ESG Reporting

The Stock Exchange of Hong Kong Limited (the “HKEX”) has published the Guide for New Listing Applicants (the “Guide”), effective from 1 January 2024, introducing the new chapter on prospectus disclosure requirements and guidance in relation to Corporate Governance and Environmental, Social and Governance (“ESG”) (Chapter4.3 of the Guide). Listing applicants should pay attention to the impact of the Guide on the contents of the prospectus, in order to timely assess and optimize the proposed listing timetable.
 
<a href="../../../../../uploads/HKEX_s_Latest_Prospectus_Disclosure_Requirements_on_Corporate_Governance_and_Environmental_Social_and_Governance_under_the_Guide_for_New_Listing_Applicants_V6_5de8f68b61.pdf" target="_blank" rel="noopener">Read the report now</a>
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HKEX’s Latest Prospectus Disclosure Requirements on Corporate Governance & Environmental, Social and Governance under the Guide for New Listing Applicants 

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

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

Under the new “Comply or Explain” disclosure requirements of the Hong Kong Stock Exchange (HKEx) Environmental, Social and Governance Reporting Guide, issuers are expected to emphasize the company’s roadmap towards sustainable growth through environmental, social and governance (ESG) target-setting. ESG is also being incorporated into the investment strategies of investors throughout the world, demonstrating its growing importance. Setting meaningful ESG performance targets with clear roadmaps can create value in growth and investment for companies.  Click <a href="../../../../../uploads/Creating_Value_through_ESG_Target_Setting_EN_d8bb5b681b.pdf" target="_blank" rel="noopener">here</a> to learn more. <a href="../../../../../uploads/Creating_Value_through_ESG_Target_Setting_EN_d8bb5b681b.pdf" target="_blank" rel="noopener"><img src="../../../../../uploads/Cover_EN_a5636c8bbf.png" alt="" width="300" height="424" /></a>

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Creating Value through ESG Target Setting

The Securities and Futures Commission (“SFC”) issued a circular providing guidance to management companies of SFC-authorized unit trusts and mutual funds on enhanced disclosures for funds that incorporate environmental, social and governance (“ESG”) factors into their key investment focus (“ESG funds”) on 29 June 2021.
 
As a replacement for the previous version released in 2019, the circular includes an additional requirement that ESG funds should conduct and disclose periodic assessments concerning how ESG factors are integrated and provide guidance for climate-oriented ESG funds.
 
According to SFC, the number of ESG funds offered to the public in Hong Kong has more than doubled since 2019. Increasing awareness regarding ESG investing has led to a need for asset managers to clearly explain their ESG focus, helping investors determine if the products meet their investment goals.
 
The circular outlines the requirements for ESG funds to disclose in their offering documents, including a description of the ESG focus and a list of ESG criteria used to measure the fund’s ESG focus, such as filters, indicators, ratings, third party certificates, etc. ESG funds should also disclose their investment strategies, asset allocations, benchmarks and risks associated with their ESG focus. Furthermore, there are new requirements outlined in the updated circular, requiring ESG funds to make periodic assessments and reports on attaining the ESG focus, and specific guidance for ESG funds that focus on climate change.
 
"Making sustainability-related disclosures more transparent, comparable and consistent will help investors identify suitable ESG funds and reduce opportunities for greenwashing," said Mr Ashley Alder, the SFC's Chief Executive Officer. “Hong Kong’s financial market is where global capital connects with Mainland enterprises, so what we do here can have an outsized influence on global developments in green and sustainable finance.”
 
Currently, there are about 60 SFC-authorised funds with an investment focus on climate change, green, ESG or sustainable development in the SFC database on authorised ESG funds. To enhance transparency for these funds, their key features will also be listed in the database after the new circular takes effect on 1 January 2022.
 
As the ESG landscape is still developing rapidly, the SFC will continue to monitor the market developments and may provide further guidance or impose additional requirements for ESG funds, where appropriate.
 
Click <a href="https://apps.sfc.hk/edistributionWeb/api/circular/openFile?lang=EN&amp;refNo=21EC27" target="_blank" rel="noopener">here</a> to read the full circular.
 
<a href="https://apps.sfc.hk/edistributionWeb/api/circular/openFile?lang=EN&amp;refNo=21EC27" target="_blank" rel="noopener"><img src="../../../../../uploads/cover_en_a007a82352.JPG" width="250" /></a>

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SFC Issues Updated Disclosure Guidance for ESG Funds

The Stock Exchange of Hong Kong Limited (the "HKEX") published a consultation paper outlining proposed enhancements to the Corporate Governance Code and Corporate Governance Report (the "Code"), as well as related amendments to the Listing Rules on 16 April 2021. The proposals include new measures aimed at further enhancing corporate governance standards among listed issuers in Hong Kong, specifically in the areas of corporate culture, director independence, diversity, and in Environmental, Social and Governance (ESG) disclosures and standards. Governance and oversight of ESG matters and management of material ESG risks is an integral part of good corporate governance. Therefore, the HKEX is revising the Code to elaborate the linkage between corporate governance and ESG.
 
Key proposals include:
 
<ol>
<li>Corporate culture 
<ol style="list-style-type: lower-alpha;">
<li>Align company’s culture with its purpose, values and strategy; and </li>
<li>Require issuers to have anti-corruption and whistleblowing policies. + New Code Provisions, subject to a “comply or explain” basis </li>
</ol>
</li>
<li>Board independence, refreshment and succession planning 
<ol style="list-style-type: lower-alpha;">
<li>Require issuers to have a policy to ensure independent views are available to the board, and annual review of its effectiveness; + New Code Provisions </li>
<li>Require independent shareholders’ approval for re-election of an independent non-executive director (INED) serving more than nine years (Long Serving INED) and additional disclosure; o Revised Provisions </li>
<li>If all INEDs on the board are Long Serving INEDs, require appointment of a new INED at the forthcoming AGM, and disclose the length of tenure of the Long Serving INEDs on a named basis; and + New Code Provisions </li>
<li>Mandatory Nomination committee, chaired by an INED and comprising a majority of INEDs. ↑ Upgraded to a Listing Rule </li>
</ol>
</li>
<li>Diversity 
<ol style="list-style-type: lower-alpha;">
<li>Single gender board is not considered to be a diverse board; </li>
<li>Mandatory numerical targets and timelines for achieving gender diversity at both board level and across the workforce; and + New Mandatory Disclosure Requirement under the Code </li>
<li>Requirements for boards to review progress of diversity policy annually. After the revised Rules take effect, existing issuers with single gender boards will be allowed a three-year transition period to appoint at least one director of the absent gender on their boards. IPO applicants are not expected to have single gender boards. + New Code Provisions </li>
</ol>
</li>
<li>Communication with shareholders 
<ol style="list-style-type: lower-alpha;">
<li>Mandatory disclosure on shareholders communication policy, and annual review of its effectiveness. ↑ Upgraded to Mandatory Disclosure Requirement </li>
</ol>
</li>
<li>ESG 
<ol style="list-style-type: lower-alpha;">
<li>Require issuers to elaborate the linkage in the Code by: (i) setting out the relationship between CG and ESG in the introductory section in the Code; and (ii) including ESG risks in the context of risk management under the Code; and </li>
<li>Revise the Rule and the ESG Guide to require publication of ESG reports at the same time as publication of annual reports. If this proposal is adopted, this will be effective for issuers’ financial years commencing on or after 1 January 2022. </li>
</ol>
</li>
</ol>
The HKEX's new ESG reporting requirements (effective from July 2020) have incorporated certain important elements of the Task Force on Climate-related Financial Disclosures (TCFD) Recommendations. In late 2020, the Hong Kong Government announced its aim to achieve carbon neutrality by 2050, and the Green and Sustainable Finance Cross-Agency Steering Group announced the initiative towards mandatory TCFD-aligned climate-related disclosures by 2025.  The HKEX encourages issuers to adopt the TCFD Recommendations when disclosing climate change-related information under the ESG Guide and will provide further guidance in this regard.
 
The deadline for responding to the Consultation Paper is 18 June 2021. Click <a href="https://www.hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/April-2021-Review-of-CG-Code-and-LR/Consultation-Paper/cp202104.pdf?la=en" target="_blank" rel="noopener">here</a> to read the full consultation paper.
 
<a href="https://www.hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/April-2021-Review-of-CG-Code-and-LR/Consultation-Paper/cp202104.pdf?la=en" target="_blank" rel="noopener"><img src="../../../../../uploads/hkex_consultation_paper_cover_11b6811403.jpeg" width="247" height="347" /></a>

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HKEX Consultation Paper on ‘Review of Corporate Governance Code and Related Listing Rules’

A growing concern of sustainability has been emerging in the investment community over the past decade. It was an old thought that considering sustainability for society implied sacrificing financial returns of investment. The development of Environmental, Social, Governance (ESG) investing, however, has demonstrated a different story.
 
This publication introduces the engagement of PRI from investor community, various ESG assessments in capital market such as MSCI ESG Ratings, the shift in focus on ESG issues due to the preferences of younger generation’s investors and COVID-19, and also the prevalence of green investment in the global investment community.
 
Please <a href="../../../../../uploads/The_Emergence_of_Sustainability_Agenda_to_Investment_ESG_Investing_a014243ea9.pdf" target="_blank" rel="noopener">click here</a> to read the full publication.
 
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