Ashley Alder, Securities and Futures Commission
The Securities and Futures Commission (SFC) on Tuesday issued a circular to provide guidance to management companies of SFC-authorised unit trusts and mutual funds on enhanced disclosures for funds which incorporate ESG factors as a key investment focus.
It includes a new requirement for ESG funds to conduct and disclose periodic assessments of how they incorporate ESG factors, and also provides specific guidance for ESG funds with a climate-related focus.
“Making sustainability-related disclosures more transparent, comparable and consistent will help investors identify suitable ESG funds and reduce opportunities for greenwashing,” said Ashley Alder, the SFC’s chief executive officer, in a statement.
In addition to mandatory disclosures in a fund’s offering documents — already required in a previous circular issued in April 2019, which the new version supersedes — the ESG fund now has to conduct at least annual assessments to show how it has achieved its claimed ESG focus.
New disclosure rules
The fund should disclose to investors (for example through its annual report) a description of how the fund has attained its ESG focus during the assessment period, and where appropriate the following:
- the proportion of underlying investments that are commensurate with the fund’s ESG focus.
- the proportion of the investment universe that was eliminated or selected as a result of the fund’s ESG-related screening.
- a comparison of the performance of the fund’s ESG factors against the designated reference benchmark (if any).
- actions taken by the fund in attaining the fund’s ESG focus (for instance, shareholder engagement activities, proxy voting records of the ESG fund with respect to its investee companies).
It must also give a description of the basis of the assessment performed, including any estimations and limitations; and where the fund has provided previous periodic assessment, a comparison between the current and at least the previous assessment period.
Climate funds have an additional requirement, namely, that it can demonstrate the attainment of its climate-related focus by comparing the fund’s climate indicators against those of the previous assessment period or the reference benchmark or the investment universe.
In view of the rapid development of a diverse range of ESG investment strategies, the SFC “is mindful of the need for asset managers to clearly disclose how funds attain their ESG focus in order to help investors understand these products and assess whether they meet their investment needs,” according to a statement by the regulator.
Green funds
A database of SFC-authorised ESG funds, including Ucits, is available on the SFC website. Ucits funds will designated ESG funds in Hong Kong if they incorporate ESG factors as their key investment focus and reflect that in their investment strategy or objective, according to the SFC.
Key features of all ESG funds will also be listed in the SFC database after the new circular takes effect on 1 January 2022.
ESG funds in Hong Kong now total 56, up from 43 in March.
Mangers include: Alliance Bernstein (two funds), Axa (1), ASI (1), Allianz Global Investors (9), Amundi (1), BNP Paribas (4), BOCHK (1), Blackrock (5), Fidelity (5), Franklin Templeton (1), HSBC (3), Hang Seng (1), Invesco (5), JP Morgan (1), Janus Henderson (1), Manulife (1), Ninety One (1), Pictet (6), Ping An (1), Schroders (2), Sun Life (1), Jupiter (1) and UBS (2).
