Green Finance Advisor of Friends of the Earth (HK)

Cambridge Dictionary says greenwashing is designed “to make people believe that your company is doing more to protect the environment than it really is.”

There is a growing concerns on Fund Managers, or Corporations (listed companies or corporate bond issuers, or loan lenders) who did less than what they claimed on addressing environmental (or sustainability) issues as a marketing strategy.

In Hong Kong, regulators see the needs to meet investors’ growing demands for climate risk information and combat greenwashing. SFC has just launched a consultation on proposed requirements on 29 Oct 2020 for fund managers to take climate-related risks into consideration in their investment and risk management processes and make appropriate disclosures. Under the proposals, the Fund Manager Code of Conduct (FMCC) would be amended and the SFC will set out expected baseline requirements and standards to facilitate fund managers’ compliance.

Key Points that you should know:

  • It applies to fund managers which manage collective investment schemes (CISs) but at the initial stage they would not be mandatory for fund managers which manage discretionary accounts (in the form of an investment mandate or a pre-defined model portfolio)
  • It covers four key elements: A) governance, B) investment management, C) risk management and D) disclosure.
  • A, B, and C apply to fund managers which have discretion over investment management and risk management processes irrespective of whether they are overall responsible or manage only part of a fund; D applies to fund managers which are responsible for the overall operation of funds
  • Different disclosure levels (Baseline vs Enhanced) – Fund Managers with AUM HKD 4 Billion (USD 516M) or above are “Large Fund Managers”
  • Large Fund Managers are expected to adopt a more robust approach and make more detailed disclosures e.g. Large Fund Managers would be required to make additional quantitative disclosures of weighted average carbon intensity (WACI) of Scope 1 & Scope 2 GHG emissions at a fund level. Small Fund Managers would still be expected to disclose on Entity levels if climate risk is deemed to be relevant
  • Other example requirements: applies to ETF, following TCFD framework, Scenario Analysis
  • Consultation close on 15 Jan 2021, proposed transition periods: 9-12 months

FoE (HK) encourage market participants to respond to SFC to voice out your opinion!

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