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HKIFA slams Hong Kong’s ‘boilerplate’ ESG reporting

Investors need clearer understanding about how ESG principles are deployed in listed companies, and the board of directors should take responsibility, argues the Hong Kong Investment Funds Association (HKIFA).

Companies tend to simply list all their ESG-related risks and fail to highlight what are the key risks and material factors, according to Sally Wong, chief executive officer of HKIFA.

“This does not help readers of their ESG reports make informed investment decisions,” she said at a recent media briefing.

Hua Shen, chief executive officer of BOCHK Asset Management, added: “Although the industry has established some funds that invest on ESG principles, it is still in the pilot stage and there is not yet a clear standard about how and when [to collect data] in a practical way from [listed] companies.”

Wong said the HKIFA supports elements of a recent Hong Kong Stock Exchange consultation on ESG compliance, which proposes a requirement for a listed company’s board of directors to disclose ESG oversight, process and review.

Additionally, the association supports the requirement “to make it clear that materiality of ESG issues is to be determined by the [listed company’s] board”, she said.

“The board and management should not just list out all the risks, which would not be meaningful.  They should go through a thoughtful deliberation process to analyse the risks, to identify the key ones, and to come up with measures to manage and address them.

Currently, ESG data “is not based on thorough deliberation by the management or the [listed company’s] board.  They tend to come out as boilerplate statements.

“Investors would like to see  how data relates to a company’s operations. For instance, how do they identify the factors, the process involved, the stakeholder groups that they have engaged before they have come up with the data, what are the key risks they have identified, and how do they plan to address them,”she said.

Additionally, the HKIFA has issued a roadmap for long-term sustainable finance in Hong Kong, which includes a call for listed companies to move into the digital world in ESG reporting and record-keeping.

Mainland China and Hong Kong ESG

More optimistically, Shen, from BOCHK, noted that ESG in mainland China is developing faster than many commentators had expected.

However, ESG investing in mainland China is largely driven by international investors, as domestic fund managers and institutions are still trying to understand the concept. The lack of historical and quality data is a barrier to integrating ESG factors into the investment process in mainland China, FSA previously reported.

In 2017, the China Securities and Regulatory Commission (CSRC) and the country’s Ministry of Environmental Protection introduced new regulations that will require all listed companies and bond issuers to disclose ESG risks associated with their operations by 2020.

“Hong Kong and mainland China should communicate more about ESG as mainland China has its own timetable,” Wong said.

 

Part of Mark Allen.