Earth Day Special: How ESG Disclosures Help Companies Uncover Hidden Risks
April 22 marks Earth Day—a moment when businesses and society take a step back to reflect on their sustainability efforts. As we’re reminded of the urgency of climate and environmental issues, companies should also ask themselves: Is ESG disclosure merely a compliance checkbox, or a strategic tool to safeguard long-term resilience?
According to Taiwan’s Financial Supervisory Commission’s 2023 “Sustainable Development Roadmap for Listed Companies 2.0” and the IFRS S2 climate-related disclosures standards taking effect in 2024, ESG reporting is no longer just about brand image or regulatory obligations. It is fast becoming a core component of a company’s risk management system.In this article, we’ll explore how ESG disclosures help companies identify emerging risks early on—shifting the mindset from passive compliance to proactive control.
According to Taiwan’s Financial Supervisory Commission’s 2023 “Sustainable Development Roadmap for Listed Companies 2.0” and the IFRS S2 climate-related disclosures standards taking effect in 2024, ESG reporting is no longer just about brand image or regulatory obligations. It is fast becoming a core component of a company’s risk management system.In this article, we’ll explore how ESG disclosures help companies identify emerging risks early on—shifting the mindset from passive compliance to proactive control.
1. The True Value of ESG Disclosure: Beyond Compliance, It's Risk Management
1.1 ESG Disclosure as a “Risk Manual” for Stakeholders
In recent years, Taiwan’s Financial Supervisory Commission (FSC) and the Taiwan Stock Exchange Corporation（TWSE) have introduced a series of sustainability disclosure policies. Starting in 2025, all listed companies in Taiwan will be required to publish ESG reports and submit them by the end of August each year.However, the true value of ESG disclosure goes far beyond regulatory compliance.
Under the IFRS S2 standards, companies are expected to explain how climate-related risks and opportunities may affect their future cash flows, asset values, and business models—not just report on what actions they’ve taken.
In other words, an ESG report serves as a risk manual that helps stakeholders understand how a company is preparing for a changing world.
Under the IFRS S2 standards, companies are expected to explain how climate-related risks and opportunities may affect their future cash flows, asset values, and business models—not just report on what actions they’ve taken.
In other words, an ESG report serves as a risk manual that helps stakeholders understand how a company is preparing for a changing world.
1.2 The Disclosure Process Is Also a Risk Assessment Process
As companies prepare their sustainability disclosures, they must take a comprehensive look at their business models, supply chain structures, social responsibilities, and governance systems. This process itself is a critical part of risk management.
According to the FSC’s 2023 action plan, financial institutions and investors will increasingly focus on the accuracy, transparency, and consistency of ESG disclosures. If companies identify data gaps, governance risks, or social responsibility concerns during the disclosure process, they’ll have the opportunity to address them early—preventing potential issues from escalating into full-blown crises.
According to the FSC’s 2023 action plan, financial institutions and investors will increasingly focus on the accuracy, transparency, and consistency of ESG disclosures. If companies identify data gaps, governance risks, or social responsibility concerns during the disclosure process, they’ll have the opportunity to address them early—preventing potential issues from escalating into full-blown crises.
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2. Three Hidden Risks ESG Disclosure Can Help You Detect Early
2.1 Climate Risk × Financial Statement Impact
Extreme weather and environmental changes are already starting to impact the financial performance of companies worldwide.
Through ESG disclosure, businesses can identify key climate-related risks early on, such as:
Through ESG disclosure, businesses can identify key climate-related risks early on, such as:
- Rising raw material costs due to climate anomalies
- Operational disruptions from natural disasters affecting factories and facilities
- Increasing costs from carbon taxes, emissions fees, and environmental regulations
IFRS S2 specifically requires companies to conduct climate scenario analysis, assessing the financial impact under different global warming pathways, such as 1.5°C or 2°C. This helps companies turn climate risk into measurable data—and integrate it directly into their financial reporting.
2.2 Labor Safety and Social Responsibility Risks
When disclosing ESG information, many companies tend to overlook the potential risks in the “S” (Social) dimension. Common examples include:
- Inadequate labor rights protections and workplace safety measures
- Gaps in human rights due diligence across the supply chain
- Community engagement or CSR efforts that are superficial or purely symbolic
If these social responsibility gaps are not properly disclosed and addressed, companies may face serious consequences—such as a loss of brand trust, labor inspection penalties, or even termination of partnerships.
2.3 Governance Structure and Investment Rating Risks
A lack of transparency in corporate governance is one of the most commonly magnified risks when it comes to ESG disclosure. Key issues include:
- Unclear assignment of ESG responsibilities
- Absence of oversight mechanisms or audit systems
- Discrepancies between sustainability disclosures and financial data
According to the FSC’s latest policy direction, Taiwan’s material information disclosure system will soon be integrated with sustainability information governance. As a result, weak or unclear governance structures will directly affect how investors evaluate a company—and may even influence credit ratings and lending decisions.
Image source: FREEPIK
3. What Should Companies Do? A 3-Step Approach from Disclosure to Risk Management
3.1 Implementing Risk Assessment and Scenario Analysis
Finance teams should work closely with ESG specialists to build the following frameworks:
- Risk Assessment Models: Identify environmental, social, and governance (ESG) risks related to business operations. Tools such as the SASB Materiality Map can help pinpoint sustainability issues most likely to impact a company’s financial health and operational performance.
- Climate Scenario Analysis: Following the IFRS S2 framework, companies should assess the financial impact of different climate change pathways. Tools like the NGFS Scenarios, developed by the Network for Greening the Financial System, allow companies to model future climate-related risks and potential opportunities.
By adopting a systematic analytical process, ESG disclosure becomes more than a reporting exercise—it evolves into a core component of corporate risk management.
3.2 Ensuring Alignment Between ESG Data and Financial Reporting
ESG disclosures should be closely integrated with a company’s financial reporting to avoid data silos and duplicated efforts. To achieve this, companies are encouraged to establish:
- An ESG data inventory to consolidate key metrics
- A synchronized update process between financial and sustainability reports
- Regular data audits and a clear version control system
These practices help eliminate inconsistencies between ESG and financial reporting—improving both transparency and operational efficiency.
3.3 Addressing Disclosure Blind Spots and Avoiding Greenwashing
Many ESG reports suffer from common blind spots, including:
- Unverified data sources and lack of traceability
- Oversimplified reporting on social and governance aspects
- Failure to disclose material risks, or doing so in vague and generic terms
To mitigate the risk of greenwashing, companies should proactively review the content of their ESG reports, implement third-party assurance, and strengthen internal control mechanisms. Ensuring that ESG disclosures are accurate, transparent, and verifiable is key to maintaining stakeholder trust and regulatory credibility.
* Sources:
SASB Materiality Map
NGFS Scenarios
* Sources:
SASB Materiality Map
NGFS Scenarios
Image source: FREEPIK
4. Conclusion
ESG disclosure isn’t just a box-ticking exercise—it’s the starting point of modern risk management.
As global markets place increasing weight on sustainability performance, and regulations begin incorporating ESG data into formal audits, companies must establish reliable internal data systems and control processes to stay competitive in the capital and business landscape.
Rather than waiting to be audited—or questioned—now is the time to build your ESG risk management system.
As global markets place increasing weight on sustainability performance, and regulations begin incorporating ESG data into formal audits, companies must establish reliable internal data systems and control processes to stay competitive in the capital and business landscape.
Rather than waiting to be audited—or questioned—now is the time to build your ESG risk management system.
Is your company ready to meet the new ESG challenges?
Hall Chadwick Taiwan has extensive experience in ESG financial consulting and can assist your company in building a sustainability reporting framework that aligns with the latest regulatory requirements.
If you have any questions regarding the 2025 ESG financial disclosure requirements, feel free to contact us.
If you have any questions regarding the 2025 ESG financial disclosure requirements, feel free to contact us.