Despite the increasing demand for sustainability reporting in Asia, there are still gaps in bridging corporate environmental performance assessments with planetary-scale assessments of Earth system stability and resilience.
Businesses operating across sectors in Asia and the Pacific are now mandated to include environmentally related matters such as environmental performance and risks in their annual and sustainability reports.
The Philippines has just begun requiring large publicly-listed companies to start applying rules adopted from the International Sustainability Standards Board (ISSB) to measure and disclose their sustainability performance, joining neighbours Singapore and Malaysia which are already aligned with the International Financial Reporting Standards (IFRS) rules. Thailand, Vietnam, and Indonesia are planning adoption or alignment.
Businesses’ environmental management are also being scored by corporate Environmental, Social, and Governance (ESG) raters—such as Sustainalytics, Morgan Stanley Capital International (MSCI), and S&P Global—that produce corporate ratings for investors on the basis of sustainability report and direct engagements.
However, these ratings use proprietary and unstandardised scoring methodologies, which have been criticised for lacking comparability.
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While reporting standards serve as important guides to self-assess environmental performance, there is a need to better connect this performance to emerging trends at the larger scale.
Reporting and target-setting guided by these standards and raters often does not generate enough information for businesses and investors to understand their environmental impacts and create mitigation plans in the context of avoiding further transgression of planetary boundaries.
The planetary boundaries represent the limits of the “safe operating space” for critical processes of the Earth system. The latest planetary assessment concluded revealed that we have already exceeded 7of 9 planetary boundaries corresponding to the climate, biosphere integrity, land and freshwater systems change, nutrient cycles and flows, ocean acidification and novel entities. Another assessment by the Earth Commission likewise indicates that globally-defined safe and just limits for the biosphere, climate, nutrient cycles and freshwater have been transgressed.
Asia faces amplified vulnerabilities from these transgressions due to its dense populations, rapid development, and exposure to multiple hazards. Impacts include intensified climate extremes, accelerated biodiversity loss, water scarcity, and pollution hotspots, threatening food security, health, and economies across the region.
Therefore, one important gap in corporate environmental performance assessments in Asia is precisely the need for cross-scale translations: How can companies ensure that their local operations do not contribute to the transgressions of planetary boundaries? Conversely, what do these planetary-scale assessments mean for everyday business decisions made at local to regional scales?
Sustainability standards and ratings are usually not sensitive to the impacts of business activities on Earth’s limits. For example, public and listed companies in Vietnam are mandated to report water consumption for their business activities. This information will then be used by ESG raters to score and compare business with their competitors, often using an intensity metric, e.g., water use intensity per unit of production.
Thus, if the businesses increase their production, their total absolute water consumption will increase even if their production is more efficient. The same trends have been observed in Asean organisations for greenhouse gas emissions.
Many organisations have been setting targets to reduce greenhouse gas intensity, but because this metric is pegged to a unit of production, it is possible for intensity to decrease while total emissions continue to increase. In these examples, businesses will be seen as achieving a positive goal, but their negative impact on the Earth system is larger.
Even when businesses disclose the absolute amount of water in cubic meters per year (m3/year), they are not generally required to reflect – is that number acceptable given the conditions of the area they are operating in?
Thus, businesses are often unaware what that number means in relation to how much they may be contributing to the increase of water stress or deficit in the region. This illustrates another gap, which is the lack of contextualisation in sustainability reporting.
Compounding the challenge is that the planetary boundaries do not exist in isolation, but interact with one another in ways that might change the current state or might even adjust the “safe” ceilings.
For example, forest clearing changes water runoff, potentially making more surface water available and reducing surface water deficits, but with the risk of enhancing floods. Forest cover loss also reduces available carbon sinks, which, in turn, reduces humanity’s overall carbon emissions budget.
How are reporting standards and ratings able to help organisations articulate the ways in which their combined pressures interact and potentially aggravate the overall impact on the Earth system? There is limited consideration for interactions in materiality assessments and target-setting.
While reporting standards serve as important guides to self-assess environmental performance, there is a need to better connect this performance to emerging trends at the larger scale.
We need frameworks that encourage assessment and disclosures of absolute measures of pressure, such as total greenhouse gas (GHG) emissions and total water withdrawals complementary to intensity metrics that are normalised against production levels. While the latter provides information on production efficiency, the former are the determinants of overall consumption and waste.
We also need tools that will capture interactions among these pressures, drawing from the best available science to characterise the total impacts. Interaction analysis is still in the early stages of being introduced into corporate reporting and performance assessment.
There is much research in the Earth system resilience space that characterises the interactions, for example, between carbon emissions, land use change and water consumption, such as is embodied in this prototype that develops a corresponding open-source tool for companies and investors.
We need to be able to contextualise impacts given the current state and limits of the ecosystem in which the company’s operations are located. Pressures result in different impacts depending on location. A cubic kilometer of water withdrawal in a region that is already water-stressed creates riskier conditions and threatens social-ecological system collapse compared to regions where there is abundance.
The loss of tropical forest in Asia will trigger a different climate response compared to a loss of tropical forest of the same land area in Africa or Australia. Thus, companies disclosing the same absolute measures of pressure but located in different areas cannot be rated equally. In addition, mitigation strategies, to be effective, will need to be tailored to the salient environmental issues of the region.
Lastly, we need to standardise the measure of impact to better enable comparison and benchmarking. This standardisation can be achieved by expressing impacts in terms of how close these bring us to transgressing the planet’s “safe operating space.”
This 2023 pilot study, for example, compared mining sites globally in terms of their land, water and climate impacts expressed in standardised units based on a translation of the planetary boundaries to their respective regions of operation.
The study revealed that these assets have non-negligible planetary impacts on land and water, and that carbon emissions alone as an evaluation criterion falls short of presenting a complete picture. Such standardisation provides a transparent, scientifically-grounded and comparable performance metric.
Implementing such recommendations need not be an arduous process – the building blocks already exist. Companies in Asia can use data they already own and monitor, such as asset location and area occupied, greenhouse gas emissions, and water consumption.
Reporting standards can more strongly encourage, or even mandate, contextualisation. An active research community already generates and updates the science needed to support incorporating Earth system interactions into performance metrics and planetary boundaries into target-setting.
Closer collaboration between industry and the scientific community can push this agenda forward. Altogether, these shifts in perspective and practice in sustainability reporting can help bridge local business decisions with global planetary needs.
