Hong Kong is an investors’ paradise, a hub that both local and international investors find irresistible. One important attribute of this magnificent jurisdiction is that it offers excellent access to the entire Far East market, including China.
As the Hong Kong administration works extra hard to provide the best business environment and promote growth in both the short and long term, one of the latest targets is promoting sustainability through ESG reporting and green initiatives.
For example, the Hong Kong Stock Exchange (HKEX) has introduced new requirements for all listed companies and new stock issuers. Starting from January 2022, ESG funds and climate-focused funds products will also be required to disclose how they incorporate ESG factors.
In this guide, we dig deeper into ESG reporting in Hong Kong and tell you everything you need to know about it. We will also demonstrate why you should work with Diginex for the best sustainability reporting software.
A flashback into Hong Kong Companies and Reporting
ESG sustainability reporting is the disclosure of data that touches on a company's three main areas: environmental, social, and corporate governance. This disclosure is a continuous process and is supposed to culminate in regular reports that investors and other stakeholders can look at and make decisions about the listed companies or equity issuers of choice.
For example, an investor targeting to buy stock of a selected company listed in the Hong Kong stock exchange can look at the report to know if it is a green and responsible enterprise. This will help him make the right financial decision.
Although the ESG reporting requirements announced by Hong Kong Stock Exchange might look new, the jurisdiction’s efforts towards sustainability started much earlier. In 2012, Hong Kong introduced a new reporting guide that required companies to provide investors with information on environmental protection, community involvement, and workplace quality. However, this reporting guide was voluntary (All about SASB Standards).
By 2019, Bloomberg reported that 74 incorporations, about 43% of those surveyed, reported that environmental, social, and governance (ESG) is important.
Now, Hong Kong has shifted ESG reporting from voluntary into a mandatory process to win investors. The most notable thing on the guide by HKEX and the Hong Kong administration is encouraging every listed company to consider green operations to address sustainability issues. These are the things that investors coming to Hong Kong are interested in.
ESG Reporting in Hong Kong: What are the Underlying Principles?
According to the Hong Kong administration and HKEX, the new focus on sustainability issues will give the jurisdiction an edge not just in the Far East but also in the entire globe. As a manager or entrepreneur, it is prudent to take cognizance of the core principles that inform the sustainability reporting process in Hong Kong. Here are some of them
- Materiality: The concept of materiality is very important for any ESG reporting process because it determines how important a selected topic is for sustainability and the respective company. Here, you will need to factor in the core processes of the company, stakeholders' preferences, and the anticipated impact of the topic. Go for the one with the highest impact for promoting sustainability.
- Accuracy: This is another very important principle. The goal of this principle is to ensure that the reports generated by listed or unlisted companies are correct and factual. Because data is gathered from the environmental, social and governance (ESG) process, it is crucial to ensure every step is done correctly.
- Continuity: The concept of continuity is aimed at giving stakeholders a clear understanding of a company’s journey towards sustainability. If your company targets to promote social equity, it might focus on supporting NGOs working with underprivileged groups for a couple of years. Then, reach out to the respective government to pass related policies for sustainability.
Key Requirements for ESG Reporting in Hong Kong
The latest requirements for ESG reporting in Hong Kong, especially by HKEX, focuses on three core areas; board responsibility, improving management, and promoting the quality of the report.
Strengthening Board’s Responsibility
The main role of companies when it comes to ESG reporting is bestowed on board members. By asking the boards to oversee ESG issues disclosure, it highlights the importance of the process. The board can also help to direct more resources for the implementation of ESG activities. If you were worried about justifying the cost for ESG, it will now be easier because the board understands the process and will be there to ensure it is done properly for compliance.
Improving ESG Management
One notable thing about ESG reporting in Hong Kong is that it focuses more on the future issues. For example, stock issuers are required to anticipate sustainability issues in the future and craft strategies to address them. This way, investors and customers will be able to review the disclosure and establish the more responsible brands.
Promoting Integration between Companies and Shareholder
As a manager of your company, you will agree with us that the relationship with different stakeholders is very important. In a highly competitive environment such as Hong Kong, ESG sustainability reporting can come in handy to strengthen stakeholder engagement.
In the first step, which involves a review of key opportunities and risks, and materiality assessment, working with stakeholders makes them want to see the final report and get more attached to the company. Therefore, you should focus on what they want and report it clearly.
Understanding the Process of ESG Reporting in Hong Kong
Now that you understand the main principles of ESG reporting in Hong Kong, the areas of focus, history, there is one more thing: the reporting process for your company. Here are the main steps to follow for correct disclosure in line with ESG principles:
- Board and ESG working group: The process of ESG reporting should commence with the board of directors commissioning the process.
- Reporting boundary and assessment: This stage involves a review of the company’s processes and materiality assessment to identify the reporting topics.
- Drawing of the ESG reporting strategy: Once you have selected the reporting topics, define the right objectives. Then, craft a strategy for achieving the goals. Remember that the strategy should also focus on how the future challenges will be addressed.
- Writing the report: Finally, generate the sustainability report to present to the stakeholders.
From the demonstration above, you can see that the process of environmental, social and governance (ESG) reporting can be pretty lengthy and complex.
Again, the requirements by the Hong Kong administration and HKEX on different ESG issues are futuristic, making the process even more challenging because of the expanded number of factors that you need to focus on. Is there a way out for your company?
The best option is working with consultants in ESG reporting and appropriate reporting software. The experts will help your company to set the strategy well, while the software will come in handy to collect the required data. Call Diginex today for the best reporting program and other support for compliance with Hong Kong and International ESG requirements.