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Interim Report:
Data Challenges relating to ESG and
Sustainable Finance in Asia Pacific1.

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Contents
Introduction ............................................................................................................................................ 3
Future of Sustainable Data Alliance .................................................................................................... 3
Virtual Event: ‘Navigating ESG and Sustainable Finance in Asia’ ........................................................ 3
Definition ............................................................................................................................................ 4
Overview of Sustainable Finance in Asia ................................................................................................ 5
Regulation and Policymaking .............................................................................................................. 7
IOSCO .................................................................................................................................................. 7
Data and Sustainable Finance in Asia ..................................................................................................... 9
Data Practices Today........................................................................................................................... 9
Measuring E, S and G ...................................................................................................................... 9
Data Sources and Analysis .............................................................................................................. 9
Data Challenges ................................................................................................................................ 10
Lack of Standardisation and Comparability .................................................................................. 10
Data Availability ............................................................................................................................ 12
Reliability of Third Parties ............................................................................................................. 13
Forward- vs Backward-looking Perspectives ................................................................................ 13
Accessibility and Interpretability .................................................................................................. 13
Interoperability with Financial Risk Assessment........................................................................... 14
Conclusion ............................................................................................................................................. 15
Interim Recommendations ............................................................................................................... 15
Next steps ......................................................................................................................................... 15

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Introduction
Future of Sustainable Data Alliance
The Asia Securities Industry and Financial Markets Association (ASIFMA) is a partner of the Future of
Sustainable Data Alliance (FOSDA) and is leading the workstream to understand data challenges forenvironmental, social, and governance (ESG) and Sustainable Finance in the Asia Pacific region.
FOSDA seeks to address the following question:
What data do investors and governments need to meet the requirements of regulators, citizens andmarket demand for sustainable investments and portfolios to 2030?
FOSDA’s key objectives:
1. Articulate future ESG data requirements of investors and governments to accurately
integrate ESG data into decision making;
2. Promote new technology capabilities and data by highlight the key role that new technology
and data sets must play in the transition to sustainable development; and3. Address UN Sustainable Development Goals (“SDGs”) related data needs and how to satisfy
them for investors wanting to take greater account of SDG-related risks and impacts.

Virtual Event: ‘Navigating ESG and Sustainable Finance in Asia’
On 14 July 2020, as part its workstream, ASIFMA and FOSDA organised a virtual panel discussion‘Navigating ESG and Sustainable Finance in Asia’ (click here for the video recording), attended by 300
stakeholders including market participants from the buy side and sell side, specialists andconsultants in ESG and Sustainable Finance, and regulators.
In addition to audience members attending the event, ASIFMA is grateful to the Speakers andPanellists who took part in the event:Introduction:- Matthew Chan, Head of Public Policy and Regulatory Affairs, ASIFMA- Julia Walker, Global Head of Government and Industry Affairs for Sustainable
Finance, Refinitiv
Keynote Addresses- Paul Andrews, Secretary General, IOSCO- Jason Wincuinas, Senior Editor, Thought Leadership Asia, Economist Intelligence Unit
Panel Discussion:- Wang Yao, Director General, International Institute of Green Finance, Central
University of Finance and Economics (Beijing)- Amar Gill, Managing Director and Head of Investment Stewardship, APAC, BlackRock- Elree Winnett Seelig, Head of ESG, Markets & Securities Services, Citi
- Grace Hui, Head of Green and Sustainable Finance, Markets Division, Hong Kong
Exchanges and Clearing Limited- Satoshi Ikeda, Chief Sustainable Finance Officer, Japan Financial Services Agency

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This paper is based on discussion from the event as well as research referenced during
the session, notably two papers presented by Jason Wincuinas of the Economist Intelligence Unit(“EIU”):-

Sustainable and actionable: An ESG study of climate and social challenge for Asia
Green intelligence: Asia’s ESG investing, data integrity and technology

We will continue to develop this paper further as part of the FOSDA Asia Pacific workstream, both in
the lead-up to, and following, a second virtual event focused on Technology aspects of ESG and
Sustainable Finance in Asia Pacific, scheduled for late October 2020.

Definition
For the purposes of this report, we define ‘sustainable finance’ broadly, including climate, green andsocial finance, as well as the consideration of longer-term economic sustainability of organisations
being funded, as well as the role and stability of the overall financial system. As such, this broader
definition also includes ESG investment, and is in line with IOSCO, GFMA and ICSA1.

1

ICMA. Sustainable Finance High-level definitions (May 2020)
https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/Sustainable-Finance-High-LevelDefinitions-May-2020-110520v4.pdf

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Overview of Sustainable Finance in Asia
The Covid-19 pandemic highlights the importance of ESG and sustainable finance, with one panelist
noting that inflows into high-ESG products globally being up 40% in Q1 2020 as ESG continues tobecome mainstream2. At the same time, climate risks are rising in Asia, with Bangladesh, China,
Indonesia, Japan, India and Vietnam all particularly exposed to rising sea levels and with potential
exposure to higher credit risk3.
In parallel, ESG and sustainable finance has become increasingly important in Asia for some time,with EIU research noting the following, based on a 2019 survey of senior and C-suite drawn fromsovereign and pension funds, investment banks and insurance funds across Asia4:• 95% of respondents believe ESG investing is important to their firm, with 92% saying it will
become even more important in coming years, and 80% saying ESG has a positive impact on
returns; yet• This contrasts with the situation just a decade ago, with pressure for ESG coming fromtoday’s investors, especially foreign, along with regulators and exchanges which seesustainable finance as a growth business.
The 2020 EIU report notes that regional distribution is uneven, with East Asia trailing other markets,
at just 5% of AUM invested in sustainable projects, compared to 30% in North America; however,the same report notes that this is changing as institutions such as Japan’s Government Pension
Investment Fund (“GPIF”) and MUFG Bank adopted wide-scale ESG criteria, encouraging the overall
trend, with ESG integration into the investment process, from analysis investment decision,
becoming more prevalent.
As we learnt from our panel discussions, key developments in Asia include:••

Japan is taking a leadership position in Asia, with FSA (which is part of both the Network for
the Greening of the Financial System and IOSCO’s Taskforce Sustainable Finance), playing a
key role in promoting sustainable finance and ESG.
- Policy-wise, Japan has taken a principles approach, which has helped acceleratescaling of the market and is reflected in the FSA’s 2020 revision of its Stewardship
Code for corporate governance5.
- Through the code and other measures the FSA is encouraging institutional investors
to focus on ESG and corporates to enhance disclosure standards.
- The FSA has also been fostering dialogue between institutional investors andcorporates on implementing FSB Task Force on Climate-related Financial Disclosures(TCFD) standards for consistent climate-related financial risk disclosures, including
data challenges and the enablement of greater granularity in what is measured.
In Hong Kong, as part of our commitment to sustainability, HKEX has launched its
Sustainable and Green Exchange (STAGE), an online portal to provide informationtransparency on sustainable, green and social investment products.

2

ASIFMA/FOSDA. Virtual Event: Navigating ESG and Sustainable Finance in Asia. (2020)
https://youtu.be/E-SiPlJc8CM
3
EIU. Sustainable and actionable: An ESG study of climate and social challenges for Asia. (2020)
https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf
4
EIU. Green Intelligence: Asia’s ESG investing, data Integrity and technology. (2019)https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf
5
FSA. Finalization of Japan’s Stewardship Code (Second revised version). (24 March 2020)
https://www.fsa.go.jp/en/refer/councils/stewardship/20200324.html

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This is intended to encourage dialogue between issuers, asset managers,
investors and professional advisers on sustainable and green finance.
- STAGE will promote transparency and accessibility across all product types and asset
class, and is believed to be one of the first of its kind in Asia6.
In China, ESG is increasingly a focus for investors and asset owners7. From a policy
perspective, the PBOC consulted the market on updating its 2020 Green Bond Endorsed
Project Catalogue recently, with the proposed changes bringing it more in line with otherinternational taxonomies in relation to fossil fuels8.
- This is part of China’s efforts to further promote green finance, starting with topdown policy with cross agency efforts being led by the PBOC.
- Other initiatives include standardising green credit guidelines, and green trust fundand insurance standards, whilst encouraging innovation, and green pilots spanningpolicy and other measures to foster green transition at the provincial level9.
- Other efforts include supporting international cooperation, with PBOC active in
NGFS and platforms such as IFC’s sustainable banking network10 and Green FinancePrinciples in ‘One Belt One Road’ countries11.
- Disclosure of ESG is in transition from a voluntary to a mandatory regime, with CSRC
expected to launch settings on this soon, with ESG index providers now numbering.

More generally, there is significant growing emphasis on integrating sustainability into generaldecision-making, with climate and sustainability risks seen increasingly as part of broader financial
risk, with implications for cost and availability of capital for firms and projects. There is also a
broadening of perspective from looking at sustainability through a risk lens towards seeking
investments with explicit societal benefits and social upside from business models12.
On the Fixed Income front, Asia stands at the forefront, according another piece of EIU research13,
with green-labelled instruments playing a role in funding renewable energy projects. According to
the EIU, The International Energy Agency estimates that emerging markets will add about 4,000GW
of new capacity by 2040, representing two-thirds of the global increase and of which half is
attributable to China and India alone.

6

HKEX. HKEX’s Sustainable & Green Exchange. (2020)
https://www.hkex.com.hk/eng/stage/index.htm
7
ASIFMA/FOSDA. Virtual Event: Navigating ESG and Sustainable Finance in Asia. (2020)
https://youtu.be/E-SiPlJc8CM
8
ASIFMA. ASIFMA Response to Consultation of 2020 Green Bond Endorsed Project Catalogue. (2020)
https://www.asifma.org/wp-content/uploads/2020/06/asifma-response-to-china-2020-green-bond-catalogueconsultation-final-eng-chn.pdf
9
ASIFMA/FOSDA. Virtual Event: Navigating ESG and Sustainable Finance in Asia. (2020)
https://youtu.be/E-SiPlJc8CM
10
IFC. Sustainable Banking Network. (2020)
https://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/sustainability-atifc/company-resources/sustainable-finance/sbn_whatsnew
11
The Belt and Road Initiative (BRI). The Belt and Road Initiative. (2019)https://green-bri.org/tag/green-investment-principles-gip
12
ASIFMA/FOSDA. Virtual Event: Navigating ESG and Sustainable Finance in Asia. (2020)
https://youtu.be/E-SiPlJc8CM
13
EIU. Sustainable and actionable: An ESG study of climate and social challenges for Asia. (2020)
https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf

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Since 2013, a variety of green and social bonds have come to the market in Asia,
including:• Social Bonds• Transition Bonds• Sustainability Bonds• Sustainability Bonds• Sukuk Bonds

Regulation and Policymaking
ASIFMA published a paper in March 2020, titled ‘Sustainable Finance in Asia Pacific: Regulatory Stateof Play’14. It calls for greater harmonisation of standards, frameworks and policymaking to shift thefinancial system to a more sustainable footing, in addition to industry participants having a role toplay alongside the official sector in developing capabilities and market structures to support thegrowth and scaling of sustainable finance and the transition to a low-carbon global economy.
To achieve this, ASIFMA encourages policymakers and regulators to:- Engage directly with the private sector in their own markets through transparent
consultation processes during the development stage of taxonomy, prudential
requirements, and ESG reporting and disclosure requirements; and- Ensure that they take a coordinated regulatory approach internationally, withcommitment from regulators in all major jurisdictions to achieve greaterinternational consistency, ranging from approaches towards taxonomies andcorporate disclosure to measurement of climate related risks and use of incentives
and other mechanisms to prevent market failure.
In addition to consistent and representative taxonomies, the ASIFMA paper calls for coherent
disclosure frameworks on key material factors connecting all segments of the investment cycle –from companies to investment management companies, to their shareholders and clients. This will
ensure transparency and comparability between sustainability metrics throughout the economy, but
requires clear thinking between the private and public sector about the data needed to support this.

IOSCO
IOSCO has acknowledged the rising importance of ESG matters and sustainable finance moregenerally, and is focused on related investor protection and transparency in markets as well as in
mitigating systemic risks. In October 2018, IOSCO established its sustainable finance network (“SFN”)
as a platform to connect interested IOSCO members and to exchange information and experiences.
In January 2019, IOSCO issued a statement on ESG disclosures by issuers15 and published, through its
Growth and Emerging Markets Committee a report related to sustainable finance in emerging
markets 16. A further report on the overarching role of IOSCO and securities regulators was publishedin April 202017, and identified three key concerns:
1.
2.
3.

Multiple and diverse sustainability frameworks and standards;
Lack of common definitions of sustainable activities; andGreenwashing and other investor protection challenges.

14

ASIFMA. Sustainable Finance in Asia Pacific Regulatory State of play. (3 March 2020)
https://www.asifma.org/wp-content/uploads/2020/03/sustainable-finance-in-asia-pacific.pdf
15
IOSCO. Statement on Disclosure of ESG Matters by Issuers. (18 January 2029)
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD619.pdf
16
IOSCO. Sustainable finance in emerging markets and the role of securities regulators. (June 2019)https://www.iosco.org/library/pubdocs/pdf/IOSCOPD630.pdf
17
IOSCO. Sustainable Finance and the Role of Securities Regulators and IOSCO. (April 2020)
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD652.pdf

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As a result of the SFN’s work, the IOSCO Board agreed in February 2020 to establish a Board-level
Task Force on Sustainable Finance (STF), aimed at enabling IOSCO to play a driving role in global
efforts to address the issues described in its 2020 report.18
IOSCO’s current efforts to address ESG and the above challenges include exploration by the STF of
the following:(i)

Improving sustainability–related disclosures by issuers (WS1). WS1 will explore
avenues for improving sustainability disclosures made by issuers – with a focus on
climate change-related disclosures in the first instance. This work will include engaging
with and influencing initiatives underway by sustainability disclosures standard settersthat are exploring ways to reduce fragmentation in disclosure frameworks andstandards and considering how existing standards can provide the basis for a unifying
system that can serve providers of capital and stakeholders more widely.

(ii)

Promoting investor protection with regard to asset management matters, including
addressing greenwashing (WS2). WS2 will identify relevant practices and experiencesin relation to the consideration of climate change as a financial risk and the use ofsustainability-related factors in the investment decision process of asset managers. WS2
work will aim to result in specific metrics that can be arranged into relevant categories
of disclosures, which could support investor protection.

(iii) Addressing ESG ratings and data providers (WS3). WS3 will assist members inunderstanding the implications of the increasing activity of the ESG data providers,
including CRAs with regard to ESG ratings. WS3 will look into methodologies for ESG
ratings and indices and supervisory practices relating to ESG ratings, with a particularfocus on their climate-related aspects.
IOSCO is committed to work in collaboration with other international bodies in an effort to avoid
duplicative efforts and to enhance coordination of relevant regulatory and supervisory approaches.

18

IOSCO. IOSCO steps up its efforts to address issues around sustainability and climate change (14 April 2020)
https://www.iosco.org/news/pdf/IOSCONEWS564.pdf

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Data and Sustainable Finance in Asia
Data Practices Today
In broad terms, investors and investment managers in Asia use a combination of information to
inform ESG investment, including disclosed information, data from third parties, and raw data whichneeds to be sourced and analysed in-house. This is then further analysed to inform investment
decisions. Approaches to data analysis can be a source of competitive advantage for asset managers.

Measuring E, S and G
For ESG investment specifically, according to the EIU’s 2019 study19, nearly half (48%) of the 2019
EIU survey respondents said they weighted Environmental (E), Governance (G), and Social (S) factors
equally. 24% said they weighted E factors highest, 19% weigh S factors highest, and 15% weight G
factors highest. A major driver, as noted by EIU, is mainland China’s increasing focus onenvironmental protection, perhaps far more so than other jurisdictions in the region.
According to the 2019 EIU study, the top metrics used to quantify E factors include:• Environmental technology contribution (47% of survey respondents);• Environmental information disclosure (35%); and• Climate action (31%).
Meanwhile the same study found the top S metrics to include:• Safety Management (44%);• Diversity and Inclusion practices (44%);• Sustainable cities and communities goals (42%);• Standard certification (37%);• Health and Wellbeing (35%); and• Quality education (30%).
Top metrics to quantify G factors include:• Efficiency of capital (51%);• Anti-money laundering (AML) compliance 36%;
• Related party transactions (conflict of interest) (36%); and• External Auditing (33%).
The 2019 EIU study notes significant overlap between E, S, and G factors in practice. For example,
climate change can have both E and S implications and, as a result, some practitioners may resistclassifying metrics into separate categories20, suggesting a fundamental divergence in analytical
approach.

Data Sources and Analysis
Today, according to the EIU research, ESG data is gathered from a wide range of sources, fromofficial disclosures and third-party sources, to NGO reports and social media. Other sources include
bilateral meetings. Since much of this information is unstructured, Artificial Intelligence (AI) is
becoming more prevalent in use.
19

EIU. Green Intelligence: Asia’s ESG investing, data Integrity and technology. (2019)https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf
20
EIU. Green Intelligence: Asia’s ESG investing, data Integrity and technology. (2019)https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf

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When asked what type of data their firms are using for ESG assessment, nearly half of respondents
to a 2020 ASIFMA/FOSDA poll reported using an equal amount of in-house and third-party sources,
whilst 17% used mostly in-house and 19% used mostly third-party ratings21.
Figure 1. If your firm is undertaking ESG assessment what type of data is it using? (Source: ASIFMA Virtual Event Poll, 2020)

16%

17%

19%

Mostly in-house research
About 50/50 in-house research and third party
Mostly third-party ratings
Mostly third-party other (e.g. research)48%

Data Challenges
According to the 2019 EIU study, future growth of ESG investment in Asia is inextricably linked todata. When asked to list the general obstacles to further developing ESG integration, respondents
continually refer to data challenges overall:• 32% nominated inadequacy of ESG data;• 31% said there is not enough ESG data to make consistent decisions;• 30% said a lack of clarity around ESG standards, terminology and metrics; and• 26% mentioned ESG ratings and data applications being inconsistent; and• 24% mentioned low transparency with regard to ESG-data sources.
In contrast, the only two non-data related barriers raised by respondents were lack of awarenessand understanding of ESG (36%) and lack of client demand (20%)22.

Lack of Standardisation and Comparability
Significantly, there is no standardisation to measurement of E, S, and G factors. According to the2019 EIU study, S factors in particular are the most difficult to measure, with analysts needing toweigh the value of very unstructured data (e.g. a complaint on social media, which may or may notportend fundamental issues)23. Additionally, individual ESG metrics vary not only between industries
21

ASIFMA/FOSDA. Virtual Event: Navigating ESG and Sustainable Finance in Asia. (2020)
https://youtu.be/E-SiPlJc8CM
22
EIU. Green Intelligence: Asia’s ESG investing, data Integrity and technology. (2019)https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf
23
EIU. Green Intelligence: Asia’s ESG investing, data Integrity and technology. (2019)https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf

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and markets, but also between companies in the same industry, with the quality ofcompany disclosures differing widely24. This results in difficulties in a lack of comparability between
projects, companies, industries and markets25 as well as market distortions and skewed investment
decisions26, while the 2020 EIU report notes this also leads to greenwashing, against which investors
perceive a lack of contractual protection27. This is compounded when third-party data is used, withmany vendors using different methodologies for even the same metrics28.
When asked to nominate the greatest data challenge in ESG and sustainable finance, 56% ofrespondents to a 2020 ASIFMA/FOSDA poll reported ‘inconsistent data’29. EIU notes that thiscomplexity in itself is a disincentive for companies to issue green securities30.
Figure 2. What is the greatest data challenge for ESG/sustainability? (Source: ASIFMA Virtual Poll, 2020)

9%

35%
56%

Missing data

Poor quality data

Inconsistent data

The industry notes the UNDP’s current work with the NGFS to tighten the UN SDGs, capturing theevolution and maturing of sustainable finance since 2016 and tightening standards. In this area too,
there has been a proliferation of standards and initiatives, resulting in accountability concerns,
efficiency challenges and comparability issues.

24

ASIFMA. ASIFMA Response to Bank Negara Malaysia’s Discussion Paper on Climate Change and Principlebased Taxonomy. (2020)
https://www.asifma.org/wp-content/uploads/2020/04/asifma-response-to-bnm-climate-change-taxonomydp-v20200331-final-draft-clean4.pdf
25
ASIFMA/FOSDA. Virtual Event: Navigating ESG and Sustainable Finance in Asia. (2020)
https://youtu.be/E-SiPlJc8CM
26
Green Intelligence: Asia’s ESG investing, data integrity and technology. (2019)https://perspectives.eiu.com/sites/default/files/green_intelligence_eiu_e_fund.pdf
27
EIU. Sustainable and actionable: An ESG study of climate and social challenges for Asia. (2020)
https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf
28
EIU. Sustainable and actionable: An ESG study of climate and social challenges for Asia. (2020)
https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf
29
ASIFMA/FOSDA. Virtual Event: Navigating ESG and Sustainable Finance in Asia. (2020)
https://youtu.be/E-SiPlJc8CM
30
EIU. Sustainable and actionable: An ESG study of climate and social challenges for Asia. (2020)
https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf

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Disclosure
Firms and investors are navigating a confusing landscape of disclosure frameworks, incentive
structures, data collection methods, and external assessments developed and implemented invarious markets and jurisdictions by both the public and private sectors. From a disclosure
perspective, this variation exists in both substance and form. Variation is evident not only between
markets, but also within markets. As an example, in China, the 2019 EIU report notes that while
there are different reporting requirements by province, the format in which data can be provided
also varies between PDF, Word and JPG file formats31.
Other issues relate to the quality and integrity of data provided by corporates themselves. For
example, an international power utility may provide only metrics of its carbon emissions in one
market that it operates, where standards may be higher (e.g. Hong Kong), whereas metrics fromother markets (e.g. China) representing the majority of its activities may be excluded. This gives a
distorted and misleading account of its activities32. This can only be partially addressed throughmore direct engagement between, say an investment manager and investee companies.
Tightening disclosure standards will improve quality issues, which was nominated by over a third of
respondents to the 2020 ASIFMA/FOSDA poll, above.
Taxonomy
Currently, there exists no single binding global taxonomy, while classification systems for ‘green’
assets or products differ widely across jurisdictions and industries. While the EU’s leadership inestablishing its taxonomy is a step forward in scaling green finance, there is uncertainty as to how
this, which has been constructed from a European perspective, may impact the Asia Pacific region if
it were to become the de facto global standard without taking into account the needs and nuancesof a region like Asia where there are countries of varied levels of economic development. Also, EU
taxonomy and disclosure regulations have been described as binary, classifying economic activities
as ‘green’ and ‘non-green’, but providing no incentive for transitional activities33.
The industry welcomes leadership of jurisdictions like China and Malaysia’s efforts to definetaxonomies, but calls for greater regional and global harmonisation, interoperability between
jurisdictions, and principles-based approaches34. An international taxonomy will help address thedata-comparability concerns of the 56% of respondents to the 2020 ASIFMA/FOSDA poll above.

Data Availability
When asked to nominate the greatest data challenge in ESG and sustainable finance, 35% cited ‘poor
quality data’35. The 2019 EIU study notes that S factors in particular are hardest to quantify, yet thecategory currently thought to have the most capacity to drive negative returns in Asia. On the other
hand, G factors are subject to a greater degree of mandatory disclosure, resulting in greater
availability of useable data. Therefore, there is a mismatch between data availability by factor vis-a31

EIU. Green Intelligence: Asia’s ESG investing, data Integrity and technology. (2019)https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf
32
ASIFMA/FOSDA. Virtual Event: Navigating ESG and Sustainable Finance in Asia. (2020)
https://youtu.be/E-SiPlJc8CM
33
ASIFMA. Sustainable Finance in Asia Pacific Regulatory State of play. (3 March 2020)
https://www.asifma.org/wp-content/uploads/2020/03/sustainable-finance-in-asia-pacific.pdf
34
ASIFMA. ASIFMA Response to Consultation of 2020 Green Bond Endorsed Project Catalogue. (2020)
https://www.asifma.org/wp-content/uploads/2020/06/asifma-response-to-china-2020-green-bond-catalogueconsultation-final-eng-chn.pdf
35
ASIFMA/FOSDA. Virtual Event: Navigating ESG and Sustainable Finance in Asia. (2020)
https://youtu.be/E-SiPlJc8CM

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vis which factors are weighted highest (E) and/or thought to drive negative returns (S)36.
This can manifest in a lack of comparable data to compare different projects – it may be available forone project but not another.
Another issue raised in our virtual discussion was the imbalance between data on ESG risk for ESG
return, which is a challenge as firms increasingly want to assess the upside social return ofinvestments, whereas the historic emphasis in ESG has been on downside risk37.

Reliability of Third Parties
The 2020 EIU report notes that third-party data from vendors can be problematic, starting withreliance on a single data source often resulting in volatile indicators over time. In addition, data fromsome vendors can be more accurate or reliable than others. Another source of error lies in thecompatibility between the vendor’s methodology and metrics, and what the investor is trying tomonitor. In our virtual event discussion, one of our of speakers spoke of the trade-off between data
quality, sector coverage, and specificity within sectors and geographies38.
The EIU notes that whilst credit rating agencies are regulated, ESG ratings agencies are not. To
overcome some of the reliability issues, some investors have started to create their own in-house
ESG scores, an avenue mostly only open to larger investors39.

Forward- vs Backward-looking Perspectives
A fundamental issue is the fact that current data is currently backward-looking (e.g. existing or pastenvironmental impact), with limitations at play when historical data is used to predict future factors.
However, according to the 2019 report by EIU, more predictive and forward-looking data becoming
available, such as supply-chain factors and other lead indicators40.

Accessibility and Interpretability
Given the complexity of ESG data, interpreting it for research and analytical purposes can beparticularly challenging. It has been noted by some commentators that much data often exist in
unstructured form, for example, information gleaned from site visits, or even those methodicallyrecorded in call reports. The 2019 EIU study further notes that data to support interpretation of ‘S’factors, in particular, was the most difficult to obtain. To that end, investors and firms are looking
increasingly for commercial advantages, and of the 300 respondents surveyed by EIU, a vast majority
said they were using artificial intelligence (AI) either always or often to improve ESG analysis andincrease efficiency by helping to consolidate data and analyse unstructured and structured data inmeaningful ways41.

36

EIU. Green Intelligence: Asia’s ESG investing, data Integrity and technology. (2019)https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf
37
ASIFMA/FOSDA. Virtual Event: Navigating ESG and Sustainable Finance in Asia. (2020)
https://youtu.be/E-SiPlJc8CM
38
ASIFMA/FOSDA. Virtual Event: Navigating ESG and Sustainable Finance in Asia. (2020)
https://youtu.be/E-SiPlJc8CM
39
EIU. Sustainable and actionable: An ESG study of climate and social challenges for Asia. (2020)
https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf
40
EIU. Green Intelligence: Asia’s ESG investing, data Integrity and technology. (2019)https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf
41
Green Intelligence: Asia’s ESG investing, data integrity and technology. (2019)https://perspectives.eiu.com/sites/default/files/green_intelligence_eiu_e_fund.pdf

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According to the study, 85% of asset and wealth management firms use AI always oroften, compared to 65% of investment banks, (re)insurance companies and global financial firms,
while number of analytics firms are now offering a range of AI tools42.

Interoperability with Financial Risk Assessment
The EIU notes that while credit rating agencies assess the material impact ESG factors may have on
probability of default, ESG scores may profile an issuer, and not an individual issue, and do notnecessarily capture the financial implications of factors such as credit risk exposure to ESG factors43.
There is a need for harmonisation and interoperability between ESG standards, green finance andclimate-risk management standards to which financial institutions are increasingly being held44.
In a response to the MAS’s consultation on environmental risk management for banks, ASIFMA
noted data challenges that would benefit from further supervisory guidance, including the need forstandardised environmental and climate related data (or minimum standards) that banks should
require corporate clients to disclose (including data from corporate clients), environmental andclimate related metrics that banks should look towards assessing and in turn, what banks would be
required to disclose, and benchmarks for environmental risks and key climate scenarios which could
be used for risk management purposes45.

42

Green Intelligence: Asia’s ESG investing, data integrity and technology. (2019)https://perspectives.eiu.com/sites/default/files/green_intelligence_eiu_e_fund.pdf
43
Sustainable and actionable: An ESG study of climate and social challenges for Asia. (5 August 2020)
https://perspectives.eiu.com/sites/default/files/sustainable_and_actionable_report_2.pdf
44
ASIFMA. Sustainable Finance in Asia Pacific Regulatory State of play. (3 March 2020)
https://www.asifma.org/wp-content/uploads/2020/03/sustainable-finance-in-asia-pacific.pdf
45
ASIFMA. ASIFMA Response to The Monetary Authority of Singapore's Consultation Paper on Proposed
Guidelines on Environmental Risk Management (Banks). (2020)
https://www.asifma.org/wp-content/uploads/2020/08/asifma-response-to-mas-erm-guidelines-banksv20200807-final.pdf

14.

IN CONJUNCTION WITH

Conclusion
As we emerge from the Covid-19 pandemic, it is an opportune time to fine tune ESG and sustainablefinance. ESG performed well during the pandemic, both in terms of inflows and asset performance,
whilst many regulators and investors have re-committed to ESG and sustainable finance with greater
focus on systemic risks related to climate and social concerns.
At the same time, it is important for Asia to focus on the data requirements for supporting ESG, toensure data asymmetries – where regions like Europe have progressed further on ESG and data
standards and availability – do not stall efforts to developing sustainable finance in the region.

Interim Recommendations
Based on the above, as well as discussions with stakeholders including at our virtual event, we havedrawn up the following recommendations:
1. A greater convergence towards a principles-based global (or at least regional) taxonomy
2. Higher, more consistent (mandatory) disclosure standards between jurisdictions and sectors
3. Encouragement of higher standards of analysis, with incentives for more holistic and robust
approaches to ESG measurement and analysis
4. Support for innovation such as in AI to support ESG and sustainable finance capability
5. A focus on education and skills to support ESG and sustainable finance capability
6. Higher standards and accountability for ESG ratings providers, potentially including
regulation and integration with credit rating
7. Harmonisation between ESG standards and frameworks such as UN SDGs, and policy on
climate change and bank supervision at systemic level, including on climate risk
8. Ongoing partnership and dialogue between the public and private sectors, as well as
between stakeholders such companies and investors on disclosure and reporting standards

Next steps
ASIFMA and FOSDA will continue to seek comments from stakeholders and interested parties on thisanalysis and further refine the above recommendations, with a view to finalising its
recommendations by the end of 2020, for inclusion in FOSDA’s broader work at the international
level.

15.