New Zealand, Japan listcos lead APAC in climate target-setting, emissions disclosures: MSCI

Jovi Ho

26 May 2024 at 12:01 pm·3-min read

Although more companies are setting climate targets, the likelihood of these targets being met will vary, says MSCI ESG Research.

Companies listed in New Zealand and Japan not only lead the region in setting climate targets, but are also the most likely to disclose their Scope 1, 2 and 3 emissions. This is according to the APAC Climate Action Progress Report, released on May 27 by MSCI ESG Research.

MSCI used MSCI AC Asia Pacific Investable Market Index (IMI) constituents and their domiciled markets as the research universe. This spans 13 Asia-Pacific (APAC) markets: Japan, mainland China, Taiwan, Hong Kong, India, Australia, South Korea, Singapore, Indonesia, Thailand, Malaysia, the Philippines and New Zealand. As at April 30, the index has 4,244 constituents.

In 2021, 71% of constituents from New Zealand reported Scope 1, 2 and 3 emissions, while 44% from Japan did so. That said, the number of MSCI AC Asia Pacific IMI constituents between the two markets differed greatly. In 2021, this sample size was 17 from New Zealand and 1,088 from Japan.

Australia placed third, with 41% of 239 constituents making similar disclosures in 2021.

While mandatory climate disclosures are under development in several APAC markets, regulators in New Zealand and Japan have been early adopters on Scope 3 reporting. New Zealand was the first country to pass climate reporting legislation, in 2021. Meanwhile, Japanese regulators have developed guidance to support corporates in measuring Scope 3 emissions.

Climate targets 'not fully credible'

MSCI’s data on constituents’ climate targets is more recent, dated Feb 1. New Zealand constituents again came up tops, with 88% of them having set climate targets. Japan, meanwhile, saw 73% of constituents doing the same. Hong Kong and Asean placed third and fourth, respectively.

The report groups the Asean-5 nations — Singapore, Indonesia, Thailand, Malaysia and the Philippines — into a bloc with 405 constituents.

Although more companies are setting climate targets, the likelihood of these targets being met will vary, say MSCI analysts. “Similar to our observations on emissions reporting, we found that on average, small- and mid-cap companies were less likely to have favourable target credibility assessments compared to their largecap peers “

Irrespective of market cap, however, MSCI found that most companies did not have fully credible targets. Only in Japan, Taiwan, Australia and India were more than 5% of large-cap firms assessed as having fully credible targets across Scope 1, 2 and 3 emissions.

With the ongoing rollout of International Sustainability Standards Board-aligned (ISSB) disclosure standards, these differences may reduce over time, says MSCI. This will help companies report more consistent, comparable and credible emissions data, target-setting and transition plans, which may support climate-informed capital allocation decisions, add the analysts.

Among the 13 markets, New Zealand was first to introduce mandatory climate-related disclosures in 2023, based on the Task Force on Climate-related Financial Disclosures (TCFD) standard with some alignment to the ISSB standard.

Australia will introduce mandatory ISSB-based disclosures this year, while Hong Kong and Singapore will follow suit next year. South Korea plans to do the same in 2026, while Japan and Taiwan will follow in 2027.

The remaining markets — mainland China, India, Indonesia, Thailand, Malaysia and the Philippines — have not yet announced mandatory ISSB-aligned disclosures.

Infographics: MSCI ESG Research

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