ESG Reporting

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

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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.
 
<a href="../../../../../uploads/The_Emergence_of_Sustainability_Agenda_to_Investment_ESG_Investing_a014243ea9.pdf" target="_blank" rel="noopener"><img src="../../../../../uploads/cover_dea6ff8687.JPG" width="600" /></a>

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The Emergence of Sustainability Agenda to Investment—ESG Investing

The CFA Institute has previously published a consultation paper on its forthcoming "Environmental, Social and Governance (ESG) Disclosure Standards for Investment Products". In response to the growing market concerns with respect to the inconsistency and variation in ESG-related terms and disclosures between investors and asset managers, the CFA Institute has developed proposals for a voluntary, global and disclosure-based standard that would allow investors to understand the features offered by a particular investment product and to make comparisons among products across markets.
 
AVISTA has summarized the certain key aspects of the consultation paper. Click <a href="../../../../../uploads/CFA_Institute_Launches_Consultation_-__ESG_Disclosure_Standards_for_Investment_Products_744947c4b2.pdf" target="_blank" rel="noopener">here</a> to learn more now.
 
<a href="../../../../../uploads/CFA_Institute_Launches_Consultation_-__ESG_Disclosure_Standards_for_Investment_Products_744947c4b2.pdf" target="_blank" rel="noopener"><img src="../../../../../uploads/CFA_b78da6e231.jpeg" width="600" /></a>

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CFA Institute Launches Consultation: ESG Disclosure Standards for Investment Products

The Stock Exchange of Hong Kong Limited (“HKEX”) has recently published an updated Guidance Letter HKEX-GL86-16 for IPO applicants (“Guidance Letter”) which emphasizes the board of directors of an IPO applicant should ensure necessary corporate governance (CG) and environmental, social and governance (ESG) mechanisms are built into the listing processes in order to promote sustainability, good corporate governance, and diversity. According to the 3.7(a) &amp; (b) under E. “Business” section of updated IPO Guidance, IPO applicants are required to :
 
<ol style="list-style-type: lower-roman;">
<li>put in place relevant mechanisms that enable them to meet the Exchange’s requirements on CG and ESG well in advance so that they are in compliance upon listing. The board of directors of an applicant is collectively responsible for its management and operations (including the establishment of such mechanisms); and </li>
<li>appoint directors (including independent non-executive directors) as early as possible so that directors can engage in the formulation of the necessary mechanisms and related policies on CG and ESG.</li>
</ol>
 
Further to the amendment to the Guidance Letter made in May 2019 to require additional disclosure on (i) ESG matters (including material information on applicants’ environmental policies, and details of the process used to identify, evaluate and manage significant ESG risks) and (ii) gender diversity of the board in the listing documents of new applicants, HKEX has taken this as an extra step to strengthen the disclosure obligation of ESG information by IPO applicants. It is a prerequisite for listing applicants to get braced for ESG mechanisms and relevant disclosure in spite of the fact HKEX does not make ESG report as a mandatory disclosure requirement in the listing document for the time being.
 
It is advisable for pre-IPO companies to establish good corporate governance and enhance board’s oversight of ESG matters including identification and control of material ESG risks in advance not only to cope with the potential queries raised by HKEX but also to echo with the call for ESG information by institutional investors upon their decision-making process.
 
 
Click <a href="https://en-rules.hkex.com.hk/node/5041" target="_blank" rel="noopener">here</a> to read the updated Guidance Letter HKEX-GL86-16 for IPO applicants.