As more global jurisdictions adopt climate disclosure laws, we’re seeing the effects of mandatory disclosure on overall data availability surrounding climate preparedness. A recent MSCI article analyzed trends in the Asia-Pacific region, where the approach to climate disclosures differs vastly by jurisdiction. They found that larger companies in regulated jurisdictions disclosed at a higher rate than their small and mid-cap peers, whereas in unregulated jurisdictions large, small, and mid-cap companies all disclosed at similarly low rates. The article states:
“To assess reporting rates, we analyzed disclosed Scope 1, 2 and 3 emissions of the MSCI AC Asia Pacific Investable Market Index (IMI) constituents. We found that across most markets (except Hong Kong and China), small- and mid-cap companies lagged their larger counterparts by more than 25%. In Australia and South Korea, this gap exceeded 50%. Mandatory climate disclosures could place a disproportionate burden on these smaller companies that are not already measuring and disclosing climate data.
We also found that emerging-market companies lagged developed-market peers. Divergent regulations may be one factor underpinning these differences: Both New Zealand and Australia were early adopters of climate disclosures aligned with the International Sustainability Standard Board (ISSB). Comparable disclosure frameworks are expected to become mandatory in Singapore and Hong Kong in 2025, Taiwan and South Korea in 2026 and Japan in 2027.”
It is probably not surprising that disclosure rates are up in countries with mandatory disclosure laws, but there is nuance here. Some worry that the discrepancy in disclosure rates between large and small and mid-cap companies shows that mandatory disclosure laws place too heavy a burden on smaller companies. However, mandatory reporting is proliferating in the region. Australia and New Zealand have already adopted ISSB equivalent standards, and Singapore, Hong Kong, Taiwan, South Korea, and Japan are expected to follow suit. As these countries adopt mandatory disclosure standards, we may see the disclosure gap grow larger as smaller companies struggle to comply. At some point, governments may realize they must adapt their standards to better accommodate smaller companies and reduce the compliance burden.
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