertising, available here.
3 Channel News Asia, "PRISM+ air-con ad featuring Xiaxue deemed misleading by advertising standards watchdog", dated 15 December 2023, available here.
4 Competition & Consumer Commission of Singapore, "Study on Greenwashing in Online Marketing Funded by CCCS Finds Use of Vague Environmental Claims and Confusing Technical Jargon", dated 16 November 2023, available here.
5 ACCC, "Making environmental claims: A guide for business", dated 12 December 2023, page 18, available here.
6 ASIC, "Red light for greenwashing", dated 7 November 2023, available here.
7 ASIC, "ASIC launches first Court proceedings alleging greenwashing", dated 28 February 2023, available here; ASIC, "ASIC commences greenwashing case against Vanguard Investments Australia", dated 25 July 2023, available here; ASIC, "ASIC commences greenwashing case against Active Super", dated 11 August 2023, available here.
8 Equity Generation Lawyers, "Australian Parents for Climate Action v EnergyAustralia" case information, available here.
9 See, for example, White & Case, "Eight things to know about the Taskforce on Nature-related Financial Disclosures", dated 8 November 2023, available here.
10 White & Case, "Corporate Sustainability Reporting: New EU rules for large companies and listed SMEs", dated 16 December 2022, available here.
11 Specifically, while the Hong Kong Stock Exchange (HKEX) initially proposed to implement enhanced climate-related disclosures for issuers from 1 January 2024, this has been postponed to 1 January 2025 to allow the HKEX to account for the ISSB's new sustainability disclosure standards. See, for example, HKEX, "Update on Consultation on Enhancement of Climate Disclosures under ESG Framework", dated 3 November 2023, available here; Singapore ACRA, "Public Consultation on Turning Climate Ambition into Action in Singapore- Recommendations by the Sustainability Reporting Advisory Committee", available here; IFRS, "Representatives of the ISSB and the Sustainability Standards Board of Japan hold inaugural bilateral meeting in Japan", dated 2 March 2023, available here.
12 In other words, if an issuer was unable to prepare a sustainability report, it could explain why and what it is doing instead.
13 SGX, "Sustainability Reporting", available here.
14 White & Case, "Mandatory climate-related financial disclosures proposed for Australia", dated 23 January 2024, available here.
15 Korean Financial Supervisory Service, "Introduction of Disclosure Standards for ESG Funds", dated 5 October 2023, available here. English version unavailable.
16 Korean Financial Services Commission, "Taskforce on ESG Finance Holds Meeting to Discuss Ways to Introduce ESG Disclosure System", dated 16 October 2023, available here.
17 Security and Exchange Board of India, "New category of Mutual Fund schemes for Environmental, Social and Governance ("ESG") Investing and related disclosures by Mutual Funds" dated 20 July 2023, available here.
18 Taxonomies are classification guides for sustainable activities, which may be used by companies as tools or barometers for their sustainability disclosures.
19 Singapore Green Finance Industry Taskforce, "Singapore-Asia Taxonomy for Sustainable Finance", dated December 2023, available here. The taxonomy provides technical screening criteria for ten sectors, namely (1) energy, (2) transport, (3) real estate and construction, (4) industry, (5) forestry, (6) carbon capture and storage, (7) information and communications technology, (8) waste, (9) water, and (10) agriculture.
20 Australian Sustainable Finance Institute, "Taxonomy Project", available here; Hong Kong Monetary Authority, "Discussion Paper: Prototype of a Green Classification Framework for Hong Kong" dated 30 May 2023, available here.
21 White & Case, "Supply Chain Compliance with Human Rights and Environmental Obligations", dated 24 February 2023, available here.
22 Council of the EU, "Corporate sustainability due diligence: Council and Parliament strike deal to protect environment and human rights", dated 14 December 2023, available here; European Commission, "Corporate sustainability due diligence" information available here.
23 The new EU Deforestation Regulation imposes obligations on operators and traders who place commodities like cattle, cocoa, coffee, palm, rubber, soya and wood, and some of their derivative products, such as leather, chocolate, tires or furniture on the EU market. White & Case, "10 key things to know about the new EU Deforestation Regulation", dated 21 July 2023, available here.
24 White & Case, "New EU Batteries Regulation: introducing enhanced sustainability, recycling and safety requirements", dated 2 August 2023, available here.
25 White & Case, "The EU's CBAM Implementing Regulation is ready; are you?", dated 20 October 2023, available here.
26 White & Case, "European Commission proposes ban on goods made with forced labour", dated 20 September 2022, available here; European Council, "Forced labour: Council adopts position to ban products made with forced labour on the EU market", dated 26 January 2024, available here.
27 US Tariff Act of 1930, s. 307.
28 White & Case, "US Authorities Begin Enforcement of Uyghur Forced Labor Prevention Act and Issue Guidance for Importers", dated 28 June 2022, available here.
29 White & Case, "WROs, UFLPA and revised CTPAT", dated 3 January 2023, available here.

* Nolan Lee (White & Case, Legal Manager, Singapore) and Lyn Nguyen (White & Case, Associate, Melbourne) contributed to the development of this publication.

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