ASIFMA: Hong Kong investors value companies with better sustainability reports

Hong Kong-listed companies that publish sustainability-related financial information that is part of global core reporting standards are likely to be better rated in a market that is increasingly integrating sustainability risks into its investment decisions, according to industry lobby group Asia Securities Industry & Financial Markets Association (ASIFMA).

The sustainability and climate standards published in June 2023 by the International Sustainability Standards Board (ISSB) are part of a globally recognized foundation used by jurisdictions around the world to improve the consistency, comparability and usefulness of sustainability disclosures. The ISSB is a body established during the COP26 World Climate Summit in 2021 to consolidate various reporting standards.

Sustainability-focused funds could bypass the city if companies do not adopt Hong Kong’s general sustainability-related financial disclosure requirements (known as S1) as soon as possible, Yvette Kwan, senior adviser at ASIFMA Asset Management Group, said in an interview, reiterating a view expressed in the lobby group’s paper on “Adoption of ISSB standards in Asia” released on Thursday.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analysis and infographics brought to you by our award-winning team.

“As Hong Kong seeks to maintain its market attractiveness and its role as a leading centre for sustainable finance in the region, the introduction of sustainability-related financial disclosures should be a priority,” she said.

Such an introduction would need to be in addition to the climate-related disclosures currently required by the environmental, social and governance (ESG) framework of stock exchange operator Hong Kong Exchanges and Clearing (HKEX), she added.

Yvette Kwan, Senior Advisor to ASIFMA Asset Management Group alt=Yvette Kwan, Senior Advisor to ASIFMA Asset Management Group>

In April, the HKEX published the results of its consultations on improving climate-related disclosures under its ESG framework. These include new requirements based on the ISSB climate-related disclosures, also known as S2, which would come into force in Hong Kong from 2025.

According to the International Financial Reporting Standards Foundation, which created the ISSB, the general S1 requirements for disclosure of sustainability-related financial information require that “an entity discloses information about all sustainability-related risks and opportunities that can reasonably be expected to affect the entity’s cash flows, its access to finance or its cost of capital in the short, medium or long term.”

The story goes on

This includes information on the company’s governance processes and strategy for managing sustainability risks and opportunities, as well as progress towards achieving targets the company has set or is required to achieve by law or regulation.

“As long-term demand for sustainable investments increases, markets and companies that fully adopt ISSB may have better access to capital and be more likely to be targets for sustainable investments,” Kwan said.

“Then there is a risk that international investors with net zero targets and other sustainable investment priorities will choose not to invest in the lagging market or will downgrade the market due to insufficient data for assessment.”

ASIFMA is headquartered in Hong Kong and has more than 160 member firms, including banks, asset managers, accounting and law firms, and market infrastructure service providers.

The HKEX’s new climate requirements serve as an interim step to prepare listed issuers for sustainability and climate reporting under the proposed local sustainability reporting standards that are currently being developed.

The so-called Hong Kong Standards are based on the ISSB and developed by the Hong Kong Institute of Certified Public Accountants.

“When the Hong Kong Standards on Sustainability are available, the HKEX will consider whether and how to transition to sustainability reporting in line with those standards,” a HKEX spokesperson said. “This includes whether to replace the current ESG regulatory framework with a direct listing rule that requires listed issuers to publish sustainability reports in line with the Hong Kong Standards.”

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice for reporting on China and Asia for more than a century. For more SCMP stories, visit the SCMP app or the SCMP Facebook page and Þjórsárdalur Pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.