The new rules, which follow a seven-month industry consultation, cover four key elements: governance, investment management, risk management and disclosure, according to a circular issued by the Securities and Futures Commission (SFC) late last week.
The SFC will amend its Fund Manager Code of Conduct to require managers of collective investment schemes (CIS) to take climate-related risks into consideration in their investment and risk management processes and make appropriate disclosures.
“Asset managers play a key role in providing investors with quality and comparable information about climate-related risks,” said Julia Leung, the SFC’s deputy chief executive and executive director of Intermediaries.
“The requirements will help channel investment capital to companies with sustainable goals and facilitate the transition to a low carbon economy,” she added.
Specifically, managers of a CIS must define the role and oversight responsibilities of the fund’s board in encouraging and monitoring climate-risk considerations in the risk management process.
Funds should also describe the management’s roles and responsibilities, including how it will monitor the status and progress of efforts to manage climate-related risks.
Sufficient human and technical resources must be assigned to the task, such as providing staff training, engaging subject experts, and acquiring climate-related data from external sources.
For investment and risk management, funds must reveal the steps taken to incorporate relevant and material climate-related risks into the investment process, and describe the processes for identifying, assessing, managing and monitoring climate related risks, including the key tools and metrics used.
Disclosure rules
The SFC is especially concerned about “appropriate disclosure”, which it believes is essential for investors to make informed decisions.
Funds should let investors know about climate-related risks in writing or electronically, and should review disclosures at least annually and inform fund investors of any material changes as soon as practicable.
If climate-related risks have been assessed to be irrelevant to certain types of investment strategies or funds under its management, then the manager must disclose such exceptions at the entity or fund level.
Funds must also adopt a “proportionate” approach. For example, the information disclosed should be proportionate to the degree climate-related risks are considered in the investment and risk management processes.
Managers of “large” funds — HK$8bn ($1.03bn) or bigger – have “enhanced” responsibilities.
They must describe the engagement policy with investee-companies and provide examples to illustrate how material climate-related risks are managed in practice, including how the engagement policy is implemented
The transition period for incorporating the SFC’s new rules is 12 months for large funds and 15 months for smaller funds.
