SFC issues ESG guidance to bring clarity

The guidance issued by the SFC seeks to iron out the lack of clarity swirling around ESG investing, with further guidance highly likely as the market continues to evolve

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The Securities and Futures Commission (SFC) has issued a circular to provide guidance to management companies of SFC-authorized unit trusts and mutual funds on enhanced disclosures for SFC-authorized green or environmental, social and governance (ESG) funds.      

"This guidance drives home the important message to asset managers that they are expected to do more than simply make the claim that they take ESG factors into account, without making clear to investors how they do this.  It also underscores the SFC's commitment to develop Hong Kong as an international green finance centre," says Ashley Alder, the SFC's chief executive officer.

The guidance is one of the regulatory initiatives of the SFC’s Strategic Framework for Green Finance which includes, among others, providing disclosure guidance to facilitate disclosure and reporting of green-related investment products.  

The SFC has evaluated the quality of disclosure of SFC-authorized funds with investment focus on climate, green, environmental or sustainable development and found that a majority of them do not specifically disclose how investment managers integrate ESG factors into the criteria used in their investment selection process.

To enhance disclosure comparability between similar types of SFC-authorized green or ESG funds and their transparency and visibility, the circular sets out the SFC’s expectation on how the existing Code on Unit Trusts and Mutual Funds and disclosure requirements apply for SFC-authorized green or ESG funds and provides guidance to narrow the disclosure gap among these funds.

Given the evolving nature of green or ESG investment landscape, the SFC will keep in view local and international market and regulatory developments and may provide further guidance or impose additional requirements for green or ESG funds, where appropriate.

The SFC will also create a central database of SFC-authorized green or ESG funds on its website to enhance the visibility of these funds.

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Date

12 Apr 2019

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