ASX shares drove north today amid a snapback rally that's been in situ since early March.
The benchmark S&P/ASX 200 Index (ASX: XJO) jumped 1.21% today to 7,149.4 points at the close, its highest level in a week.
There's no denying a seismic shift has taken place amongst global equity markets when it comes to the themes of environment, sustainability and governance (ESG).
In fact, there's a whole new investment 'factor' that has arisen as a result of the paradigm shift – similar to the value, momentum and growth factors, for example.
However, there are still a number of hurdles ASX shares must overcome in order to cross over to 'greener' pastures so to speak, and to which investors must still be aware of the risks involved.
What are the roadblocks?
ASX shares have certainly come a long way since the days when 'creating shareholder value' was the primary means and focus of most publicly listed companies.
"However, obstacles that presently prevent some companies and investors from fully utilising sustainable finance remain, which in some cases are impeding further overseas investment into the region", says Anthony Miller, chief executive of Westpac Institutional Bank.
In the release titled "Financing for Sustainability: Asia Pacific's evolving ESG market", the bank manager covers the state of sustainable finance in the region, including the milestones and challenges ahead.
Among these, lack of reliable data is the biggest obstacle for both investors and issuers Miller says, noting that this impedes the ability to measure the impacts of sustainable finance.
"For issuers [of finance], the lack of reliable data to measure the impact of sustainable finance presently ranks as the single biggest obstacle by 25% of respondents", Miller noted.
This is above the remaining 16% of secondary issues related to transaction costs and insufficient green or sustainable assets, he added.
What else?
Reporting requirements are another thorn in the side of investors and companies alike when it comes to ESG, Miller said, particularly since it is such a novel and new domain.
"In their own jurisdictions, most investors (75%) and issuers (74%) agree that the regulatory and reporting requirements for ESG investments or disclosures in their country are clear", Miller said.
"Regionally though, 79% of issuers and investors agree or strongly agree that growth of sustainable finance in Asia Pacific will be impeded without regional agreement on regulatory and reporting requirements for corporate climate risk".
Issues around data aren't an easy fix, the banking manager also said, particularly as it comes down to factors like classification, taxonomy and specific regulations.
Across the Asia Pacific (APAC) region, approaches differ substantially and this is something that is being looked at in focus. For instance, back in November, the International Sustainability Standards Board (ISSB) announced its plans to develop global sustainability reporting standards for the financial market.
Not only that but all APAC exchanges are required to have ESG disclosures, although there doesn't appear to be official arrangements across the board. According to Miller:
But significant progress will be required in the near future for the market to reach its full potential and for investors and issuers to be able to access the reliable, comparable information required to make informed investment decisions.
