In July 2023, the Securities and Futures Commissions ("SFC") and the Accounting and Financial Reporting Council ("AFRC") issued the first joint statement highlighting common regulatory concerns regarding loans, advances and prepayments arrangements for listed issuers.
 
Listed companies are advised to consider the Statement as an official guideline and evaluate their internal controls and implement necessary enhancements to align with the recommended practices.  
 
<a href="../../../../../uploads/AVISTA_Insights_20230731_83e33f2d49.pdf" target="_blank" rel="noopener">Read the summary of the Statement now</a>
 
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Summary of SFC and AFRC Joint Statement on Loans, Advances and Prepayments Arrangements

In recent years, HKEx has increasingly prioritized Environmental, Social, and Governance (ESG) factors. The consultation paper released in April showcases HKEx's commitment to enhancing the quality of ESG disclosures made by listed companies.
 
What strategies should companies adopt to establish a robust ESG governance framework and effectively adapt to future regulatory requirements concerning ESG compliance?
 
Find the answer now
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Pathway for Establishing an Effective ESG Governance System

Original article (only available in Chinese) : <a href="https://finance.mingpao.com/fin/daily/20230404/1680511326790/%E5%85%A8%E7%90%83%E7%B6%A0%E8%89%B2%E7%B6%93%E6%BF%9F%E7%9A%84%E9%87%8D%E8%A6%81%E6%8E%A8%E6%89%8B-%E7%A2%B3%E4%BF%A1%E7%94%A8%E4%BA%A4%E6%98%93">全球綠色經濟的重要推手：碳信用交易 | 明報</a>
 
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 Climate change is a major challenge that the world is facing today. The Emissions Trading System (ETS) provides a market mechanism for reducing greenhouse gas emissions by enabling companies to offset their carbon emissions generated from operations by purchasing carbon credits while offering economic incentives. Carbon markets can be divided into mandatory and voluntary markets. Mandatory markets achieve emission reduction targets through government-imposed caps, with regulated companies participating in carbon quota trading. Banks and other institutions can provide liquidity and hedge against the risk of rising carbon prices. The voluntary market consists of carbon offset project developers, carbon credit buyers, exchanges, brokers, and investors. Regulatory trends such as the European Union's Carbon Border Adjustment Mechanism (CBAM) and the rise of corporate social responsibility have driven the soaring demand for carbon credits. For example, Tesla generated a profit of USD 1.78 billion in 2022 by selling carbon credits in California's mandatory market. Market interest in voluntary carbon trading is also growing, with the London Stock Exchange launching a voluntary carbon market to help projects raise funds, enabling investors to obtain carbon credits or cash dividends from sales.
<h2 style="text-align: justify;"> The Current State of Carbon Markets</h2>
 Driven by strong efforts from countries worldwide, the total carbon emissions covered by the global mandatory carbon market have grown from 2.1 billion to 8.9 billion tonnes of CO2 equivalent (tCO2e) in the past 17 years, with the voluntary carbon market reaching a transaction value of USD 2 billion in 2021. China's goal of achieving carbon neutrality by 2060 has greatly accelerated its carbon market development. In 2021, China launched a national carbon market covering over 4 billion tonnes of carbon emissions, making it the world's largest ETS in terms of emissions coverage. Additionally, the People's Bank of China recently announced its support for the China Beijing Green Exchange to develop China Certified Emissions Reduction (CCER) trading, promote the creation of more carbon financial products, reduce green premiums, and drive the green transition. The Hong Kong Stock Exchange's one-stop international voluntary carbon market, Core Climate, launched in 2022, has also made a strong start, providing significant momentum to voluntary carbon trading in the Asia-Pacific region. Leveraging its strategic gateway advantage, Hong Kong can formulate policies, cultivate carbon credit ecosystems, promote climate investment growth, and seize green finance development opportunities in China, such as cooperating with the Guangzhou Futures Exchange to develop green financial products and enhance its competitiveness in the international carbon market.
 
<h6 style="text-align: justify;"><a href="https://www.hkex.com.hk/Join-Our-Market/Sustainable-Finance/Core-Climate?sc_lang=en" target="_blank" rel="noopener"><img src="../../../../../uploads/core_climate_991dea5aae.jpg" alt="" width="1100" height="807" /></a></h6>
<h6 style="text-align: justify;">HKEx luanched a one-stop international voluntary carbon market, Core Climate in 2022</h6>
<h2 style="text-align: justify;"> The Investment Appeal of Carbon Credits</h2>
 As an emerging asset, carbon credits have already demonstrated their investment potential. In addition to optimistic expected returns, carbon allowances generally have lower correlations with traditional assets, making them an effective tool for diversifying investment portfolios and hedging against climate transition-related investment losses. Among these, Carbon futures exchange-traded funds (ETF) offer investors with carbon credit-related investment opportunities, such as Hong Kong’s CICC Carbon Futures ETF (03060). This fund tracks the ICE EUA Carbon Futures Index of the Eurex Exchange and has achieved an annualized return of 41.5% over the past 8 years. In the bond market, the Hong Kong government recently announced the successful issuance of HKD 800 million in tokenized green bonds, the world's first tokenized green bonds issued by a government, providing diversified financing solutions for decarbonization projects. Policy support and market demand have also given rise to innovative companies based on carbon credits, such as Carbon Streaming Corporation, which plans to be listed on the Nasdaq Stock Exchange in the United States, using an innovative business model to provide project financing for carbon offset developers and profit from carbon credits. The emergence of these companies and schemes provides more investment and financing opportunities, contributing to the development of climate finance and building a more comprehensive carbon credit ecosystem.
 
Carbon credits play a vital role in the development of the green economy. As the ETS and carbon markets mature, carbon credits will be able to offer investors with more efficient financing and monetization channels. In the future, with the increasing collaboration among carbon market participants and the growth of financing solutions, the supply and demand of carbon credits will further converge, promoting their development and application, ultimately advancing the global market economy towards a sustainable "carbon-centric" era.
 
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AVISTA [Ming Pao Column] Series: Carbon Credit Trading - A Key Driver for the Global Green Economy

<h4 style="text-align: justify;">Original article (only available in Chinses):  <a href="https://finance.mingpao.com/fin/specialpage1675936435843/20230314/1678703213637/%e5%a6%82%e4%bd%95%e5%88%a9%e7%94%a8%e5%a4%a7%e6%95%b8%e6%93%9a%e5%8f%8a%e4%ba%ba%e5%b7%a5%e6%99%ba%e8%83%bd%e7%ad%89%e5%b7%a5%e5%85%b7%e5%8d%94%e5%8a%a9%e8%a9%95%e4%bc%b0%e4%bc%81%e6%a5%adesg%e8%a1%a8%e7%8f%be" target="_blank" rel="noopener">如何利用大數據及人工智能等工具協助評估企業ESG表現 | 明報</a></h4>
 
In light of the heightened focus on environmental, social, and governance (ESG) performance in the corporate landscape, poor performance and negative news will have a significant impact on corporate development. Therefore, assessing the development potential of a company should not rely solely on financial metrics but should also consider ESG performance. Over the past ten years, factors such as climate change and sustainability risks have increasingly emerged as key factors for investors in their asset allocation decisions. The market believes that strong ESG performance can facilitate consistent profit growth, sustain competitive advantage, and enable long-term sustainable development. Moreover, it allows organizations to proactively identify and manage risks through forward-looking strategies, mitigating investment losses attributable to inadequate ESG performance or negative news. As a practical tool for investors, ESG ratings offer a convenient and accessible means to gauge a target company's ESG performance. By referring to these ratings, investors can rapidly and directly comprehend a firm's ESG maturity and discern its significant risk exposures.
 
ESG ratings are crucial in evaluating a company's sustainability performance, but their effectiveness is compromised by several data quality and methodology issues. The effectiveness of ESG ratings is hampered by limitations in data sources and the lack of standardized evaluation methods, leading to varying institutional judgments and interpretations that can cause fundamental problems. Firstly, current ESG ratings suffer from a lack of unified standards, with different rating agencies like MSCI ESG, DJSI, Hang Seng Sustainable Development Enterprise Index, and Sustainalytics establishing their research and analysis frameworks. This results in inconsistencies in rating indicators and increases sustainable investment risks. Additionally, most ratings consider the performance of the three ESG pillars and use their average value or predetermined weight to aggregate them into an overall score. This approach may offset positive and negative impacts, dilute rating information, and failing to analyze a company's performance in different aspects. In some cases, strong social and governance performance may overshadow severe environmental risks, providing little assistance to investors seeking to mitigate potential ESG risks. Furthermore, The effectiveness of ESG ratings hinges on the reliability of external information collected. Nevertheless, internal corporate information such as ESG reports and company documents may contain misleading claims, resulting in biased rating results.
 
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<h3 style="text-align: justify;"> </h3>
<h2 style="text-align: justify;">Potential and Practical Applications of Artificial Intelligence (AI) and Big Data</h2>
Big data and AI technology can effectively address the challenges posed by ESG ratings. Investors can use AI to mine and filter ESG information from multiple data sources (such as news, social media, government reports, NGO analysis reports, etc.) and previous records according to their investment strategies and areas of interest. Natural language processing technology can be used to analyze unstructured data and comprehensively evaluate a company's ESG performance while filtering out greenwashing noise. Massive data collection significantly improves benchmark analysis credibility, allowing investors to gain insight into the target company's ESG performance relative to industry peers, especially during major ESG events. This enables timely and accurate assessments through quick data collection and analysis.
 
ESG data provider Arabesque AI uses AI engines and ESG data analysis methods to help asset managers automate the integration of multiple financial and non-financial dimensions and preferences, generating highly customized active investment strategies and thematic investment portfolios, including mitigating ESG risks, seizing transition opportunities, and aligning with the United Nations Sustainable Development Goals. On the other hand, the screening process for the first "Top 100 Carbon Neutral Hong Kong Listed Companies" by the Greater Bay Area Carbon Neutrality Symposium (“大灣區碳中和論壇”) leveraged the AI ESG report analysis engine technology developed by the Hong Kong Applied Science and Technology Research Institute(“香港應用科技研究院”). With this technology, data from over 2,000 listed companies' ESG reports was processed in under two hours, during which the engine automatically extracted and analyzed key information, enhancing efficiency while also reducing manual costs. In the future, the application of big data and AI technology will bring infinite opportunities for sustainable investment, helping investors comprehensively understand the target company's performance in ESG aspects, reducing investment and greenwashing risks.
 
<a href="../../../../../uploads/20230314_AI_ESG_01fbb02f87.pdf" target="_blank" rel="noopener"><img src="../../../../../uploads/20230314_AI_ESG_copy_e1e6730c5b.jpg" alt="" width="1100" height="435" /></a>

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AVISTA [Ming Pao Column] Series: Leveraging Big Data & Artificial Intelligence in ESG Performance Evaluation

ESG has gradually risen to the top of the agenda for the Chinese cross-border e-commerce industry in recent years, with the sustainability concerns of overseas consumers intensifying. Coupled with a booming e-commerce market for apparel and accessories, home and garden accessories, as well as healthcare and beauty, cross-border e-commerce merchants must now face the challenge of building more sustainable brands to meet ever-evolving customer expectations.
 
<h3 style="text-align: justify;">How can brands seize the ESG opportunity to drive long-term value, while differentiating themselves from industry competitors?</h3>
 
<a style="color: #2142ff;" href="../../../../../uploads/Meta_ESG_EN_20230303_c801c96680.pdf" target="_blank" rel="noopener">Click here to learn more about AVISTA’s ESG integration strategy for e-commerce brands </a>
 
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Shaping a Sustainable Brand: ESG Integration and Value Creation for Cross-border E-commerce Business

The initial public offering (“IPO”) journey has never been straightforward. In addition to business-related financial metrics, evolving stakeholder expectations and heightening regulatory demands for resilient growth supported by well-articulated Environmental, Social and Governance (“ESG”) strategy and performance have indicated that ESG and climate-related corporate mandates growingly tip the scales when it comes to a company’s successful IPO and overall performance.
 
Against the backdrop that regulatory authorities and capital markets around the world are demanding transparent ESG disclosures from companies looking to go public, while IPO-ready companies align themselves with enhanced regulatory frameworks, some of them even make ESG practices front and center in their IPO roadshow phase to gain access to the pool of capital from international ESG-focused investors.
 
Click <a href="../../../../../uploads/EN_IPO_Journey_the_Importance_of_ESG_in_IPO_Process_20221107_VP_ET_SL_ET_SL_SJC_b180b1b534.pdf" target="_blank" rel="noopener">here</a> to learn more about the latest ESG disclosure requirements and ESG essential for IPO applicants.
 
<a href="../../../../../uploads/EN_IPO_Journey_the_Importance_of_ESG_in_IPO_Process_20221107_VP_ET_SL_ET_SL_SJC_b180b1b534.pdf" target="_blank" rel="noopener"><img src="../../../../../uploads/Cover_EN_5f415ec3d4.png" alt="" width="500" height="707" /></a>

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IPO Journey:  The Importance of ESG in IPO Process

The Stock Exchange of Hong Kong Ltd. (“HKEx” or the “Exchange”) published a consultation paper on 19 October 2022, seeking public feedback on proposals to expand Hong Kong’s existing listing regime to permit listings of Specialist Technology Companies. The consultation period will end on 18 December 2022.
 
The consultation paper proposes that Specialist Technology Companies listing applicants are required to have substantial investment from Sophisticated Independent Investors, and to disclose the pre-IPO financing details in their listing applications.
 
Click <a href="../../../../../uploads/article_EN_compressed_bf4f93c5c0.pdf" target="_blank" rel="noopener">here</a> to learn more about HKEx published Consultation Paper for Specialist Technology Companies Listing.
 
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