Robert Lee, the Chamber’s Standing Committee Member and Member of the Legislative Council - Functional Constituency (Financial Services), said that the inclusion of the carbon peaking and neutrality targets in the 2021 Government Work Report points to their considerable guiding significance. At the same time, Hong Kong released the Hong Kong’s Climate Action Plan 2050, with a view to achieving carbon neutrality by 2050.

In Lee’s view, promoting green and low-carbon development is the general trend as ESG is in line with national policies. He analyzed that the development of green finance and financial technology will be where the opportunity lies for the local financial sector. For three consecutive years, the Shenzhen Municipal Government has issued offshore RMB bonds, including green, blue and social-responsibility bonds, in Hong Kong which is Asia’s hub for green finance. Hence, Hong Kong can move in this direction and strengthen interactions and cooperation with the Greater Bay Area market.

For companies, ESG policies can also help them reduce risks by lessening environmental impacts, increase long-term value, and establish a positive image, thereby enhancing their market advantages. In Lee’s view, it is therefore urgent for companies to formulate ESG goals in the intensely competitive business world.

Nevertheless, he also admitted that there are challenges for companies to implement ESG. For example, in terms of resources, companies need certain management and maintenance capabilities to introduce infrastructure into their digital systems, so the threshold for implementing ESG is relatively high. Especially for SMEs, they may not have sufficient resources and talents with relevant knowledge and experience. He also pointed out that currently, what information should be collected in ESG reports and how to collect them are also a major pain point for companies to implement ESG.

Hence, in Lee’s view, there is currently a certain threshold for companies to implement ESG. He suggests regulatory agencies consider a flexible and step-by-step approach to allow companies to comply with the standards within a reasonable period. This is so that local relevant requirements can gradually be aligned with global benchmarks.

Lee further said that Hong Kong’s development in ESG is not really slow. It has been mandatory for all companies listed in Hong Kong to disclose environmental information since as far back as in 2016. However, he admitted that the business community is always worried about the operating costs involved in implementing the relevant standards.

In his view, the Government can help companies transition and accelerate the implementation of ESG in Hong Kong by strengthening training of local ESG talents, providing a repository of green and sustainable financial data resources, giving interest discounts on green loans, and simplifying loan approval procedures.
 

Improving business performance is the priority for many companies, and some may consider additional ESG reporting requirements a burden. As such, the authorities should offer more flexibility. “In principle, our Chamber does acknowledge the need to raise the standard of ESG reporting as it is a global trend. Yet, we hope to see more flexible arrangements in the requirements and timeframe for disclosure once the new standards are implemented.”

He added that listed companies are faced with two dilemmas. The first is concerned with Scope 3 green house gas emissions (which covers upstream and downstream activities). This is challenging for companies of any scale. “Sizeable companies with business operations across the world would find data collection rather complicated, and difficulties also await in data validation. Small-to-medium companies, on the other hand, lack the resources and relevant experience. External consultancy service may not be able to address the demand from the whole market.”

Wong continued, “The second one is the requirement for ‘scenario analysis’. A company must define the anticipated percentage change in its financial and asset position as a result of climate change in the short and long term. The steps involved are very complicated and call for many assumptions and models. The data models available from the Hong Kong Observatory may not fit the needs of companies with overseas factories. All these may complicate the estimation process.” Wong reckoned listed companies are anxious that data collection must be performed very professionally, estimation can be highly subjective and deviation may be present.
 

Wong stressed that listed companies should make early preparation for the new ESG standards despite a transition period. “It is all about the perspective, talents and resources. Senior managers must understand the requirements set out by regulators and look at their business with a new perspective. Companies will have to recruit ESG specialists to meet their need for more professional advice on risk assessment and opportunity identification. As economic recovery remains lackluster, the volume of additional work to be done within a short time could burden small-to-medium enterprises in resource allocation.”

According to Wong, the Chamber of Hong Kong Listed Companies has been offering various training courses to its members to develop more professional local talents and to better support listed companies in their ESG matters. Examinations and certification based on the disclosure requirements of Hong Kong’s stock exchange are also planned for launch by the end of the year.