Hong Kong investors value firms with better sustainability disclosures: ASIFMA
Hong Kong-listed companies that disclose sustainability-related financial information that form part of global baseline reporting standards, are likely to get better valuations in a market that is increasingly integrating sustainability risks into its investment decision-making, according to industry lobby group Asia Securities Industry & Financial Markets Association (ASIFMA).
The sustainability and climate standards released last June 2023 by the International Sustainability Standards Board (ISSB), a body set up during the COP26 global climate summit in 2021 to consolidate various reporting standards, form part of a globally recognised baseline that jurisdictions around the world use to improve the consistency, comparability and usefulness of sustainability disclosures.
Sustainability-driven funds may bypass the city if companies fail to adopt the general requirements for sustainability-related financial information disclosures, known as S1, in Hong Kong as soon as possible, Yvette Kwan, executive adviser to ASIFMA Asset Management Group said in an interview, reiterating a view reflected in the lobby group's "Adoption of the ISSB Standards in Asia" paper released on Thursday.
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"As Hong Kong looks to maintain its market attractiveness and role as a leading sustainable finance hub for the region, adoption of sustainability-related financial information disclosures should be prioritised," she said.
Such adoption must be made in addition to the climate-related disclosures currently mandated by stock exchange operator Hong Kong Exchanges and Clearing (HKEX) environmental, social and governance (ESG) framework, she added.
Yvette Kwan, executive adviser to ASIFMA Asset Management Group alt=Yvette Kwan, executive adviser to ASIFMA Asset Management Group>
In April, the HKEX published conclusions from its consultations on the enhancement of climate-related disclosures under its ESG framework. This would include new requirements, based on the ISSB's climate-related disclosures also known as S2, which would come into effect in Hong Kong beginning in 2025.
The S1 general requirements for disclosure of sustainability-related financial information require "an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity's cash flows, its access to finance or cost of capital over the short, medium or long term", according to the International Financial Reporting Standards Foundation, which created the ISSB.
This includes disclosures about the governance processes and the entity's strategy for managing sustainability-related risks and opportunities, as well as progress towards targets that the firm has set or is required to meet by law or regulation.
"With secular demand for sustainable investments rising, markets and companies which fully adopt ISSB may potentially have more access to capital and may more likely be targets for sustainable investing," said Kwan.
"There's then a risk that international investors with net-zero targets and other sustainable investing priorities will choose not to invest in the laggard market or because of insufficient data to make an assessment, discount the market."
Headquartered in Hong Kong, ASIFMA has over 160 member firms comprising banks, asset managers, accounting, law firms, and market infrastructure service providers.
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 which are currently being drawn up.
The so-called Hong Kong Standards will be aligned with the ISSB and developed by the Hong Kong Institute of Certified Public Accountants.
"When the Hong Kong Standards for sustainability become available, HKEX will consider whether and how to transition towards sustainability reporting in line with these standards," said a HKEX spokesman. "This includes whether to replace the current ESG regulatory framework with a direct listing rule mandating listed issuers to publish sustainability reports in accordance with the Hong Kong Standards."
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