What is ESG?
ESG is the acronym for Environmental, Social, and (Corporate) Governance, which are three main areas for investors” to consider and concern when making investment decision.
Environmental criteria focus on how a company performs with the nature consideration. Social criteria concentrate on the relationship management with employees, suppliers, customers, and the communities where the business operates. Governance criteria is related to company’s leadership, audits, internal controls, and shareholder rights. All ESG criteria can help investors avoid companies with greater financial risk due to their environmental or other company or business practices.
Current Update of ESG Reporting
Hong Kong Exchanges and Clearing Limited (HKEX) has placed Hong Kong on track to follow the wider global trends of increased ESG disclosure. In late 2019, HKEX published ESG guide consultation conclusions and its ESG disclosure review findings. The Exchange then implemented the consultation proposals, with modifications on or after 1 July 2020.
Key changes to the ESG Guide and related Listing Rules include:
Introducing mandatory disclosure requirements to include:
- a board statement setting out the board’s consideration of ESG matters;
- application of Reporting Principles “materiality”, “quantitative” and “consistency”; and
- explanation of reporting boundaries of ESG reports;
Requiring disclosure of significant climate-related issues which have impacted and may impact the issuer;
Amending the “Environmental” key performance indicators (KPIs) to require disclosure of relevant targets;
Upgrading the disclosure obligation of all “Social” KPIs to “comply or explain”; and
Shortening the deadline for publication of ESG reports to within five months after the financial year-end.
