ESG Introduction ESG Introduction
Environmental, social, and governance (ESG) has now become an integral part of corporate sustainability around the world. It also represents the operational risks, potential opportunities, and transformational capabilities required by companies to achieve sustainable development. Companies may face threats derived from external risks; likewise, companies' business activities can have an impact on the environment and society. The disclosure of company information gives stakeholders the chance to evaluate the companies' performance in sustainable development, which is conducive to the overall capital market and even the country.
An ESG ecosystem in the capital market is established from the following four aspects to increase the companies' awareness of sustainable development and the importance of ESG, identify business-related risks and opportunities, and enhance long-term enterprise value.
Companies continue to strengthen their core values and innovation, shape corporate cultures, and exert influence on suppliers for the purpose of sustainable development; competent authorities keep abreast of international sustainability policies and roll out domestic policies consistent with international standards; the disclosure of ESG information assists in build a sound investment environment where various data is available; institutional investors pay close attention to the business operations of the investee companies and actively engage with them for the long-term interests of both parties.
Company's Awareness and Influence
While companies manage operational risks, it is important for them to strengthen their core values and innovation based on a sufficient understanding of sustainable development. This can help companies stay competitive and shape good corporate cultures. Companies can also leverage their supplier relationships to mutually achieve sustainable success, ensuring that their products and business activities align with international trends.
Implementation of Government Policies
In response to international trends in sustainable development, competent authorities in Taiwan have rolled out sustainability policies, including the "Corporate Governance 3.0-Sustainable Development Roadmap (2020)" and the "Sustainability Development Roadmap (2022)" by the Financial Supervisory Commission (the “FSC”), the "Taiwan's Pathway to Net-Zero Emissions in 2050" published by the National Development Council, and the "Greenhouse Gas Reduction and Management Act (Climate Change Adaptation Act)" by the Environmental Protection Administration, and take enhanced actions to increase the companies' disclosure of business sustainability.
In line with Taiwan's Pathway to Net-Zero Emissions in 2050, the FSC published the "Sustainability Development Roadmap" in March 2022, requiring that TWSE/TPEx listed companies should disclose their GHG data in stages. Companies are expected to comply and are encouraged to set carbon reduction targets on their own initiative. The GHG inventory scope includes Scope 1 GHG emissions (direct emissions) and Scope 2 GHG emissions (indirect emissions).
Establishment of an ESG Disclosure Platform
In 2021, the FSC amended the Annex 2-2-2 to the "Regulations Governing Information to be Published in Annual Reports of Public Companies," adding ESG disclosures, including carbon emission data, goals, and policies, water resources management data and policies, waste management data and policies, labor safety, and workplace diversity and equality, to encourage companies to disclose information on a “comply or explain“ basis. In view of this, the Taiwan Stock Exchange Corporation (the “TWSE”) plans to set up an "ESG Disclosure" section on the Market Post Observation System. Disclosures will be divided into three aspects: environmental, social, and governance, with a total of 29 indicators
Development of Social Responsibility Indexes and Sustainability Indexes
The launch of various indexes not only helps funnel funds in the capital market into companies that value sustainable development, but draws companies' attention to the opportunities and risks facing their ESG practices, thereby striking a balance between economic growth and social well-being. Since 2010, the TWSE has compiled socially responsible investing indexes such as "Taiwan Employment Creation 99 Index," "Taiwan High Compensation 100 Index," and "Corporate Governance 100 Index." With the increasing awareness of ESG among domestic investors, Taiwan Index Plus Corporation cooperated with FTSE Russell to compile "Taiwan ESG Index" using FTSE4Good ESG. Launched in December 2017, "Taiwan ESG Index" is Taiwan's first comprehensive index that evaluates the environmental, social, and governance aspects of companies. In terms of investment, sustainability-linked ETFs and ETNs have also been rolled out successively to direct investors' funds to companies that value sustainable development; in addition, the labor funds and the labor pension fund have gradually taken corporate social responsibility into account when building their investment portfolios. The introduction of indexes and financial products acts as a catalyst for the fulfillment of corporate sustainability.
To help green energy technology companies raise funds and promote environmental sustainability, the Taipei Exchange (the “TPEx”) established a green bond market in April 2017. As the focus of international markets has expanded from environmental protection to social development in recent years, the TPEx has also rolled out social bonds and sustainability bonds in addition to green bonds. Drawing on the international experience in promoting sustainable development bonds and taking into account the issuance and management of green bonds, the TPEx established a sustainability bond market in 2021 to promote the development of green bonds, sustainability bonds, and social bonds. More bonds will be duly developed.
The prosperity of the capital market hinges on the sustainable development of companies; the supervision and regulation of the capital market also have a direct impact on the compliance and performance of corporate governance. Competent authorities in charge of the capital market will continue to promote the faithful and transparent disclosure of information on corporate governance, corporate social responsibility, and ESG, guiding TWSE/TPEx listed companies to comply with related regulations and build a culture of sustainability step by step. For the purpose of consensus building, all stakeholders are also encouraged to pay attention to sustainability issues, so as to keep the domestic capital market viable and competitive.