Green Finance Advisor of Friends of the Earth (HK)

Despite the previous discussion over the quality of ESG disclosures of corporate which might have unveiled the inadequacy in monitoring and auditing in Hong Kong, the recent regulatory developments on the regulatory front are expected to propel the overall ESG awareness in the financial markets.

Further to the launch of STAGE by the HKEX mentioned in the previous post, starting from 1 July, the amendments to the Listing Rules and the ESG Guide related to the ESG Disclosure Review proposed by the Stock Exchange of Hong Kong Limited (SEHK) would take effect, and companies are now required to publish their ESG report within five months after the end of the financial years.

Under the new reporting regime, certain ESG disclosures would become compulsory, with other disclosures elevated from “recommended” to being required on a “comply or explain” basis, in particular to the KPI disclosures on the social aspects. It implies that if a company decides not to disclose a KPI on the social aspect as it does not impact business operations, the company has to provide further explanation. This revision reflects that the SEHK expects corporates to develop an outright focus on each of the aspects of ESG, no matter whether it is significant to their operations.

The revamp also comes along with an enhanced focus on the environmental aspect. Companies are now required to report policies related to the identification and mitigation solutions of critical climate issues affecting the business. Meanwhile, as the disclosure of environmental targets, such as water efficiency targets and emissions target, are covered as part of the environmental KPIs, companies also need to report their targets and the plans to achieve them.

Last but not least, the authority advocates the board’s oversight of ESG issues in the amendments. As part of the disclosure, companies need to highlight the board’s oversight of ESG management strategy and approach, including the establishment of a dedicated workgroup looking after ESG issues, its scope of duties and allocation of resources.

Although Hong Kong is generally regarded as a laggard in terms of ESG developments, the authority’s efforts to promote ESG awareness and improve the governance is well-received. We shall wish the efforts will pay off in the near future and the industry can be making headway!