Board role in ESG governance enhanced, but Hong Kong companies still lag in ESG integration, finds joint report by KPMG, CLP and HKICS
Lack of expertise of ESG issues remains a key challenge
The report provides guidance on ESG integration
HONG KONG, Jan. 14, 2020 /PRNewswire/ -- A majority of Hong Kong-listed companies have yet to integrate environmental, social and governance (ESG) into their business models and many of them lack the expertise to address the issue, according to a joint publication by KPMG, CLP Holdings Limited (CLP) and The Hong Kong Institute of Chartered Secretaries (HKICS). This is despite increased expectations on ESG issues from regulators and the investment community.
The joint report, Integrating ESG into your business: A step-by-step ESG guide for Hong Kong-listed issuers", points out that the recent amendments to the existing ESG Reporting Guide published by The Stock Exchange of Hong Kong Limited (HKEX) represents a critical step to bring this matter to "management" routinely, with an emphasis on the board's role in the governance structure for ESG matters.
There is consensus that ESG is a part of good corporate governance and ESG integration principles must be supported from the top down. ESG frameworks can be useful perspectives for companies to manage risks and tackle challenges.
Investors and asset owners alike are increasingly demanding more ESG-focused investing, and ESG reporting plays an important role in how investors make their decisions.
Patrick Chu, Partner, Head of Business Reporting and Sustainability, KPMG China, said, "Climate change is no longer something in the distant future. Related risk disclosures will be essential for companies to deal with increasing expectations from stakeholders. Report issuers are expected to provide more consistent information within their sectors and reference international guidance."
To move ESG from a peripheral issue and truly integrate it into business practices, in addition to top management buy-in, the report highlights the importance of developing a vision-led and goal-driven sustainability strategy and a robust data management system for progress tracking and target setting.
Pat Woo, Partner, Head of Sustainable Finance, Hong Kong, KPMG China, added, "Besides regulators and investors, pressure for ESG integration is also coming from those who provide capital -- the banks, insurance companies and finance companies. Hong Kong companies cannot remain at the box-ticking phase on ESG issues, as cost of capital will increase for laggards in sustainability.
David Simmonds FCIS FCS, Group General Counsel, Chief Administrative Officer & Company Secretary, CLP, said, "Sustainability has moved from the fringe to be a mainstream investor concern. This context demands greater board involvement and attention to the issue."
The report points out that it is crucial to communicate the efforts with stakeholders regularly, including the publication of an annual sustainability report in line with local and international reporting standards. There are established standards, such as those developed by the Sustainability Accounting Standards Board (SASB) or the Task Force on Climate-related Financial Disclosures (TCFD), that businesses could follow to communicate sustainability information to their investors.
Gillian Meller FCIS FCS, President, HKICS, said, "There is an increasing interest in ESG primarily from European and American investors, who are demanding detailed information on ESG issues. This increasing demand for ESG is now noticeable on all fronts. In addition, employees, particularly the younger generation, seek to know what is being done by their employer in areas such as corporate responsibility, community investment, and diversity and inclusion."
About KPMG China
KPMG member firms and its affiliates operating in mainland China, Hong Kong and Macau are collectively referred to as "KPMG China". KPMG China is based in 23 offices across 21 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Wuhan, Xiamen, Xi'an, Zheng Zhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 147 countries and territories and have more than 219,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG's appointment for multi-disciplinary services (including audit, tax and advisory) by some of China's most prestigious companies.
CLP Holdings Limited, a company listed on the Stock Exchange of Hong Kong, is the holding company for the CLP Group, one of the largest investor-owned power businesses in Asia Pacific. Through CLP Power Hong Kong Limited, it operates a vertically-integrated electricity supply business providing a highly-reliable supply of electricity to 80% of Hong Kong's population.
Outside Hong Kong, CLP holds investments in the energy sector in Mainland China, India, Southeast Asia, Taiwan and Australia. Its diversified portfolio of generating assets uses a wide range of fuels including coal, gas, nuclear and renewable sources. CLP is one of the largest external investors in the Mainland's renewable energy sector. In India, it is one of the biggest renewable energy producers and among the largest foreign investors in the electricity sector. In Australia, its wholly-owned subsidiary EnergyAustralia is one of the largest integrated energy companies, providing gas and electricity to about 2.5 million households and businesses.
CLP is included in the Global Dow -- a 150-stock index of the world's leading blue-chips, the Dow Jones Sustainability Asia Pacific Index (DJSI Asia Pacific), the Dow Jones Sustainability Asia Pacific 40 Index (DJSI Asia Pacific 40), Hang Seng Corporate Sustainability Index Series and MSCI ESG Leaders Indexes.
The Hong Kong Institute of Chartered Secretaries (HKICS) is an independent professional body dedicated to the promotion of its members' role in the formulation and effective implementation of good governance policies, as well as the development of the profession of Chartered Secretary and Chartered Governance Professional in Hong Kong and throughout the Mainland.
HKICS was first established in 1949 as an association of Hong Kong members of The Chartered Governance Institute, formerly known as The Institute of Chartered Secretaries and Administrators (ICSA) of London. It was a branch of The Chartered Governance Institute in 1990 before gaining local status in 1994 and has also been The Chartered Governance Institute's China Division since 2005.
HKICS is a founder member of Corporate Secretaries International Association Limited (CSIA), which was established in March 2010 in Geneva, Switzerland. In 2017, CSIA was relocated to Hong Kong where it operates as a company limited by guarantee. CSIA aims to give a global voice to corporate secretaries and governance professionals.
HKICS has more than 6,000 members and 3,200 students.