Board Responsibility and Sustainability‑Related Disclosure in Asia

4. Policy Considerations

Abstract

This chapter builds on the preceding analysis to set out policy considerations that can help policymakers and regulators improve sustainability-related disclosure and board accountability across Asia.

This report examines corporate and securities law enforcement approaches to address risks of ‘sustainability washing’, with a focus on Asian jurisdictions. It reviews global best practices while analysing specific enforcement strategies developed within Asia. Such analysis is intended to support the alignment of Asian companies and regulatory frameworks with international standards on sustainability disclosures, along with acknowledging the distinct legal and socio-economic realities of the region.

There are five key levers that can help mitigate and tackle sustainability washing from a regulatory and supervisory standpoint:

• Legislative and regulatory certainty.

• Effective engagement with companies.

• Multi-layered enforcement toolkit.

• Leveraging technology.

• Capacity-building.

4.1. Legislative and Regulatory Certainty

Regulators should consider ‘sustainability washing’ within the legislative and regulatory framework as the first and vital step. It will enable an assessment of whether existing legal provisions adequately address corporate accountability and support enforcement of sustainability-related disclosure requirements.

Where gaps are identified, policymakers and regulators may consider new regulations or legislative amendments to tackle sustainability washing. In doing so, it is advisable to establish an expert committee that brings together relevant stakeholders. This may enhance the consultation process, ultimately leading to a robust framework.

Further, regulators may need to act if there is lack of clarity among companies regarding compliance with corporate sustainability disclosure requirements and enforcement practices. This could include guidance outlining relevant global best practices, clarifying the scope of their regulatory enforcement toolkit, and providing direction regarding future reforms. Most Asian jurisdictions have adopted local standards that inform their corporate sustainability disclosure frameworks, and thus, issuing guidance that clarifies the nature, scope, and inter-operability of these frameworks with international ones would support implementation of clearer and more comparable sustainability disclosures. While most surveyed Asian regulators have issued guidance regarding corporate sustainability practices, there may still be potential for improvement to minimise the incidence of sustainability washing.

Such clarity would benefit the entire securities market ecosystem. First, companies would get a clear indication of the sustainability-related disclosure framework (applicability, scope, and certainty), supporting them in navigating the regulatory apparatus in the event of any non-compliance. Second, the regulators would send a strong and clear signal regarding enforcement against violations of requirements pertaining to sustainability-related disclosures. Last, investors and other market participants would also be informed and assured of the fact that the regulator is monitoring and reviewing sustainability-related disclosures, and that their interests will be safeguarded.

4.2. Effective Engagement with Companies

Corporate sustainability disclosures and reporting requirements still pose significant challenges, including unavailability of reliable and accurate data, complex global disclosure frameworks, and lack of talent to oversee sustainability matters (Pucker, 2021[136]). Effective engagement with companies, therefore, remains vital.

Regulatory engagement could take three key forms. First, regulators and stock exchanges exercising oversight over sustainability disclosures of listed companies should use effective engagement tools like notices or letters to communicate minor violations and allow companies to remedy them.

Second, subject to the consent of parties concerned, or on a no-name basis, regulators should publish reports or case summaries of their engagement with companies. Such practice encourages better communication between regulatory agencies and the market. It also helps companies that may be keen to approach the regulator for obtaining more clarity on a particular non-compliance of sustainability disclosure norms. A case-in-point in this regard is the FRC in the United Kingdom, which publishes case summaries on a regular basis.

Last, regulators should take the lead in bringing together stock exchanges, listed companies, other market participants such as investors and users of sustainability disclosure information on a platform to develop industry standards and best practices that are better suited for their jurisdiction. Such encouragement from the regulator through the creation of a specific committee or body would be seen as a positive step by market participants as it enhances participatory governance on the ever-evolving issue of sustainability disclosures. The ISF, constituted by SEBI in India, serves as an interesting precedent in this case.

4.3. Multi-layered Enforcement Toolkit

Private enforcement is non-existent in most Asian jurisdictions for securities law violations, including breach of disclosure requirements, in general, and sustainability disclosures in particular (Lim and Varottil, 2022[119]). Thus, regulators should adopt a two-pronged approach with reference to private enforcement. First, they should not disincentivise or restrict private enforcement avenues unless necessary and in the public interest. Notably, this may be the case if an excessive number of private actions distract executives and board members from their core duties and drive a significant rise in D&O insurance premiums. Second, they should take proactive measures to promote engagement activities aimed at enhancing corporate sustainability by investors and other stakeholders. Subject to the level of development of relevant securities markets, Asian regulators should also enhance assurance-related requirements with a view to ensure greater transparency in corporate sustainability disclosure practices.

Lack of private enforcement casts a wider obligation on the securities market regulator in Asian jurisdictions to preserve and protect market integrity by encouraging greater compliance. A multi-layered enforcement toolkit would serve a dual purpose – in the ex-ante sense, it will ensure that companies comply or are forthcoming about non-compliance, and in the ex-post sense, bring serious violators to justice.

Regulators may want to review and expand their enforcement toolkit to keep up with the constantly developing corporate sustainability disclosure landscape. A multi-layered enforcement toolkit may consist of: (i) a clear statute-backed mandate for the regulator (including stock exchanges) to employ engagement tools such as issuing notices or letters to secure compliance without adversarial processes; (ii) guidance regarding possible circumstances for which such tools may be employed and standard operating procedures for such engagement tools; (iii) an escalation strategy along with effective regulatory enforcement tools, backed by statutory mandate, with different standard operating procedures for internal and external use. Such enforcement toolkit would be subject to the overall regulatory architecture, and the legislative mandate for the relevant regulator, in addition to capacity constraints. Furthermore, it should consider whether the possible increase in enforcement actions may not have a chilling effect in the companies’ willingness to disclose sustainability-related information.

4.4. Leveraging Technology

Companies have been using artificial intelligence (AI) and machine-learning tools to comply with their sustainability disclosure obligations. While automation lowers costs and streamlines data collection and analysis, it poses novel challenges in terms of accuracy and reliability of effective monitoring and supervision of these disclosures (S. Bazin, 2025[137]).

Regulators may also employ these approaches to increase monitoring efficiency, and to better understand the technologies used by companies to prepare disclosures, with a particular use case for sustainability disclosures (ADB, 2022[138]). Various regulators have employed or are in the process of employing Artificial Intelligence (AI) and machine-learning driven supervision of corporate disclosures (IOSCO, 2023[118]). For instance, ASIC, Australia’s securities regulator, has trialled using technology to allow frequently used key terms (such as ESG, green, net-zero, carbon neutral) to be extracted for enhanced scrutiny (IOSCO, 2023[118]). The SFC in Hong Kong (China) is also exploring the potential use case of ESG fintech for increased oversight on corporate disclosures (IOSCO, 2023[118]). Other regulators in Asia should also consider tech-enabled supervision practices to mitigate human capacity constraints to better tackle sustainability washing within their jurisdiction.

4.5. Capacity Building

Capacity building is key as sustainability disclosure requirements and practices evolve over time, potentially becoming more complex. Singapore’s model of mandating directors’ training and its disclosure in annual reports could be an example of good practice. However, caution should be exercised as such mandate may become a box-ticking compliance requirement. Regulators could also engage with companies by providing relevant inputs to encourage listed companies to provide training to its staff and senior management.

Similar exercises are also required at the regulatory level so that public officials are well informed of global best practices in monitoring sustainability-related disclosures (IOSCO, 2023[118]). Providing training to leverage technology for effective monitoring and supervision of corporate sustainability disclosures must remain a key focus. As discussed above, various sectoral regulators are also at the forefront of tackling sustainability washing in their domain. Their experience and expertise also provide fertile ground for inter-regulatory co-operation in terms of investigation, and enforcement. Thus, training exercises should be conducted for officials of securities market regulator, along with officials from other sectoral regulators such as the competition or trade regulator, advertising regulator. Further, international platforms for regulatory cooperation should also be explored for capacity building and understanding global issues, which may have domestic impact.