Most reports forecasting the best-positioned region for growth point to emerging markets in Asia. According to Oxford Economics, Asian countries are the most favorable for long-term growth in emerging markets, with China, the Philippines, and Malaysia being highlighted as best positioned for growth beyond 2024. However, the World Bank projected a dip from 5% last year to a forecast of 4.5% in 2024’s first quarter, as mentioned in its semi-annual economic outlook for the region on Oct. 1 last year.
With environment, social and governance (ESG) issues emerging as important factors in the global economy, the Asia School of Business (ASB) experts Dr Pieter E. Stek and Dr Melati Nungsari co-authored the ESG Practices in Asean and Korea: Pathways Towards Sustainability guidebook. This guidebook provides comprehensive policy overviews and insight on the different strategies and industrial sectors that each nation is focusing on in the ESG landscape.
Dr. Stek and Dr. Nungsari provided insight on how ESG is being pursued across Asean countries, particularly among small- and medium-sized enterprises (SMEs). As Asean adopts more ESG practices, the main drivers are global supply chains, governments, progressive business leaders, and a younger demographic group pushing for more sustainable consumption.
Many producers are increasingly designing their processes to meet higher ESG requirements when selling to countries with lower demands due to growing difficulty in traceability and reporting requirements.
Diffusion of ESG practices faces speed issues in terms of when firms or sectors will move to higher ESG standards and inclusion issues as SMEs may struggle to meet certification, documentation, and traceability requirements.
As more Asean nations start adapting to ESG regulations, the experts expect a trickle-down effect through networks in the region. For SMEs, the slow adoption of ESG is concerning, and external support is needed for implementation. The Malaysian government seems to have provided few details on this issue, and SMEs appear unaware of policies and benefits from the government for ESG adoption.
Businesses respond to regulations and incentives, and SMEs require external support to implement ESG practices. The type of support needed depends on the industry or supply chain they are in, especially in export-oriented sectors. The Malaysian government can play a role in accelerating ESG adoption processes by providing incentives and imposing taxes to encourage compliance.
The guidebook highlights South Korea’s best practices in ESG, such as the Korea Emission Trading System (K-ETS) and commitments to the Renewable Energy 100 initiatives. Other Asean countries can learn and implement similar initiatives to advance their ESG goals based on South Korean government policies.
Regarding the Partnership for Carbon Accounting Financials (PCAF) in South Korea, Asean financial institutions can follow suit to assess and disclose greenhouse gas emissions in their loans and investments. Several Asean central banks, including Bank Negara Malaysia, already have greenhouse gas disclosure requirements. PCAF is another initiative that could be adopted by banks in Asean if it becomes the global standard for carbon disclosures.
Dr. Pieter E. Stek is a research center postdoctoral scholar at ASB involved in managing the ESG Investment in Asean project funded by the Asean-Korea Center. Dr. Melati Nungsari is an Economics associate professor at ASB and a research affiliate at MIT Sloan School of Management.
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