Strengthening Board Oversight to Tackle Sustainability Washing Across Asian Markets

The report finds that Asian boards are increasingly responsible for ensuring credible sustainability disclosures as regulators adopt stricter reporting, assurance and enforcement frameworks across the region. It warns that inconsistent data, rising legal risks and the spread of “sustainability washing” make strong board oversight and clearer regulatory guidance essential for market integrity.

A report by OECD, prepared by the Capital Markets and Financial Institutions Division and authored by Param Nayankumar Pandya, Eliot Evain-Wilkes, Hitesh Tank, and Yunus Emre Yildirim, signals a turning point for how boards across Asia are expected to govern sustainability matters. As disclosure regimes expand and investors demand credible, comparable sustainability data, boards are now central to safeguarding market integrity and long-term enterprise value. The research underscores that sustainability reporting has rapidly transitioned from a voluntary narrative to a core element of corporate accountability, one that regulators, investors, and institutions are scrutinising more closely than ever before.

A Rapidly Expanding Disclosure Ecosystem

Across Asia, governments and exchanges are building increasingly comprehensive sustainability disclosure frameworks. China, India, Japan, Korea, Singapore, Hong Kong (China), and Vietnam all now require or are phasing in mandatory disclosures covering climate metrics, transition plans, supply-chain information, and broader ESG issues. Several jurisdictions are aligning with international benchmarks such as IFRS S1 and S2 or the TCFD, while retaining local adaptations. Assurance, critical for trust, is gaining prominence too: France and India already mandate limited assurance, and Singapore, Hong Kong (China), Japan, and Korea are preparing to introduce assurance standards aligned with ISSA 5000. Yet the region faces challenges: companies often struggle with access to reliable data, shortages of qualified sustainability professionals, and inconsistent regulatory guidance. These gaps leave room for misleading practices, something the OECD warns is becoming a significant risk.

Redefining Greenwashing for a New Era

A key conceptual advancement in the report is the shift from “greenwashing” to the broader term “sustainability washing,” encompassing both environmental and social misrepresentation. It distinguishes disinformation, meaning intentional deception such as ambitious but baseless net-zero pledges, from misinformation, which involves vague, selective, or poorly substantiated claims. A company labelling a product “carbon-neutral” using questionable offsets, or understating Scope 3 emissions, may fall into the latter category even without malicious intent. The difference matters for enforcement: disinformation may trigger heavy penalties or even criminal liability, while misinformation reflects negligence or weak governance. Both erode investor confidence, distort market allocation, and highlight the necessity of rigorous board oversight.

Directors’ Duties Under Growing Scrutiny

The report finds that directors’ legal obligations increasingly overlap with sustainability governance. China and India adopt a pluralist approach, requiring boards to consider stakeholder interests alongside shareholder priorities. Singapore, Japan, Indonesia, and Hong Kong (China) follow the enlightened shareholder value model, which emphasises long-term shareholder success while accounting for stakeholder impacts. Korea leans toward shareholder primacy but still expects boards to assess the financial implications of sustainability risks. Courts traditionally apply subjective, deferential standards to board decisions, but mixed or objective approaches, visible in Singapore, Hong Kong (China), Japan, and the UK, signal tighter judicial scrutiny where sustainability risks are ignored. Failure to implement adequate systems for gathering and assessing sustainability information, the OECD argues, could be interpreted as a breach of the duty of diligence or loyalty.

Enforcement Momentum and the Road Ahead

Private enforcement across Asia remains limited. Shareholders have avenues to engage, resolutions, voting, dialogue, or derivative suits, but litigation alleging failures in sustainability governance rarely succeeds due to business judgment protections and procedural hurdles. Cases abroad highlight these barriers: ClientEarth’s unsuccessful action against Shell, and the complexity of climate-risk class actions in the United States, show how difficult proving causation and intent can be. Public enforcement, however, is gaining traction. Regulators in India, Singapore, Hong Kong (China), Indonesia, Vietnam, and China are using advisory letters, warning notices, disclosure reviews, and training programmes to shape corporate behaviour. While major sanctions remain rare, global precedents, such as Australia’s multimillion-dollar penalties for misleading ESG claims and Europe’s consumer-law rulings against airlines and energy companies, foreshadow the direction Asian enforcement may take.

The OECD concludes that Asia now sits at a critical juncture. To reduce sustainability washing and strengthen market integrity, regulators must provide legislative clarity, maintain proactive engagement with companies, develop multi-layered enforcement tools, leverage AI-enabled supervision, and build capacity among both boards and regulators. As sustainability reporting becomes inseparable from financial performance and strategic risk oversight, Asian boards will need to demonstrate that their governance practices are as robust and credible as the disclosures they approve.