ESG take-up rises, Asia corporates seek strategic support from banks

ESG reporting is not only an imperative for disclosure and regulatory compliance, in many sectors it is also increasingly seen as critical to demonstrate sustainability leadership to customers and investors and gain an edge over competitors.

As Asian companies look to set and meet net zero targets, they increasingly rely on banking partners to help navigate the diverse ESG regulatory landscapes, define emissions accounting and goals as well as advise on ESG strategy.

In this context, BNP Paribas recently commissioned the Asset Benchmark Research team to conduct a survey of over 200 CEOs, CFOs, CSOs and other senior managers across geographies and industries in Asia Pacific.

The results highlight the complex challenges businesses face in navigating the evolving ESG landscape, from regulatory compliance and data availability to financial constraints.

Asia Pacific plays key role

Asia Pacific plays a pivotal role in the global climate transition and is witnessing a significant rise in regulations and corporate strategies addressing ESG issues. The region is responsible for nearly 51% of global greenhouse gas (GHG) emissions, primarily driven by rapidly growing economies, large populations, and interconnected supply chains with the rest of the world.

Responses to the survey confirm that over a third of Asian companies are setting net zero targets and accelerating their responses to mounting ESG regulatory pressure in Europe and within Asia. However, the results also note that corporates still face challenges with regards to uneven regulatory requirements, lack of strategy, financial barriers, and data limitations.

Regulations pose a challenge

Compliance with regulations has emerged as the key objective for most companies (58% of the respondents) in the next three years and even more so for those headquartered outside of Asia, highlighting the critical role that regulatory pressures play in driving ESG adoption and disclosure. 

Alongside regulatory compliance for both Asian and non-Asian businesses, 56% of Asian businesses in the survey are working at understanding the impact of ESG themes on their business. While non-Asia corporates rank positive environmental and societal contributions as their second highest priority.

Lack of emissions tracking

A disparate and rapidly evolving regulatory landscape has put pressure on companies to define and implement effective ESG strategies.

However, according to the survey, most companies still do not quantify their carbon emissions, especially in the case of Asian and non-listed companies. When it comes to Scope 3 emissions, only 6% of Asian companies and 24% of Western companies are quantifying their indirect carbon footprint. This highlights the significant challenges faced by businesses in implementing effective Scope 3 accounting and verification, to comply with emerging regulations.

The analysis finds that 58% of the respondents indicate that their companies face more challenges from environmental issues than from social and governance issues, while 32% believe social issues to be more pressing for their organisations, and 37% selected governance issues as the most important. On balance, ESG issues are more pressing for non-Asia companies than for Asian companies.

In response to these challenges, some corporates are turning to their banking partners for support, highlighting the evolving role of CFOs and treasurers to raise sustainable debts and address ESG matters.

To accelerate the integration process, 63% of respondent companies expressed their desire for advisory services from their banking partners including guidance on material industry challenges, peer benchmarking, regulatory advice, and support on ESG reporting.

Eric Tran, Head of Sustainability for Transaction Banking at BNP Paribas, notes: “The role of CFOs and treasurers now expands towards gathering ESG intelligence on investors’ views, industry peers and key trends as well as deploying sustainable financing framework and instruments (including trade) to align ESG investments and KPIs throughout their organisation.”

A clear strategy is needed

Establishing clear ESG strategies is a critical starting point towards sustainability. Yet, lack of a clear strategy has been cited as the second most common impediment to ESG integration in the BNP Paribas survey, with 34% of respondents indicating that their company does not have ESG targets. Defining and implementing effective sustainable strategies has become an imperative for many corporates, to manage risks, comply with regulations or build a competitive advantage.

Availability of financial resources is also cited as a challenge for companies to implement ESG strategies. According to the same survey, 40% of respondents attribute their slow adoption of ESG to limited budget allocation, while 43% see high upfront costs as the main hurdle for adoption.

Greening supply chains

One of the most significant gaps identified in the survey is that of a company’s ability to measure GHG emissions. Specifically, the survey finds that nearly 70% of the surveyed companies aren’t fully tracking their GHG emission data. Of those who can perform GHG accounting, less than 10% are measuring Scope 3 emissions along their value chains.

Corporates are increasingly partnering with their banks on multiple fronts to further drive their ESG strategy and address the Scope 3 gap. Sustainable supply chain finance solutions present a powerful opportunity for corporations to drive change across their value chains. By embracing ESG considerations in supply chains, corporates can enhance their competitiveness, build climate resilience and achieve greater operational efficiencies over time.

Tran shares how BNP Paribas is helping corporates to factor in sustainable finance into their operations. “For the past several years, we have been forming partnerships with leading innovative ESG solution providers to support the collection of ESG data across the value chain of our clients, helping them to set up KPIs and targets in line with their ESG material issues,” he highlights. “Through financial incentives, corporates can encourage their suppliers to adopt more sustainable practices, fostering a ripple effect of positive change.”

Innovation and shared commitment as the path forward

Other innovative approaches, such as blended finance, which combines public and private funding, and strategic partnerships with multilateral development banks, NGOs and international agencies, can further accelerate the deployment of sustainable solutions, particularly in emerging and developing markets where the need for sustainable development is most pressing.

Looking ahead, as the global transition towards a low-carbon economy accelerates, corporations should also integrate sustainability considerations into their core operations and decision-making processes. By investing in renewable energy, adopting circular economy principles, and implementing robust systems for measuring and managing their environmental and social impacts, corporations can future-proof their operations, mitigate risks and capitalise on emerging opportunities in the rapidly evolving sustainability landscape.

Cynthia Tchikoltsoff, Head of Global Trade Solutions, APAC, BNP Paribas, concludes: “The path towards a more sustainable and resilient economy requires collaboration, innovation and a shared commitment to responsible business practices. By embracing strategic partnerships, leveraging the expertise of the ecosystem, and staying attuned to the evolving ESG landscape, corporations can contribute to the global effort to build a more inclusive and prosperous future for all stakeholders.”