Last month we submitted our response to the HKEX consultation on a review of the existing ESG Reporting Guide and related Listing Rules for Hong Kong listed companies. We applaud the general direction of the review which is to improve quality of ESG reporting through tightening board oversight of ESG integration, elevating all social-related disclosures to “comply or explain”, and requiring disclosures to go beyond policies to cover processes as well.
In our response, we set out our suggestions where we think the regulator could do more, such as to align the ESG Guide with the Corporate Governance Code and the Companies Ordinance on board’s role in overseeing ESG integration, and considering a statement to acknowledge board duties. We also suggested more emphasis on social factors besides environment factors, such as referencing latest international regulatory developments in relation to Modern Slavery and other business and human rights considerations. We proposed that HKEX to also consider providing capacity and sector-building support for the ecosystem to better identify material ESG risks, and to provide a supplement to the ESG Guide of international standards that are updated regularly for companies to reference and to continue strengthening their reporting.
One big dilemma in the field of sustainable investing is that there is no one standard reporting framework. Companies seeking to be leaders in sustainability may spend significant time on their disclosures and navigating different measures, while others may be laggards just “checking the box” – all resulting in inconsistency of information disclosed.
A McKinsey report this month found that “investors say they cannot readily use companies’ sustainability disclosures to inform investment decisions and advice accurately”. Of the respondents surveyed a total of 89% of investors and 86% of corporate executives think there should be fewer sustainability reporting standards. Meanwhile, 82% of investors, and 66% of company executives, think companies should be required by law to issue sustainability reports.
Increased regulation in relation to ESG reporting is a global trend, while the challenge is to establish a common framework to bring as many companies on board, and to provide sufficient guidance for companies to follow higher standards.
Watch this space as the HKEX shares the results of its consultation.
