Hong Kong companies still lag in ESG integration
Lack of expertise of ESG issues remains a key challenge, according to joint report by KPMG, CLP and HKICS
A majority of Hong Kong-listed companies have yet to integrate environmental, social and governance (ESG) into their business models and many of them lack the expertise to address the issue, according to a joint publication by KPMG, CLP Holdings Limited (CLP) and The Hong Kong Institute of Chartered Secretaries (HKICS). This is despite increased expectations on ESG issues from regulators and the investment community.
The joint report “Integrating ESG into your business: A step-by-step ESG guide for Hong Kong-listed issuers” points out that the recent amendments to the existing ESG Reporting Guide published by The Stock Exchange of Hong Kong Limited (HKEX) represents a critical step to bringing this matter to “management” routinely, with an emphasis on the board’s role in the governance structure for ESG matters.
There is consensus that ESG is a part of good corporate governance and ESG integration principles must be supported from the top down. ESG frameworks can be useful perspectives for companies to manage risks and tackle challenges.
Investors and asset owners alike are increasingly demanding more ESG-focused investing, and ESG reporting plays an important role in how investors make their decisions.
Patrick Chu, partner, head of business reporting and sustainability, KPMG China, says, “Climate change is no longer something in the distant future. Related risk disclosures will be essential for companies to deal with increasing expectations from stakeholders. Report issuers are expected to provide more consistent information within their sectors and reference international guidance.”
To move ESG from a peripheral issue and truly integrate it into business practices, in addition to top management buy-in, the report highlights the importance of developing a vision-led and goal-driven sustainability strategy and a robust data management system for progress tracking and target setting.
Pat Woo, partner, head of sustainable finance, Hong Kong, KPMG China, adds, “Besides regulators and investors, pressure for ESG integration is also coming from those who provide capital – the banks, insurance companies and finance companies. Hong Kong companies cannot remain at the box-ticking phase on ESG issues, as cost of capital will increase for laggards in sustainability.”
David Simmonds FCIS FCS, group general counsel, chief administrative officer and company secretary, CLP, says, “Sustainability has moved from the fringe to be a mainstream investor concern. This context demands greater board involvement and attention to the issue.”
The report points out that it is crucial to communicate the efforts with stakeholders regularly, including the publication of an annual sustainability report in line with local and international reporting standards. There are established standards, such as those developed by the Sustainability Accounting Standards Board (SASB) or the Task Force on Climate-related Financial Disclosures (TCFD), that businesses could follow to communicate sustainability information to their investors.
Gillian Meller FCIS FCS, president, HKICS, says, “There is an increasing interest in ESG primarily from European and American investors, who are demanding detailed information on ESG issues. This increasing demand for ESG is now noticeable on all fronts. In addition, employees, particularly the younger generation, seek to know what is being done by their employer in areas such as corporate responsibility, community investment, and diversity and inclusion.”
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