Hong Kong's ESG Reporting Landscape: A Comply-or-Explain Approach
Hong Kong has emerged as a key player in promoting Environmental, Social, and Governance (ESG) transparency. While there's no single ESG law, the city implements a comprehensive framework that compels specific types of companies to report on ESG practices. This article explores the current approach to ESG reporting in Hong Kong and identifies the entities required to comply.
A Comply-or-Explain Model
Hong Kong's ESG reporting framework primarily follows a "comply-or-explain" approach. This means companies must adhere to mandatory disclosure requirements set by regulators. However, they also have the flexibility to explain their approach for aspects not explicitly mandated. This fosters transparency while allowing companies to tailor their disclosures to their specific circumstances.
Who Needs to Comply?
The current regulations primarily target three categories of entities:
- Listed Companies: Listed companies on the Stock Exchange of Hong Kong (HKEX) are obligated to publish annual ESG reports. These reports must adhere to the HKEX's ESG Reporting Guide, which outlines specific mandatory disclosures on environmental, social, and governance matters. The requirements were recently enhanced in 2022, with a focus on aligning disclosures with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
- Investment Fund Managers: Investment fund managers in Hong Kong are subject to ESG reporting requirements issued by the Securities and Futures Commission (SFC). These regulations mandate disclosures on how ESG factors are integrated into their investment processes and decision-making.
- ESG Funds: Funds specifically marketed as ESG products are subject to stricter regulations. These funds must provide detailed information on their ESG investment strategies and how they achieve their sustainability objectives.
Focus on Future-Oriented Disclosures
A noteworthy aspect of Hong Kong's ESG reporting framework is its emphasis on future-oriented disclosures. Companies are required to not only report on past performance but also anticipate sustainability challenges and outline their strategies to address them proactively. This future-looking approach empowers investors and stakeholders to assess a company's commitment to responsible and sustainable practices.
Looking Ahead: Continuous Improvement
Hong Kong's ESG regulatory landscape is constantly evolving. Regulatory bodies like the HKEX are actively seeking to enhance the comprehensiveness and consistency of ESG disclosures. With consultations underway on aligning with international sustainability standards, Hong Kong is well-positioned to remain a leader in promoting ESG transparency.
