Hong Kong markets often draw the eye of global observers, but this time it’s for the wrong reasons. A report says that companies in the territory have yet to integrate environmental, social and governance (ESG) considerations into their policies, while many lack the expertise to do so. The news could form another blow to Hong Kong markets as the jurisdiction attempts to recover from its recent political crisis.
The report says that only 37% of Hong Kong listed companies have integrated ESG issues “into their strategic planning”. It adds that a majority of companies still regard ESG as an “ancillary” subject and did not consider it a “key concern in actual company business”.
Last year the Hong Kong Stock Exchange launched a consultation reviewing its ESG reporting guide. All listed companies are now expected to publish ESG reports for the financial year starting 1 July 2020.
The report, compiled by the Hong Kong Institute of Chartered Secretaries (HKICS), KPMG China and CLP Holdings, one of the region’s biggest power companies, says investor interest in ESG has now reached a tipping point.
Investors are demanding corporate leaders improve sustainability practices that both benefit their firms’ bottom line and create greater impact on the wider community.
‘Increasing demand for ESG’
According to Gillian Meller, president of HKICS, companies should take note because investors and new recruits entering the jobs market expect employers to be acting on ESG.
“This increasing demand for ESG is now noticeable on all fronts. In addition, employees, particularly the younger generation, seek to know what is being done by their employer in areas such as corporate responsibility, community investment, and diversity and inclusion,” Miller said.
Pat Woo, partner at KPMG in Hong Kong, was more emphatic. “Hong Kong companies cannot remain at the box-ticking phase on ESG issues, as cost of capital will increase for laggards in sustainability,” he said.
Hong Kong is all too aware that European investors have been pushing hard on sustainability issues in their homes markets and have found markets elsewhere in the world to be lagging behind in their attempts to adapt to the climate crisis and public pressure for businesses to change their approach to finite resources.
The report calls on Hong Kong businesses to embrace not only local reporting standards but also those endorsed internationally, including those of the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures (TCFD), a body created by the G20 group of countries.
Climate risks and resilience
At a special summit in Tokyo last Mark Carney, then governor of the Bank of England and a member of the G20’s Financial Stability Board that established the TCFD, said there was much work to be done embedding the reporting guidelines in to company disclosures.
Only a quarter of companies using TCFD principles used a “fuller set”—six or more—of the recommended disclosures. Around 75% of financial reporting users said they needed more information on the impact of climate risks and the “strategic resilience of firms”.
“To bring climate risks and resilience into the heart of financial decision-making, climate disclosures must become comprehensive, climate risk management must be transformed,” Carney said.
Hong Kong has of late been preoccupied with a debate over ownership structures and the introduction of dual-class shares to attract the listings of Chinese tech firms. It’s time to move on from that discussion.
Last year there was public debate over corporate resistance to more ESG reporting. The administrative area’s Business Environment Council insisted they were on board. Perhaps now they can demonstrate their support by writing the reports.
