Key points:

• • • Varied AI adoption across courts in APAC 鈥� Courts across the Asia Pacific region are at different stages of AI exploration and implementation.

    • Priority on cautious, responsible implementation 鈥� Leading jurisdictions, such as South Korea, have developed comprehensive guidance that emphasizes human responsibility and accountability.

    • Key governance recommendations for courts around the world 鈥� Successful AI integration in courts requires critical elements around transparency, training, and assessment.

As with courts in the United States, court systems across the Asia Pacific region (APAC) are facing mounting caseloads as more individuals seek self-representation without professional legal advisers, leading to increased attention on access to justice.

Not surprisingly, AI has emerged as a tool with the potential to increase the efficiency and effectiveness of the region鈥檚 judicial processes. A recent webinar hosted by the and the 成人VR视频 Institute, as part of their joint , featured the varied approaches on the use of AI in courts across APAC.

, a director in the Asia & Emerging Markets group of 成人VR视频, has an expertise on the current state of AI use in courts across the region, and he describes a spectrum of stages in adoption that included jurisdictions like Singapore, on one end, that are proactively piloting AI tools, such as generative AI (GenAI) assistants to help self-represented litigants and to summarize case materials for judges.

China鈥檚 courts, on the other hand, use a nationwide smart court system with extensive AI and big data integration, Heaphy says, adding that judges use AI tools for legal research, drafting, and error checking, but humans remain responsible for decisions. And other Asia Pacific jurisdictions like Hong Kong, Japan, and India are also actively exploring AI with a focus on governance frameworks and pilot projects that could extend to their court systems.

Different stages of court systems鈥� journeys

Many countries in the APAC region are at different stages of their AI journey, and South Korea and Australia, for example, have taken a cautious approach to AI adoption by issuing guidance to ensure responsible use and the mitigation of risks.

In South Korea, the Judicial Policy Advisory Committee, an advisory body that deliberates on judicial reform measures proposed by the Chief Justice, issued recommendations in August 2024 on AI use in judicial proceedings with a priority on underscoring principles of protecting fundamental rights and ensuring accountability and transparency, according to the , a judge on the Intellectual Property High Court of Korea. In parallel, the Association of Korean Judges for AI Studies, a research group of judges founded in 2023, published its Guidelines for the Use of AI in the Judiciary in February 2025, which further elaborates the safe use of AI by judges and litigants.

Many countries in the APAC region are at different stages of their AI journey, and South Korea and Australia, for example, have taken a cautious approach to AI adoption by issuing guidance to ensure responsible use and the mitigation of risks.

In Australia, the Supreme Court of New South Wales issued a practice note to the profession restricting the use of GenAI in drafting evidence without rigorous verification, according to , Deputy Chief Magistrate of Victoria, Australia.

While adoption of AI in courts is being driven by the goal of improving access to justice and addressing growing caseloads, each country has its own unique priorities and projects. For example, South Korea’s judiciary currently is focused on advancing AI tools for case management. 鈥淭hese include initial case analysis functions that can automatically extract key information from complaints or indictments, generate procedural checklists, predict timelines, and identify governing law,鈥� said Judge Kwon, adding that there also is an AI tool for law clerks to conduct content analysis. This tool chronologically itemizes events from the arguments of both parties in a structured, tabular or visual format, and highlights repetitive content to help judges focus on what is truly in dispute.

Conversely, Australia鈥檚 guideline-driven approach has been external looking, said Deputy Chief Magistrate Bourke, noting that Australia鈥檚 AI use is geared more 鈥渢owards external parties as compared to internally within the court. There are no current settings, as far as the court鈥檚 use of AI.鈥�

Key recommendations for courts around the globe

As courts around the world explore the integration of AI into their judicial processes, several critical initiatives that have emerged to shape responsible and effective adoption, including:

Prioritizing transparency and accountability 鈥� Comprehensive frameworks must be established that prioritize transparency and accountability. Policymakers should develop detailed guidelines that address data privacy, bias mitigation, and clear boundaries for AI applications.

Promoting continuous learning 鈥斕鼵ontinuous training programs should be established to help judicial officers and court staff understand AI capabilities and limitations while maintaining their critical oversight role in all AI-assisted workflows.

Conducting ongoing impact assessment 鈥� Focused investigation into AI’s judicial impact remains crucial, and special attention should be paid to significant challenges around accuracy, bias, and access to justice that require continued study and analysis.

Users of AI in courts need clear AI governance, opportunities for ongoing education, and an continuous evaluation of the use and performance of AI tools in order to ensure that AI best serves courts and the public.

You can find out more about the use of AI in courts here

Key highlights:

• • • Stricter foreign entity requirements and sourcing rules 鈥� The OBBBA imposes stricter requirements for foreign entity and sourcing, especially targeting Chinese involvement, which significantly impacts clean energy project eligibility for tax credits.

    • New compliance requirements for buyers 鈥� Developers and tax credit buyers must carefully comply with new documentation, supply chain, and ownership requirements to avoid disqualification or recapture of credits.

    • Early planning is essential 鈥� Accelerated deadlines for wind and solar projects, along with ongoing uncertainty about compliance standards, make early and thorough planning essential for success.

The (OBBBA), which passed in early July, represents a major shift from the industrial and energy policies set out in 2022鈥檚 Inflation Reduction Act (IRA). For example, the OBBBA makes significant changes to the tax credits available for eligible clean energy components and facilities, while increasing support for fossil fuels.

The legislation also introduced tougher foreign entities of concern (FEOC) requirements that, while also applicable to Russia, North Korea, and Iran, will primarily restrict the participation in the US clean energy sector (whether as owner, investor, lender, or supplier) by companies owned or controlled by the Chinese government or its citizens and residents. These restrictions present significant challenges for developers given China’s dominance in the clean energy supply chain.

OBBBA鈥檚 changes to clean energy credits

The OBBBA introduces several important revisions to federal clean energy tax credits, which, as part of the IRA, had been reshaping the landscape for developers and investors in the clean energy sector. The OBBBA鈥檚 revisions include:

Stricter FEOC requirements 鈥� Clean energy tax credits are not available to any project owned by a specified foreign entity (SFE) or a foreign-influenced entity (FIE), over which an SFE has effective control, or, in some cases, that receives material assistance from an SFE or FIE. The material assistance requirement is intended to limit sourcing of equipment, components, and critical minerals from China and applies to credits under Sections 45X, 45Y, and 48E of the IRA.

Accelerated deadlines for project credit qualification 鈥� The OBBBA shortened the deadlines for several types of clean energy projects, but especially for wind and solar projects, which must begin construction by July 4, 2026, or failing that, be placed in service by December 31, 2027. These tight deadlines 鈥� coupled with potential changes to the requirements for beginning construction that are expected after an issued on July 7, 2025 鈥� raised significant planning issues for project developers and investors in the US clean energy sector.

No changes in other areas of clean energy 鈥� The tax credits for other clean energy technologies 鈥� such as battery storage, geothermal, and nuclear 鈥� were largely left unchanged. But these projects are also subject to the more stringent FEOC regulations.

You can find from 成人VR视频 Practical Law here

Continuation of key IRA innovations

The IRA introduced two new provisions that have had a material impact on clean energy project development. Bonus credits increased the amount of tax credit available to qualifying projects by 10% or 20%. This includes an energy community bonus for locating a project in communities affected by coal mine or coal plant closures.

The other was the ability to sell tax credits to unrelated parties for cash (known as transferability), which gave project owners a new and less expensive method to monetize their clean energy tax credits than traditional tax equity.

The OBBBA didn’t alter the bonus credits and producers of clean energy projects can still qualify for bonus credits if they fulfill certain conditions. It did, however, extend the energy community bonus to advanced nuclear energy facilities located in certain communities.

Transferability remains, but with FEOC restrictions. Projects subject to the new FEOC restrictions are disqualified from receiving tax credits, potentially limiting the supply of tax credits in the market. The new material assistance requirements also add a layer of complexity that buyers of tax credits subject to these requirements must consider.

You can read from 成人VR视频 Practical Law here

Guidance for project developers

Going forward, project developers will need to navigate complex new laws and regulations regarding FEOCs and what it means to begin construction for wind and solar projects. To avoid credit disqualification and manage compliance risk, project developers should keep detailed records to demonstrate compliance with the FEOC ownership and establish effective control requirements.

Project developers also should audit their supply contracts and carefully track the source and costs of their equipment and other inputs to ensure compliance with applicable material-assistance caps. Similarly, they need to insert robust FEOC provisions in their supply, operation & maintenance, and construction agreements to ensure continued compliance with these requirements.

Regarding their wind and solar projects, project developers need to check their project development pipelines to determine whether they can meet the new deadlines. Unfortunately, developers are in a tough spot at the moment because they are not able to determine with any certainty the activities that may be sufficient to meet this requirement until the new guidance around beginning construction is issued. In the interim, developers should make sure that any actions they take toward construction are meaningful and not intended to manipulate this requirement, although there is no guarantee that action will prove sufficient.

Guidance for tax credit buyers

Buyers of tax credits must take action 鈥� such as conducting more extensive due diligence 鈥� to ensure the purchased credits are not disqualified or, in certain cases, recaptured, and that the credits deliver on the intended financial benefit. Buyers also should obtain detailed documentation from tax credit sellers to verify there is no direct or indirect ownership or effective control by FEOCs and to confirm that the project or component underlying the credit has not received material assistance from FEOCs in excess of the permitted caps.

Tax credit buyers should also consider inserting FEOC-specific provisions in their tax credit transfer agreements, including:

• • • adding specific representations around FEOC compliance, sourcing of materials, and eligibility under the OBBBA;
    • expanding the seller’s indemnification provisions to include losses incurred if the purchased credits are later disallowed due to FEOC or sourcing violations; and
    • requiring sellers to promptly notify them of any changes in the sellers’ FEOC status or supply chain arrangements that could affect credit eligibility. More expansive tax credit insurance policies may also be obtained to mitigate the additional risks the FEOC restrictions present.

Clearly, the OBBBA brings new challenges and opportunities for clean energy developers and investors; and careful planning and strict compliance will be essential for success in this changing landscape.

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Key Insights:

• • • Creating a global trade network 鈥� China鈥檚 Belt and Road Initiative (BRI) aims to create a global trade network by developing and owning trade routes, which introduces significant geopolitical, operational, and technological risks.

    • Rising geopolitical tension 鈥� The initiative has led to geopolitical tensions, with countries like Panama withdrawing from the BRI due to pressure from the United States.

    • Seeking AI-driven advantages 鈥� Advancements in technology, such as AI and autonomous systems, could enhance control over supply chains, but also pose risks like surveillance and trade restrictions

The Belt and Road Initiative (BRI), China鈥檚 infrastructure and trade strategy, was launched in 2013, and is that nation鈥檚 attempt to create a global trade network by developing and owning trade routes, including both overland and maritime assets. China compares it to the ancient Silk Road, but it is more than that.

To secure and control a trade and transportation network for predominantly Chinese supply chains, the BRI spans over 70 countries, in which massive investments in ports, railways, highways, and energy infrastructure have taken place. These assets are predominantly owned by Chinese companies; for example, Chinese state-owned enterprises (SOEs), particularly COSCO Shipping and China Merchants Port, have ownership stakes in numerous Western ports like Piraeus (Greece) and Valencia (Spain) that enhances China鈥檚 control over container shipment flows in Southern Europe.

While the initiative promises economic development and connectivity, it also introduces geopolitical and operational risks. As a result, the United States and other Western countries oppose participation in the initiative. Panama, the first Latin American country to join the BRI in 2018, announced in February 2025 that it would leave the initiative . Indeed, with advancements in chip technology, goods tracking, autonomous systems, and the infusion of AI into supply chain operations, one can imagine the extent of control infrastructure owners could exert 鈥� from surveillance to trade restrictions.

The BRI thus represents a vertical supply chain strategy, allowing China to control not only the sourcing of critical materials but also their transportation and the infrastructure that enables it. Participation in the BRI can therefore pose significant geopolitical risks 鈥� not only for member countries but also for those that are relying on BRI infrastructure and may face tariffs or blockades. The initiative has the potential to further divide global trade into supporters and opponents.

China’s Belt and Road Initiative represents a vertical supply chain strategy, allowing China to control not only the sourcing of critical materials but also their transportation and the infrastructure that enables it.

The rise of geopolitical or country risk has become a dominant trend since the global pandemic five years ago, when companies began reassessing their supply chains. National regulations have since incentivized on-shoring or near-shoring activities. And this trend has only accelerated, as illustrated by declining foreign investment in China and .

Further, several government regulations support this shift. For example, in 2023, the US expanded export control measures on advanced technologies to prevent China鈥檚 (and other countries鈥�) access to critical tech. In response, China restricted the export of rare earth minerals, disrupting US industries such as electronics, renewable energy, defense, and metallurgy.

Given this atmosphere, it鈥檚 not surprising that almost three-quarters (74%) of respondents identified geopolitical complexity as a top challenge, according to .

Expanding the risk lens

Organizations that engage in global trade must now evaluate all the risk factors within their supply chains through a geopolitical lens, including the sourcing of raw materials and the final delivery to internal or external customers. Diversifying supply chains will often require near-shoring or on-shoring; and while these strategies may increase production costs, they can be offset by reduced organizations鈥� exposure to tariffs, logistics disruptions, and the cost of geopolitical instability, which can be manifold

From an operational risk perspective, production bottlenecks, logistics disruptions, and inventory management are easier to manage when operations are closer to home. However, financial risks 鈥� such as currency fluctuations, credit risk, inflation, or tariff changes 鈥� may still persist even in more politically aligned sourcing regions.

In addition to geopolitical and operational risks, several other challenges are becoming increasingly relevant:

Cybersecurity risk 鈥� As infrastructure becomes more digitized, the risk of cyberattacks increases. Smart ports, AI-driven logistics, and autonomous systems are all vulnerable to sabotage or espionage. Cybersecurity is now a core supply chain concern.

Environmental and climate risk 鈥� BRI projects have been criticized for environmental degradation and the lack of human rights standards. Climate-related disruptions 鈥� such as floods or extreme weather 鈥� can . As a result, resilience around Environment, Social & Governance (ESG) issues is becoming a strategic necessity and should favor supply chains outside of the BRI.

Debt diplomacy and political instability 鈥� Several BRI countries have experienced debt distress. This could mean that infrastructure assets may be nationalized or seized, introducing more long-term uncertainty. For example, Sri Lanka borrowed heavily from China to finance the Hambantota Port. When the port failed to generate expected revenue, Sri Lanka was unable to repay its debt and ultimately , resulting in a the Sri Lankan government giving up a sizable stake in the port to the SEO.

To counter the BRI, Western nations have launched the G7鈥檚 Partnership for Global Infrastructure and Investment, offering alternative infrastructure development aligned with democratic values and transparency.

Navigating the new environment

The evolving geopolitical landscape requires careful monitoring of two key factors: i) dynamic geopolitical regulations (such as tariffs, sanctions, investment incentives, and taxes); and ii) third-party relationships.

When countries or sectors fall under sanctions or tariffs, how can producers and distributors adapt? The rise in transshipment activities 鈥� such as goods from China being rerouted through Vietnam, or shipments to Central Asia ending up in Russia 鈥� makes third-party monitoring essential. This applies not only to new suppliers but also to existing ones that may be acquired by sanctioned entities or used to bypass restrictions.

Companies are investing in tools to increase visibility and transparency across their supply chains. While ESG initiatives have improved visibility, this data is now also used to understand where counterparties operate.

Companies are investing in tools to increase visibility and transparency across their supply chains… and technological innovations in AI enable real-time data collection and analysis to monitor third-party activity.

Further, technological innovations in AI enable real-time data collection and analysis to monitor third-party activity. For example, one third-party beneficial ownership database includes more than 3 billion records from more than 190 jurisdictions. This allows supply chain executives to uncover ownership structures with up to 10 degrees of separation 鈥� a critical capability when dealing with complex corporate webs that may conceal illicit activity.

Risk monitoring is further enhanced by access to open-source intelligence and adverse media. With automation and AI, companies can build and update risk profiles in real time, and by adding geolocation data for entities, assets, and executives, firms can detect trans-shipments or recent changes in beneficial ownership.

Looking forward

In today鈥檚 fractured geopolitical landscape, supply chain resilience is no longer a matter of operational efficiency but a matter of strategic necessity. China鈥檚 Belt and Road Initiative exemplifies how infrastructure, trade, and technology can be used to increase a country鈥檚 global influence. For companies operating in this environment, the ability to anticipate, adapt, and act on geopolitical shifts is becoming a core competency.

To do this, however, organizations much expand risk lens beyond traditional metrics. It鈥檚 not just about cost and lead time anymore but about who owns the infrastructure, who controls the data, and who sets the rules. The convergence of AI, surveillance, and trade policy means that supply chains are now deeply entangled with national security and global power dynamics.

And for organizations in the West to succeed, they need to treat geopolitical risk as a strategic variable that needs to be integrated into every sourcing, investment, and partnership decision. The future of global trade will be shaped not just by markets, but by global alliances 鈥� and the time to prepare is now.

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However, as sanctions are applied more often and extended over longer periods of time, it is unclear if the sanctions actually have the desired impact on the behavior in question or if the harms ultimately outweigh the good.

The term sanction is often used in a way that would lead one to believe it is just a single action, like stopping trade between businesses. On the contrary, sanctions are generally issued as programs based on the nature of the offending action and the current diplomatic status of the targeted country.

There are seven basic types of sanctions: economic, diplomatic, military, sports, individual, environmental, and United Nation Security Council (UNSC) sanctions. Any of these sanctions can be used to deter or reprimand countries for anything from human rights violations to smuggling drugs or human trafficking. The more egregious the action (or inaction) by the offending country, the more countries and organizations that will utilize their own sanctions program. The idea is that when a country or its economy is isolated by sanctions, it cannot afford to continue the behavior that led other countries to enacting these measures.

Narges Bajoghli, anthropologist and assistant professor of Middle East Studies at Johns Hopkins University鈥檚 School of Advanced International Studies, expounds on the two major ways sanctions affect change. 鈥淓ither they鈥檙e supposed to put enough pressure on the regime and targeted state to change its behavior, or they鈥檙e supposed to put enough pressure on society to rise up against the state to then topple the state,鈥� Bajoghli explains, adding that in either example, sanctions serve as a passive, but coercive tactic.

鈥淓ither [sanctions are] supposed to put enough pressure on the regime and targeted state to change its behavior, or they鈥檙e supposed to put enough pressure on society to rise up against the state to then topple the state.鈥�

鈥� Narges Bajoghli

Agathe Demarais, in her book听 stated: “The reality is that sanctions are sometimes effective, but most often not, and it is hard to accurately predict when they will work鈥� on one end of the response spectrum, it could make a strongly worded statement, which might feel like too little, and on the other end of the diplomatic spectrum, you have military interventions, deadly, costly, and unpopular. Sanctions fill the void in between these two extreme options.”

Choosing the type of sanction

The U.S. Treasury Departments鈥� administers and enforces sanctions programs against target groups. The two main types of sanctions lists maintained by OFAC are the Specially Designated Nationals (SDN) list, a list of individuals and companies in countries targeted by US sanctions; and the Consolidated Sanction Lists, which contain details about restricted parties not covered by the SDN list. In the US, these list help to track the sanctions programs and prevent people from unwittingly doing business with sanctioned actors. They also hold financial institutions accountable and remove financial advantages from doing business with these entities and individuals.

Two of the most recent examples of sanctions are the ones levied against Iran and Russia. These sanctions programs impact the countries and some individuals or entities doing business with or profiting from these countries, whether directly or indirectly. However, these are far from the only active sanctions enacted by the US at this time. The US currently has 32 active programs that sanction organizations or countries (and the individuals associated with them) for infractions like their support of terrorism, narcotics trafficking, weapons proliferation, or human rights abuses, according to the .

To illustrate, the program levying sanctions against Cuba is one of the oldest used by the US, with some iteration of the sanctions being active since 1962. The longevity of Cuban sanctions program suggests it is not achieving its intended goals; moreover, there are concerns that the sanctions actually limit humanitarian aid into the country. By almost any measure, the US sanctions program directed at Cuba has questionable effectiveness, and the longer the program continues, the more it requires review and consideration.

While the sanctions program against Russia was initiated more recently after that country鈥檚 invasion of Ukraine in February 2022, the sanctions have not fully curtailed the current military action it sought to cease. The impact of these sanctions has not been as immediate as originally hoped, even though cutting certain aid and restricting trade creates some of the intended immediate reactions. However, this is an example in which the sanctions program appears to be becoming more effective as other nations and multinational companies join in to enact their own sanctions.

It is important to note that the more countries that join in on a sanctions package, the more effective it will be. If countries or humanitarian organizations decline to joins a sanctions program, their continued contribution to the target country鈥檚 economy softens the blow to the population and the government, making it more difficult to create a situation that forces change.

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The new year ushers in a more refined version of the Association of Southeast Asian Nations鈥� (ASEAN)听, which is comparable in ambition to similar initiatives by Western peers. The latest taxonomy, which takes effect in the first quarter of 2024, will showcase the region’s growing emphasis on interoperability by advancing the taxonomy’s Plus Standard feature after gaining broad approval from stakeholders. The tiered feature aligns with the European Union鈥檚 Taxonomy and captures the coal phase-out criteria. As such, it aims to encourage decarbonization and raise ASEAN’s position in global sustainability efforts.

At the national level, the Monetary Authority of Singapore (MAS) has launched the Singapore-Asia Taxonomy for Sustainable Finance, which establishes detailed thresholds and criteria for defining green and transition activities that mitigate climate change across eight focus sectors.

To enhance interoperability with global taxonomies, MAS has commenced an exercise to map the Singapore-Asia Taxonomy to the International Platform for Sustainable Finance’s Common Ground Taxonomy, which currently covers the EU Taxonomy and People’s Bank of China’s Green Bond Endorsed Project Catalogue.

Formal blended finance is a major development

A major theme at COP28 in December 2023 was the need for increased public-private partnerships and innovative solutions to provide financing to poorer countries in the southern hemisphere. Against this backdrop, Allied Climate Partners (ACP), International Finance Corporation (IFC), MAS, and Temasek announced the intent to establish a green investments partnership to address climate finance gaps and increase the bankability of green and sustainable projects in Asia, with an initial focus on Southeast Asia.

Developing Asia requires $1.7 trillion annually in infrastructure investments until 2030 to maintain growth momentum while meeting climate goals. Many green infrastructure projects are only marginally bankable and often are unable to attract commercial financing on their own merits. These gaps are most acute in the project development and construction phases.

As such, ACP, IFC, MAS and Temasek signed a memorandum of understanding to bridge gaps in the region’s sustainable infrastructure financing needs through the deployment of blended finance, bringing in both concessional capital from the philanthropic and public sectors, as well as private capital towards such projects. MAS will convene its networks across Singapore’s international financial center, as well as Singapore’s strong infrastructure and sustainable finance and professional services ecosystem. Temasek will leverage its network of portfolio companies and partners, including Pentagreen Capital, a joint venture with HSBC, for origination and investment opportunities.

In addition, more small- and medium-sized firms (SMEs) are expected to adopt better ESG disclosures in 2024, as听听for enhanced awareness and green certification of SMEs within ASEAN and beyond. For example, Malaysia’s听, launched by Capital Markets Malaysia (CMM), seeks to align the sector to global standards and address SMEs’ disclosure challenges. The guide offers clear, straightforward, and structured guidance on the ESG disclosures required of SMEs within their supply chains. CMM also intends to launch specialized sectoral disclosure guidance in early 2024.

Sustainability disclosures take shape in Hong Kong

The Green and Sustainable Finance Cross-Agency Steering Group, established by Hong Kong鈥檚 Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority in May 2020, welcomed the International Sustainability Standards Board’s (ISSB) publication of the International Financial Reporting Standards Sustainability Disclosure Standards. 鈥淭hese standards aim at becoming the global baseline for corporate disclosure of climate and sustainability-related information,” the SFC stated.

The Steering Group also welcomed the options built into the ISSB standards that allow jurisdictions to scale and phase-in the requirements. Authorities in Hong Kong will consider alignment of the local requirements with this global baseline in a proportionate approach, the SFC explained. “The ISSB standards aim to serve as a global framework for investor-focused corporate sustainability disclosures,” the SFC noted. “IOSCO’s [International Organization of Securities Commissions鈥橾 endorsement signals to its 130-member securities regulators to adopt, apply, or make reference to the standards in addressing sustainability-related risks and opportunities.”

The SFC plans to work with relevant government bureaus, other financial regulators, and the Stock Exchange of Hong Kong听(SEHK) to develop a comprehensive roadmap for the adoption of the ISSB standards in Hong Kong, the SFC stated.

As an initial move in this direction, the SEHK’s proposed disclosure requirements for listed companies referenced the ISSB’s exposure draft for climate-related disclosures and its further deliberations. The final SEHK requirements will take account of the consultation responses and the final ISSB standards.

Looking ahead to Q2 2024 and beyond, the recent advancements in ESG policies across Asia, particularly through the implementation of green taxonomies, blended finance, and enhanced disclosure rules, lay a strong foundation for the continued progress and escalation of sustainability-focused finance activities at both national and regional levels in 2024.

成人VR视频 Regulatory Intelligence鈥檚 Nathan Lynch in Perth and Rowena Valeria Carpio in Manila contributed to this article.

Challenge 5: Economic slowdown in China

For the first time in decades, it looks like China’s economic sprint is seriously slowing down, a worrying sign for a global economy that has been reliant on China鈥檚 nearly 1.5 billion people to propel its broader development. It is also a situation with wide ranging implications across the political and security sphere, meaning the possible ramifications of a Chinese slowdown is a necessity to understanding how 2024 may develop.

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One of the most pressing issues China is facing is the rise of youth unemployment. The of youth unemployment data showed a jobless rate at a high of 21.3%, with a corresponding increase in the rate at which students returned to rural homes within six months of graduation, . A high youth jobless rate not only slows down potential future growth and allows expensively earned skills to atrophy but could generate social pushback against a government which has a deep and troubled history around student movements.

From a more sectoral perspective, real estate, which accounts for about , is also facing a severe crisis. The debt-laden property giants and have highlighted a sector that had defaulted on $124.5 billion (US) worth of bonds as of October, generating fears of a domino effect on the financial system and the broader economy. But unlike many other nations鈥� real estate markets, China鈥檚 is also a key part of how local governments and state firms raise capital. The result is that, if the real estate sector goes bust, China could be facing a combined crisis in a large part of its economy 鈥� the decimation of its people鈥檚 savings 鈥� while at the same time seeing one of its core local fundraising elements go bust. Economic slowdowns after long periods of growth are already difficult enough as is, but this could be disastrous, turning a case of economic sniffles into a much more consequential collapse.

The risk of international contagion, of a failing Chinese economy pulling down the , is extremely high. As of 2023, for almost 19% of global GDP (PPP), compared to the United States鈥� 15% share. And because China and the United States take up an inordinate share of global GDP, a global recession could be brought about by the weakening of either country. China鈥檚 outsized share of global manufacturing puts a situation on the table where a China-centered spiraling cascade through the international supply chain could again spur a global surge of inflation.

For the first time in decades, it looks like China’s economic sprint is seriously slowing down, a worrying sign for a global economy that has been reliant on China鈥檚 nearly 1.5 billion people to propel its broader development.

Of course, the Chinese government is not ignorant of these dangers and have made large efforts trying to contain the and prevent a , but it must play a dangerous game of bailing out some players while preventing others from taking advantage of the safety net and making matters worse. Early signs are听 that China is managing the crisis, but this is a long game in which the laws of economics viciously punish even slight missteps.

This is where the security and international relations spillover beings. It is only the beginning of President Xi Jinping’s third (unprecedented) term as Chinese president, yet he has multiple ongoing and interconnected issues that he will have to balance while also defusing China鈥檚 economic timebomb. A war in Ukraine fought by one of the countries primary allies/proxies is going poorly for Russia. At the same time, China is in the middle of a growing geopolitical rivalry with the United States and other western powers, not to mention the regional powerhouses of India, Japan, and South Korea.

The economic risk for China at home and a potential for costly sparring with geopolitical rivals could go multiple ways in 2024. One possibility is that President Xi becomes less willing to push aggressively on foreign policy while domestic politics are so shaky 鈥� . On the other hand, people tend to double-down when backed into a corner and an economic malaise may make other forms of growth (such as military conquest or simply more aggressive foreign policy) the only way to continue advancing China鈥檚 interests.

When it comes to the potential for an economic slowdown or a more vicious scenario, operational flexibility and situational awareness may not be enough for companies and organizations. The good news is that there is no need to wing it when it comes to dealing with such large-scale challenges. Events like China鈥檚 slowdown have had numerous warning signs over the last few years, allowing those organizations that are informed to prepare now rather than adapt later. For example, preparing a roster of alternate suppliers, identifying key areas of exposure, and having step-by-step instructions ready for when timely responses are required can be the difference between floundering in the moment and executing a vital repositioning.

Challenge 6: Wars and shadow wars

The return of warfare between equal or similar adversaries in 2022 shattered the global community’s assumption that such wars were a relic of the past. In 2023, it now appears that this new dynamic is here to stay, with countries and non-state actors more often using violence as a means of settling conflicts and reaching political goals.

Arguably the initiating dispute to this reawakening 鈥� Russia鈥檚 war in Ukraine 鈥� continues on. While international support for Ukraine was high in the wars鈥� initial year, 2023 has seen . Aid to the country has tapered off, especially in the United States where support has become a political wedge issue that has resulted in and unless support from the US and NATO is vastly increased, the quagmire is likely to continue.

Arguably, the bulk of the ongoing war鈥檚 impact has already been felt, but this is merely the active conflict. However, it is accompanied by another shadowy fight taking place globally. Rather than a direct encounter, Russia often operates using , a type of shadow warfare that overlaps with disinformation campaigns, efforts to subvert elections, and other types of indirect combat that have since spread beyond Ukraine. and are currently seeing their domestic politics strained to the breaking point under similar tactics that could see them pulled more directly into the war, something which increases the likelihood of NATO itself being dragged into the conflict.

In addition, the latter half of 2023 ushered in a Middle Eastern situation that has the potential to not merely impact regional actors but to spiral out of control to the point where global players would inevitably be pulled in. After the October 6 attack on Israeli citizens by Hamas, the Israeli military has been embroiled in an , with fighting in the Gaza Strip, , as well as repelling and , the violence has already spread far beyond Gaza.

In such a dangerous world, businesses and organizations will inevitably be swept up in some kind of geopolitical or economic fallout that will pose an existential threat.

The situation is currently being escalated by the Iran-backed Houthis of Yemen who are , the vital shipping lane connected to the Suez Canal. The use of these proxy forces is how Iran exerts its influence without directly involving itself in the conflict and is another way of waging shadow wars that cause chaos and disruption in other countries. Even more troubling, major players such as the US and China have massive interests in the trade that flows through this area of the world, meaning that they could be pulled into a multi-axis shooting war if the conflict were to spread into areas like the Strait of Hormuz.

Any further discussion of a potential battle between the superpowers needs to include a look at Taiwan, where the question is increasingly becoming armed combat will break out. The good news is that Taiwan is unlikely to become a battlefield in the new year but preparation for an eventual conflict is likely to be a large factor dominating local politics and security concerns. Interestingly, the prelude to a war over Taiwan鈥檚 independence is also playing out in semiconductor manufacturing. Despite Taiwan鈥檚 tense security concerns, it remains the manufacturer of the , vital technology for both electronics and increasingly important for advances in artificial intelligence (AI). With such a vital hub of world production in the crosshairs of a superpower conflict, it may be unsurprising that nations such as the US and China are competing as well as to .

All of these circumstances, from Ukraine to the Middle East to Taiwan, revolve around the new power axis of the 21st century, with a clash between eastern and western powers. So far this is mostly playing out in shadow wars, the efforts of misinformation around democratic elections, the trade wars involving already strained economies, fighting for natural resources and the challenging impact of AI 鈥� all of which are acting as proxies that have powerful nations once more fighting over influence. The post-Soviet era of relative peace and international order seems to have expired in 2023, with a return to the kind of jostling that defined much of the 20^th century.

In such a dangerous world, businesses and organizations will inevitably be swept up in some kind of geopolitical or economic fallout that will pose an existential threat. Drafting, reviewing, and updating contingency plans and crisis-response protocols can give organizations a leg up an increasingly complex world. Going even further as to actually test such plans can teach hard lessons now rather than when organizations cannot afford to pay the cost. This grants the opportunity to focus not simply on the inevitable challenges of 2024, but the equally inevitable opportunities that all years bring.

Our colleagues at Reuters are covering these and other crucial stories every day, and you can keep up with the best international reporting from around the world at .

On one hand, the global stage will confront heightened challenges in securing and managing essential resources, a struggle deeply intertwined with geopolitical rivalries. On the other, there is an equally critical race for dominance in the field of AI, a key driver of future economic and strategic power. Both of these challenges demand effort and investment from companies with little guarantee of long-term payoff, especially as the situations shift on a seemingly weekly basis.

In the second of our three-part blog series, each covering two major challenges that the world will face in 2024, we delve into the ongoing challenges resulting from these competitions as well as some of the ways that businesses and organizations can best adapt.

Challenge #3: The fight for natural resources

It would be na茂ve to say that at any point in recent history nations have stopped competing for natural resources. The annals of the post-World War II era are replete with the strategic jostling for oil, minerals, and water, which has often dictated international relations and economic policies. However, this competition seems to be heating up as it heads into a new phase, especially as the international economy is starting to splinter back into .

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Part of this is simple supply and demand, of course. Countries that were once primarily based on resource extraction 鈥� such as China, India, and Brazil 鈥� have developed their own industries and are now becoming resource consumers, putting additional pressure on global resources. Combine this with a rush into the resources required by new green energy infrastructure, which includes a plethora of rare earth metals, and it becomes clear why the fight for .

Not surprisingly, one of the hotspots for this competition is a region with a scarred history of such conflicts: . The nation of 听in particular, one of the largest producers of precious metals, is facing serious challenges from social unrest, labor disputes, power shortages, and corruption. Meanwhile, the continent’s so-called stretching from West to Central Africa, is home to some of the world’s most sought-after minerals that are essential for electric vehicles, batteries, and electronics. As the name implies, political instability is a hallmark of the region, with within just the last couple years, often involving the intercedence of multiple foreign nations.

As the region鈥檚 former colonial power, France鈥檚 influence in the region has been in as a wave of popular vitrail against the old imperial power has grown. At the same time, Russian influence in the region is also somewhat uncertain. After years of growing prominence in the region as a peacekeeping and economic partner, Russia鈥檚 war in Ukraine may be a major turning point as African operations began competing for equipment and bodies with the Eastern European front.

China may be another story as it is also a major actor in Africa’s natural resource landscape, with a large and diverse presence in trade, investment, aid, and diplomacy. The nation opened its first oversea military base in the African nation of Djibouti in 2017 and has military agreements in . Add in the numerous American and western interests in the region, themselves no , and the potential for conflict to erupt somewhere over Africa鈥檚 resources in 2024 seems more like a certainty.

Indeed, instability will continue to be a constant companion to the opportunity for growth that Africa holds, yet as the world splinters into political and economic blocs, conditions could align where Africa is once again carved into fiefdoms of foreign nations. This kind of separation could pull apart not just geography, but the intertwining economic connections businesses, organizations, and peoples are currently struggling to build.

And Africa is not alone as a source of tension, as South America is currently experiencing an escalating crisis over the territory of Guyana. In December, Venezuela held a which focused on a potential annexation of a large swath of neighboring Guyana. The disputed region is , especially valuable for a struggling Venezuela oil industry. Guyana, in the world, is seen as the territory鈥檚 rightful owner by the and the potential for the crisis to pull in multiple powers exists. The eruption of a war in South America will bring broader levels of instability, especially in the global oil market but could also highlight how a region that has been relatively peaceful in the 21^st century can quickly spiral out of control.

In a very different corner of the world, Indonesia, the world’s fourth most populous country and a major exporter of coal, copper, and rare earth metals, is gearing up for , which could have significant implications for its natural resource sector. The current president has been pursuing a national industrial agenda that aims to 听of the country’s natural resources, especially in those minerals that are vital for green energy production. Such efforts hold the potential to turn the nation from not just a source of valuable natural resources but allow it to inherit the status of a global factory nation, especially as China shifts away from its manufacturing dominance.

All this competition over global natural resources will have significant implications for actors across the spectrum. As the global supply chain becomes more complex and fragmented, the challenges of ensuring its resilience, efficiency, and transparency will also grow, requiring more coordination and cooperation among stakeholders. Acquiring resources will likely only become harder for most industries and require greater attention from leadership as this situation intensifies.

Challenge #4: Artificial Intelligence

AI, as a technology, is unlikely to see such a payoff in 2024 that alone would categorize it as a dominant factor of the year. However, the long-term potential of the technology will force countries and organizations to begin competing for control and access now, because by the time the technology鈥檚 potential is realized these footings may be out of reach.

One of the key battlegrounds will be the production and supply of AI chips, which are specialized semiconductors that enable faster and more efficient processing of large amounts of data, an essential material for AI applications. The global AI chip market is expected to grow rapidly in the coming years; however, the market is also highly concentrated and dependent on a few players, mainly those in the United States and Taiwan that have the advanced technology and manufacturing capabilities to produce these chips. China, despite its massive investment and consumption of AI, still lags behind in this area and especially from the US, which has imposed on some of its AI chip makers, citing national security and human rights concerns. This has prompted China to accelerate its efforts to develop its own AI chip industry, through state support, domestic consolidation, and overseas acquisition.

Great attention will be paid to new developments that will begin to show the full potential of technology. and government intervention across the globe will also continue to be a dynamic force, shifting the courses that and take. For example, the has proposed a comprehensive framework for regulating AI applications, which aims to foster trust and innovation in AI, while addressing the ethical and social challenges posed by the technology. On the other hand, the US has adopted a more hands-off approach, relying on existing laws and to oversee AI. China, meanwhile, , investing heavily in its infrastructure, talent, and innovation ecosystem, as well as applying AI to various domains such as health, education, business, and security. China’s AI ambitions, however, have also raised concerns about its governance model, data practices, and geopolitical influence, especially as it seeks to export its AI solutions and standards to other countries.

Data and expertise are two other critical resources for AI development and deployment, and they will also be subject to fierce competition and contention in 2024. Data is the fuel for AI, and the quality, quantity, and diversity of this fuel are crucial for enabling the latest generation of AI models. The type of good data needed is also a scarce and valuable asset, however, and it is often proprietary, sensitive, fragmented, and subject to different rules and standards across jurisdictions. China has already proposed a for generative AI models with other countries likely to follow. Therefore, data collection and sharing will be a contentious issue in 2024, as stakeholders will have to balance the trade-offs between privacy and innovation, security and openness, and sovereignty and cooperation.

Not surprisingly, the demand for AI experts 鈥� such as researchers, engineers, and practitioners 鈥� will also continue to grow in 2024, as more sectors and domains adopt and integrate AI into their operations and services. However, the supply of AI experts will remain limited and uneven as the sudden rush of utilization outpaces the rate at which new experts can enter the profession.

Generative AI, the white-hot component of the AI tech stack, itself is unlikely to start paying off in 2024 as the world-changer it is said to be. And while the degree of investment into the technology is likely to be a defining feature of the year, Gen AI鈥檚 true potential will also be one of the largest question marks for the remainder of the decade.

For corporate leaders, these two challenges of competition over natural resources and AI, means that information and investing in proper due diligence will be keys to success. Leaders need to better understand their organizations鈥� supply chains, local regulations, and the goals of local and national governments. Without a doubt, getting a full view of the playing field is increasingly important, and those who fail to accurately assess the conditions will be those who fall behind in an increasingly complex world.

Our colleagues at Reuters are covering these and other crucial stories every day, and you can keep up with the best international reporting from around the world at .

To that end, in a new three-part blog series, each covering two of these major challenges, we will offer business professionals and governments the insight to better navigate what 2024 may have in store.

Challenge 1: Democracy under attack

Democracy, the system of government that allows people to choose their leaders and hold them accountable, . While this has been a years-long development, 2024 will be a particularly straining year, as more than 50 countries and regional bodies are experiencing major elections in the upcoming year, with four in particular that could have significant global impacts.

One of the most watched and consequential elections will be the presidential race in the United States, where incumbent Joe Biden will seek a second term against a (highly likely) challenge from former president Donald Trump, who has refused to concede his defeat in 2020. It will be a decisive moment for the future of American democracy, which has been eroded by partisan polarization, misinformation, voter suppression, and attacks on the integrity of the electoral system.

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Another key election will be in India, the world’s largest democracy, where Prime Minister Narendra Modi will seek a third term in office. Modi, who leads the Hindu nationalist Bharatiya Janata Party, has been accused of undermining India’s secular and pluralistic traditions, cracking down on dissent, and enacting controversial laws that discriminate against Muslims and other minorities. An effort by the government to 鈥� in a democracy already struggling with diversity 鈥� has only generated further concerns. Modi’s popularity, however, remains high among his supporters, who credit him with delivering economic growth, fighting corruption, and standing up to China and Pakistan. The 2024 Indian election will determine whether Modi can consolidate his power and agenda, or whether the opposition parties can mount an effective challenge and offer an alternative vision for the country.

The impact of these elections on geopolitics, global business, and society will be enormous, potentially shaping the policies and priorities of some of the world’s largest and most influential economies.

Other elections will also have important ramifications for the region and the world, as they will reflect the state of democracy and governance in their respective countries, as well as their relations with other powers. For instance, Taiwan will continue to be a flashpoint for US-China relations, as the island which China sees as its sovereign territory prepares for a democratic election in mid-January. Outgoing president Tsai Ing-wen鈥檚 Democratic Progressive Party seeks to defend her pro-independence stance and resist pressure from Beijing and the opposition party, the Kuomintang, in an election where is expected.

The election in Indonesia, the world’s largest Muslim-majority country and a rising economic power, will be a test of its democratic resilience and its role in Southeast Asia. The outgoing President Joko Widodo, who has served as the nation鈥檚 president since 2014, will be stepping aside as he reaches his term limit. His legacy of his Defense Minister Prabowo Subianto, whose vice-presidential running mate is Gibran Rakabuming Raka, the eldest son of President Widodo. Indonesia, for all of its growing power is a very young and thus relatively untested democracy, and it will have an important decision to make for Joko Widodo鈥檚 successor in an election already on all sides.

The impact of these elections on geopolitics, global business, and society will be enormous, potentially shaping the policies and priorities of some of the world’s largest and most influential economies. Alliances, trade agreements, and joint ventures are all dependent on the outcomes of these elections and what they say collectively about a prominent style of government.

Given the significance of these elections, it is crucial for business leaders to monitor and understand the political dynamics in these countries, as well as how they will affect the regional and global landscape. A proactive and informed approach to engaging with these democracies will not only help businesses mitigate the risks and uncertainties, but also allow them to seize the opportunities that these events offer.

Challenge 2: A fracturing global economy

Four years after the outbreak of the global pandemic, the international economy remains fragile and uncertain. The pandemic exposed and exacerbated the structural weaknesses and vulnerabilities of an interconnected global economy, one which is beginning to splinter into rival blocs. While potentially in only its early stages, the off shoring, re-shoring, and all-around realignment of global trade between these blocs is going to have a major impact on the world. Supply chains will be reshaped, relationships between companies will have to adapt, and new competitions will undoubtably emerge.

A core challenge facing the global economy going into 2024 continues to be, of course, inflation. In 2024, the inflation rate likely will fluctuate across countries and regions, depending on their economic conditions, policy responses, and external shocks. According to the , the global inflation rate is projected to be 5.8% in 2024, with core inflation not expected to return to target levels of around 2% until 2025. However, this global average masks significant differences among countries and regions. For instance, advanced economies are expected to see inflation of less than 3.0% in 2024, after averaging 4.6% in 2023. (Note: The 2023 figures are IMF projections for the full year given three quarters of data. Final growth figures for 2023 may deviate slightly from these projections.)

In light of this, the United States across the globe, but that is counterbalanced by and an especially sickly .

The inflation dynamic in 2024 will have important implications for the global economy, as it will affect exchange rates, interest rates, asset prices, income distribution, and the debt sustainability of many countries and regions.

Emerging market and developing economies, however, are expected to see 7.8% inflation on-top of the 8.5% inflation they saw in 2023, a significant struggle for nations that were already harder hit by the pandemic. Indeed, some countries such as Argentina, Turkey, and Egypt experiencing inflation at double- and even triple-digit rates.

The inflation dynamic in 2024 will have important implications for the global economy, as it will affect exchange rates, interest rates, asset prices, income distribution, and the debt sustainability of many countries and regions. It will also pose challenges and opportunities for businesses and professionals, which will have to adapt to the changing price levels and expectations while managing the associated risks and uncertainties.

Add to this worrisome economic picture the , the world’s second-largest economy and the largest trading partner of many countries and regions. China has been the main engine of global growth for the past four decades; however, its growth model 鈥� which relies heavily on investment, exports, and debt 鈥� may have reached its limits. Now, the country is facing multiple headwinds, such as an aging population, high unemployment among younger workers, declining productivity, and environmental and real estate crises. China鈥檚 slowdown will have a cascading effecting into foreign policy and other key interest areas, the full extent of which will depend on the responses of its government to the challenge.

Meanwhile, the world鈥檚 largest economy, the United States, seems to be better off, with greater optimism among its business leaders, even if the general public remains somewhat pessimistic. With slowing inflation and a historically strong labor market helping to lift real income, the nation鈥檚 economic fundamentals appear steadier than at any time since before the pandemic. Still, the US must dodge still-latent and crises, or any other major recession trigger. Yet even then the country may still slip into an economic malaise simply because consumers have convinced themselves of its inevitability. If it remains resilient, however, a strong US economy could send positive ripples across the business and political world.

Conclusion

In 2024, democracy will be under stress, as authoritarian leanings will seek to make a mark in upcoming elections and populist movements challenge the established institutions. At the same time, the global economy is likely to face multiple challenges and uncertainties, as well as some opportunities for recovery and resilience.

While these are major challenges 鈥� and only two of the six largest factors we鈥檒l be covering in this series 鈥� we have to acknowledge that unforeseen occurrences can rapidly shift the state of the world, and are in fact, becoming alarmingly common. An assassin鈥檚 bullet, a heart attack, a natural climate disaster, a war, or even another pandemic, can impact the world in ways that cannot be predicted.

As such, organization leaders need to maintain the flexibility they were forced to develop during the pandemic as part of a plan of strategic preparation to face whatever 2024 has in store.

You can read the second part of this series, focusing on the global competition for natural resources and artificial intelligence, here.

Our colleagues at Reuters are covering these and other crucial stories every day, and you can keep up with the best international reporting from around the world at .

Speaking at a recent panel discussion held in Singapore that focused on ESG regulation, Eugenie Shen, managing director and head of asset management at the Asia Securities Industry & Financial Markets Association, said the European Union (E.U.) wants to promote sustainable investment. “The disclosures under the Sustainable Finance Disclosure Regulation (SFDR) [from Europe are] very focused on how managers disclose their investments. What are the principal,听adverse impacts or effects, or the negative impacts of investment decisions?

“In Asia, our observation is that Asian regulators are more concerned with risk management,鈥� Shen explained. 鈥淭hey’re not so much into promoting sustainable investment.听Ultimately, they would like to do that, but their focus is more on risk management.”

The Monetary Authority of Singapore (MAS) has听听for asset managers, as well as for banks and insurers. For asset managers, the guidelines听set out MAS’s expectations on environmental risk management for all fund management companies and real estate investment trust managers. Items covered in the guidelines include governance and strategy, research and portfolio construction, portfolio risk management, stewardship, and disclosure of environmental risk information.

“In Hong Kong,听[regulators] narrowed to just climate-related risks,鈥� said Shen.听鈥淎t some point they’ll probably expand it to environmental issues beyond climate. So, obviously the concern is really how fund managers and asset managers听manage risks听related to climate-related or environmental risk.”

Fund labelling

Two of the major focuses for regulators听in Asia are investor protection and greenwashing, Shen noted. MAS has , which take effect in January 2024, to help reduce greenwashing risks and enable retail investors to better understand the ESG funds in which they invest.

Investment funds under the ESG label will now have to provide relevant information to better substantiate the label.听Some of the information required to be disclosed under the guidelines include details on the ESG fund’s investment strategy; the criteria and metrics used to select investments; and any risks and limitations associated with the fund’s strategy. Such disclosures are required to be made on a continuing basis, and investors will also receive annual updates on how well the fund has achieved its ESG focus.

“You’ll see a whole slew of regulation on what an ESG fund is,” Shen said. “In fact, in that sense Europe is lagging behind. It’s only now that the European Securities & Markets Authority is starting to look at fund labelling. But in Asia, we’ve already gotten both the Securities and Futures Commission听(SFC) and MAS coming out with rules on what an ESG听fund is.”

ESG funds in Europe and Asia

The E.U. sets out mandatory ESG disclosures requirements for asset managers. Under the SFDR, funds that promote environmental or social characteristics (so-called light green funds) are categorized as Article Eight funds, while funds that have sustainable investment as their objective are categorized as Article Nine funds.

“In Asia, we don’t have that distinction. It’s all focused on what is an ESG fund,” Shen said, adding that for example, in Hong Kong, an Article Eight fund can be marketed in the city without changing its name, which might include the words sustainability, sustainable, or green in the name of the fund. The SFC, however, requires a disclaimer to be added following the fund’s name that clarifies that this fund is not an SFC-recognized ESG fund. In Singapore, an Article Eight fund cannot be marketed in the city-state.

To be qualified as an ESG fund in Hong Kong, the fund should invest at least 70% of its net asset value in the companies that satisfy green or sustainable requirements. In Singapore, at least two-thirds of the fund’s net asset value should be invested in green or sustainable companies.

The European perspective is all about promoting sustainable investments while the Asian perspective is more focused on risk management, Shen stated. “The European regulations tend to be much broader, [and] it has a much bigger impact,鈥� she added. 鈥淔or example, their proposed Corporate Sustainability Due Diligence Directive, which is鈥� not only looks听at their own sustainability situation, but听the whole supply chain.鈥�

China’s concerns

China has committed to having carbon emissions peak by听2030 and achieving听carbon neutrality by听2060. The country’s economic condition, in the meantime, just showed signs of recovery with the first quarter GDP growth rate hitting 4.5%, after the authorities had abruptly ended its draconian zero-Covid policy in late-2022.

Despite the positive reopening and the country’s pledge of net-zero commitment, the Asset Management Association of China, a self-regulatory association, told Shen during her recent trip to mainland China that “they’re worried about their industries,鈥� in particular about cost concerns and how that may impact profitability.

It is of utmost importance for asset managers that operate in multiple jurisdictions to have alignment and harmonization in terms of regulations in their respective operating jurisdiction, Shen explained. “So far, European standards are quite high, but now we’re really seeing Asia deviating [from Europe]听and then coming up with some stricter rules than Europe.鈥�

While a growing body of regulatory guidance for ESG reporting has been emerging in China, developments have been fragmented and some of the guidelines remain voluntary, leading to skepticism over uniform adoption. At the same time, ESG-related enforcement remains a priority for regulators.

Recent developments

Voluntary disclosure guidelines published in June by the China Enterprise Reform and Development Society (CERDS), a think-tank overseen by the state-owned Assets Supervision & Administration Commission, aim to establish uniform disclosure practices that are uniquely tailored to China-focused ESG priorities.

Developed in the context of laws and regulatory interpretation of policies established by the Peoples Republic of China, the guidance for enterprise ESG disclosure is meant to establish disclosure principles with a heavier emphasis on domestic ESG priorities such as the long-term initiative for “common prosperity”.

Chinese regulators have promoted the guidance as a working solution to standardized corporate ESG disclosure reporting in China that is more relevant to investors in the domestic market than standards based off practices in the United States of the European Union. Of note, the guidance considers compliance with Chinese ESG regulations, along with data security and cybersecurity laws, as an integral part of governance-related disclosure. The inclusion of disclosure obligations related to regulatory compliance is a departure from international practice.

The recent guidance is comprised of three tiers of indicators with corresponding metrics to each tier. Most of the indicators align with ESG issues highlighted in international disclosure standards such as climate change and labor rights. Similar to disclosure requirements implemented in other jurisdictions, the guidance sets out standards for the disclosure of quantitative data related to environmental sustainability such as greenhouse gas emissions and wastewater pollutants.

Presently, compliance with the guidance is voluntary and it is uncertain how widely it will be adopted by Chinese businesses; however, the recent guidance adds to growing mandatory ESG requirements that are applicable to organizations operating in China.

Chinese regulators have promoted the guidance as a solution to standardized corporate ESG disclosure reporting that is more relevant to Chinese investors than standards based off practices in the West.

Since 2018, listed companies in China have been encouraged to disclose ESG information under the Listed Company Governance Code. China’s central bank, the People’s Bank of China, issued a pilot guideline to financial institutions in 2020 on environmental information disclosure.

In February, new measures were implemented to impose annual ESG reporting requirements on businesses that were considered to be major emitters of pollutants and publicly traded companies that had been penalized for environmental violations within the past 12 months.

In practice, a growing number of companies are issuing ESG reports, and the trend is expected to continue. A recent report published by the World Economic Forum and PwC China found that as of mid-2020, there were 1,021 companies listed on the Shanghai and Shenzhen stock exchanges that voluntarily had published annual ESG reports, compared with 371 companies in 2009.

Enforcement trends

ESG-related enforcement activity has remained a priority for regulators in China as well, especially in cases in which misconduct could pose a risk to social stability. Central-level authorities, including the Supreme People’s Court and the National Development & Reform Commission, issued mandatory guidance on working conditions and overtime following a spate of investigations and fines against e-commerce and technology companies for labor violations that elicited public outrage on social media.

The national goal to transition to a lower-emissions economy in China has further compelled regulators to step up their enforcement actions against environmental violations. A previous revision of environmental protection laws in 2015 granted authorities more leeway to crackdown on violations, resulting in year-on-year increases in total fines issued.

While there has been some speculation that the Chinese government may ease up on environmental enforcement to facilitate economic recovery, environmental compliance risk remains. Earlier this year, the Ministry of Ecology & Environment issued plans to establish environmental law enforcement teams to strengthen inspection. The formation of the teams is part of a broader five-year plan to improve efficiency of enforcement activities by 2025.

Compliance considerations

ESG reporting by Chinese companies is in its early stages, and regulatory requirements are fragmented across industries and government agencies. Recently issued voluntary guidance on ESG disclosure standards from CERDS could form the basis for a China-focused reporting regime.

And while these disclosure standards share some similarities with ESG reporting regulations in other jurisdictions, the guidance from CERDs places heavy emphasis on compliance with Chinese law, and as such, reporting requirements are likely to vary substantially from US or EU frameworks.