Little improvement in HK in ESG disclosure and practices
Overall disclosure and ESG practices in tackling climate-related issues are far from satisfactory, according to BDO survey
The third year of environmental, social and governance (ESG) reporting in Hong Kong has resulted in improvements in certain areas, yet the result is still far from satisfactory in terms of compliance and quality, according to a new study conducted by BDO with the School of Professional Education and Executive Development at The Hong Kong Polytechnic University (PolyU SPEED).
The BDO survey on “The Performance of ESG Reporting of Hong Kong Listed Companies” randomly sampled 500 of the most recent ESG reports published by both Main Board and GEM-listed companies on or before June 30 2019.
Although the overall percentage of companies providing the disclosure of information on ESG governance structure, stakeholder engagement and materiality assessment has increased, the degree of disclosed information remains weak and indistinct.
Leveraging the expertise and experience of BDO and PolyU SPEED respectively in the investment and academic arenas, the survey reveals the common practices on ESG reporting in Hong Kong, reflecting that a number of companies have only partially met the new requirements and practices under the Hong Kong Exchanges and Clearing Limited (HKEx) proposal.
In particular, companies tend to sidestep publicly reporting the less favourable issues and drawbacks to their stakeholders, which undermines the balance of ESG reporting and which requires investors and other stakeholders to exercise their own judgement about actual ESG performance.
The HKEx put out in December its ESG Consultation Conclusions, which list several key changes to the ESG Guide and listing rules to enhance ESG reporting. The conclusions were derived from 153 responses from various respondents. The changes are expected to be effective from or after July 1 this year.
The key changes include introducing mandatory disclosure requirements to include application of reporting principles’ materiality, qualitative and consistency, and explanation of reporting boundaries of ESG reports; and requiring disclosure of significant climate-related issues which have impacted or will impact the issuer. Environmental KPIs will also be amended to require the disclosure of relevant targets as well as the upgrading of the disclosure obligation of all social KPIs to “comply and explain”.
The BDO survey revealed some improvements in 2019 from 2018 in several key fields including ESG governance (top-level management, ESG committee or personnel, ESG risk management), shareholder engagement (72 percent, up from 63 percent), and materiality assessment (66 percent, up from 51 percent). Certain areas like ESG management goals and report assurance by independent third parties barely saw any changes.
Meanwhile, a number of key fields saw declines in 2019 from 2018 such as occupational health and safety training and independent committee for anti-corruption management.
The survey showed that only 12% of surveyed companies disclosed the related policies in identifying the climate-related issues that affected the companies and mitigating the risks of identified issues, and only 18% of these companies disclosed details of information about the actions taken in managing climate-related issues.
There was also a slight overall decline in the percentage of sampled companies who set goals for ESG management compared with 2018, from 17% to 15%. Only 4% of the surveyed companies have aligned their ESG goals with the UN Sustainable Development Goals.
“To seize the opportunities from green financing as well as to uphold Hong Kong’s reputation as an international financial hub, companies should pave the way for better business and investment opportunities by enhancing their ESG reports through following more global reporting practices. Listed companies are recommended to enhance the disclosure of ESG information to meet stakeholders’ information and investment needs,” suggests Clement Chan, managing director of assurance of BDO.
“This can be achieved by providing detailed information on management’s involvement in ESG strategic goals setting, materiality assessment, assessing the impact of climate change on business operations and their associated risks and opportunities, selection of SDGs and their rationale behind, developed measures in combating climate change and related performance, etc,” says Chan.
“Nowadays, green finance is an important topic among the investment community. At the initial stage of developing green finance and climate investment in Hong Kong, companies’ initiative and engagement in these aspects remain low with only 2% of the sampled companies having issued green investment products such as green bonds and green loans. Furthermore, only a limited number of companies have reported climate related issue with restricted information disclosed,” says Johnson Kong, managing director of non assurance of BDO.
“We hope to see higher engagement from companies on ESG reporting and climate investment as they gain increasing awareness of the importance of ESG,” says Kong.
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