CONSULTATION CONCLUSION – “ENVRONMENTAL, SOCIAL AND GOVERNANCE REPORTING GUIDE”
SHINEWING as a market leader in Hong Kong, notices that there is a rapid demand from the investors and Non-Government-Organizations (“NGOs”) for more information disclosures regarding Environmental, Social and Governance (“ESG”) report by issuers. We submitted our comments to the consultation regarding the ESG Reporting Guide issued by Hong Kong Exchange and Clearing Limited (“HKEx”) in 2011. In general, we are supportive on establishing a new reporting guide to raise ESG awareness and encourage issuers to report on ESG matters.
Listing Rules Amendment
Sustainability reporting has become increasingly important for investors to make ESG- based decisions. Starting from 31 December 2012, corporations listed in Hong Kong (both Main board & GEM board) are encouraged to, according to the listing rules Chapter 13.91(Main board) / Chapter 17.103 (GEM board), disclose in its annual report regarding the four ESG areas such as “Workplace quality”, “Environmental protection”, “Operating practices”, and “Community involvement”. Appendix 27/ Appendix 20 are the ESG guidances set out by HKEx to assist issuers to prepare ESG report.
Consultation Paper Released
In March 2012, we expressed our comments and provided recommendations to HKEx in the consultation paper. HKEx presented their consultation conclusion in August 2012. We supported the idea that the ESG reporting be a recommended practice to the Listing Rules. It can help to raise awareness of issuers, investors and the public on ESG matters. HKEx stated their opinion in the consultation paper that the obligation level should start with “Recommended Practice” after 31 December 2012. Moreover, HKEx planned to raise the obligation level to “Comply or explain” by 2015.
Key Performance Indicators
Key Performance Indicators (“KPIs”) are quantifiable measurement that reflects the critical success factors of an organization. The Board should be responsible for preparing the ESG report with the most relevant Key Performance Indicators (“KPIs”). We proposed the inclusion of “Relationship with customers” as one of the KPIs as customer management is significant in the operating practice and it also has direct relationship with product responsibility and anti-corruption. HKEx recommended that issuers could start reporting on a few KPIs that are material and relevant to it, and include only its major operations. Specifically, HKEx emphasized the importance of using quantitative KPIs in accordance with international practice as they believe in the notion of “What is not measured is not monitored and managed”.
External Assurance for ESG Reporting
HKEx proposed that the Guide should mention that an issuer could consider seeking external assurance. We agreed that external assurance is not required at this stage. However, there can be an independent periodic assessment on ESG performance to identify the implementation problems and possible measures for improvements. Results of the assessment can be disclosed in the ESG report.
International ESG reporting
HKEx proposed that issuers may disclose ESG information in its annual report. Issuers may choose to adopt a higher level of ESG reporting based on international guidance and standards. We are supportive on these views. In addition, HKEx specifically stated in its consultation conclusion that the proposed Guide have been fine-tuned based on stakeholders’ consultation comments and feedback to adopt to a local market circumstance.
Starting from 31 December 2012, issuers are encouraged to report on it ESG matters in its annual report. Issuers can make reference to Appendix 27 or Appendix 20 as reporting guidance in four ESG areas such as “Workplace quality”, “Environmental protection”, “Operating practices”, and “Community involvement”. Moreover, HKEx proposed to raise the obligation level in regard to ESG reporting to “Comply or Explain” by 2015.
CONSULTATION CONCLUSIONS - ENVIRONMENTAL, SOCIAL AND
GOVERNANCE REPORTING GUIDE
If there are any aspects which we may assist, please do not hesitate to contact our partner Mr. Roy Lo at 3583 8048 (email@example.com) or our Risk Manager Ms. Gloria So at 3583 8517 (firstname.lastname@example.org).
SHINEWING Risk Services Limited