Has ESG Investing Been Getting a Lot More Interests in Hong Kong?

Karen Ho, Green Finance Advisor of Friends of the Earth (HK)

Do you know what “environmental, social and governance (“ESG”) funds” means? How do we define them? How do we ensure that when the Fund Managers claimed that they are really “ESG” focused, and it is not just a marketing technique? Are the fund managers holding themselves accountable?

This is a common concern in the rest of the world, we do not want to be “Greenwashed” by others. As ESG related investment products continue to gain traction globally, authorities around the globe have developed initiatives to require enhanced disclosure on the ESG-related features of products to assist investors’ understanding and assessment of whether these products meet their investment needs.

Indeed, we have seen a significant growth of the ESG products in Hong Kong. From January to 20 July 2021, 11 new ESG public funds has been launched in 2021, compared to only 4 in 2020, 5 in 2019, 4 in 2018 and 2 in 2017.

Hong Kong SFC issued a circular on 26 June 2021 to provide guidance to management companies of SFC-authorised unit trusts and mutual funds on enhanced disclosures for funds which incorporate environmental, social and governance (ESG) factors as a key investment focus. The circular adds a new requirement for ESG funds to conduct and disclose periodic assessments of how they incorporate ESG factors and also provides additional guidance for ESG funds with a climate-related focus. This updated circular supersedes a previous version issued in April 2019 and will be effective on 1 Jan 2020.

Although it is obvious that there are increasing appetite of ESG products in Hong Kong, compared to other markets in APAC and the rest of the world, Hong Kong is still behind. According to the Global Sustainable Investment Alliance (GSIA), the global AUM for ESG products in the world has reached USD 35.3 Trillion in the beginning of 2020. The compound annual growth rate from 2014 to 2020 for Japan is 168%, and 36% for Australasia, much higher than Europe, US and Canada. There is no such study for Hong Kong, China, Singapore and other APAC countries, it is understood that the size of the market it is still much smaller than Japan and Australasia.

If Hong Kong is aspired to be the future hub of Sustainable Finance in APAC, we have a long way to catch up with other markets. Good news is that we can learn a lot from them on their journey and put a more concentrated effort to achieve what we want.

1. Source: SFC Circular https://apps.sfc.hk/edistributionWeb/gateway/EN/circular/products/product-authorization/doc?refNo=21EC27

2. Source: List of ESG funds
https://www.sfc.hk/en/Regulatory-functions/Products/List-of-green-and-ESG-funds

3. Source: GSI Alliance
http://www.gsi-alliance.org/wp-content/uploads/2021/07/GSIR-2020.pdf


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