Board and governance

Integrating material ESG issues into a company's strategy can contribute to better risk management, leading to long-term resilience and sustainability of the business. Strong board oversight and management of ESG issues boosts investors' confidence in the company and improve the company's access to capital. Investors have increasing demand on information about the systems, governance structure and company culture that lies beneath how the company manages material ESG issues.

The ESG Reporting Guide requires issuers to disclose the issuer's ESG governance, including the board's oversight of ESG issues; its ESG management approach and strategy; and how the board reviews progress made against ESG-related goals and targets. A good disclosure of ESG governance should include, amongst others, a clear reporting line and division of responsibilities, and a description of how the board evaluates ESG issues, and integrate material ESG issues into the issuer's corporate strategy and risk management processes.

Board and governance:
ESG governance

Commentary

CLP (00002), Sustainability Report 2020 (p.27)

As shown in the diagram below, the governance of sustainability is integrated into the corporate governance structure. Two of the Board Committees, the Sustainability Committee and the Audit & Risk Committee, have separate but complementary roles in ESG management.
CLP Sustainability Report 2020_1

…
As one of the Board Committees, the Sustainability Committee has a primary role in overseeing the management of the Group's sustainability issues and is supported by the Sustainability Executive Committee. The Audit & Risk Committee retains oversight and responsibility for material risks, as well as ensures the assurance of the sustainability data is appropriate.
…
Between 1 January 2020 and the date of this report, the Committee met four times (including three times in 2020 and once in 2021). Below is a summary of how the Committee spent its time during this period.
CLP Sustainability Report 2020_2

Commentary

The issuer has integrated the governance of sustainability / ESG issues under its overall corporate governance structure, not only at the board level, but also at the lower layers of the organizational structure, including “management oversight”, “coordinators”, and “implementation of sustainability-related strategies, policies and goals”. This helps ensure consistency in the implementation of their ESG initiatives/ policies within the group.

A dedicated committee (the Sustainability Committee) has been established, which is responsible for overseeing measures and practices of ESG issues.

The graphical illustration would facilitate stakeholders' understanding of the governance structure and board's oversight of ESG issues affecting the company.

Apart from describing the responsibilities of the committee, there was also information on the tasks accomplished by the committee in the reporting year. This would allow stakeholders to consider and evaluate the management of ESG issues by the board (or the committee).

The Audit & Risk Committee assumes a supervisory role in ensuring that ESG risks are incorporated in issuer's risk management framework.

Board and governance:
ESG governance

Commentary

Shun Tak Holdings (00242), Sustainability Report 2020 (p.16) Shun Tak Holdings Sustainability Report 2020

Commentary

The issuer has established a dedicated Sustainability Steering Committee and Sustainability Taskforce Team with clearly defined responsibilities.

It also described the allocation of responsibilities amongst the board and different management teams regarding the group's sustainability matters.

The description shows how the board sets the tone at the top through its oversight, and how the board's direction is being understood and implemented down the reporting line.

Board and governance:
ESG integration

Commentary

CLP (00002), Sustainability Report 2020

(p.22-23)
Decarbonisation and digitalization are at the core of CLP's business strategy, and sustainability is fully integrated into this strategy. The Group will no longer invest in new coal generation assets and is committed to a gradual retirement of its coal assets by 2050.

(P.4)
In line with our strategy, we are facilitating the energy transition in different parts of Asia Pacific. In Hong Kong, we are taking steps to serve the city with lower-carbon energy by commissioning a highly-efficient natural gas-fired generating unit at Black Point Power Station in 2020 and embarking on the construction of another similar facility on the same site. We are also making significant progress on the development of the territory's first offshore liquefied natural gas terminal to help diversify the region's gas supplies to these developments. In Mainland China, with the commissioning of Laiwu III Wind Farm in Shandong province, this three-stage project has now become the largest operating wind farm across the CLP Group.

(p.43) CLP Sustainability Report 2020_3

Commentary

The issuer has adopted a long-term plan to reduce carbon intensity in its major business, being electricity generation. In line with its long-term plan, the board has adopted a strategy committed to decarbonisation, and set carbon intensity targets up to 2050. Since the announcement of the long-term plan in 2007, carbon intensity has steadily dropped and the group achieved its 2010 and 2020 interim targets.

This example demonstrated how ESG considerations could be integrated into the issuers' strategy, and how the implementation of ESG integration can be significantly facilitated if it is driven from the board with a “top-down” approach.

Board and governance:
ESG integration

Commentary

Mengniu (02319), Sustainability Report 2020 (p.85-86) Mengniu 2020 Sustainability Report_1

Commentary

The issuer has integrated ESG considerations in its business strategy by substantially reducing the use of water, a major ingredient of its product.

The integration is driven by an executive director who is also the president of the group. It is an example demonstrating an effective ESG integration with a “top-down approach” from the board.

Board and governance:
ESG integration

Commentary

AIA (01299), ESG Report 2020 (p.70)

(the whole page, some extracts below)

AIA's Risk Management Framework (RMF) ensures that we have the capabilities and processes in place to identify, quantify and monitor risk across the Group.
…
We address ESG-related risks according to the process outlined in the RMF and categorise them based on the nature of the risk to our operations.
…
AIA conducts scenario testing and business continuity analysis to ensure sufficient capital is earmarked to provide protection to our policyholders and to ensure business continuity under stressed conditions.

(The Risk Management Framework is outlined in the risk management section in AIA's 2020 Annual Report)

Commentary

The report clearly indicated that ESG-related risks have been assessed via the issuer's risk management framework and scenario analysis has been conducted. This demonstrated that ESG risk management is an integral part of the issuer's businesses.

Board and governance:
Board's skill matrix (ESG)

Commentary

AIA (01299), ESG Report 2020 (p.69)

The Board's membership includes expertise in the management of ESG matters, with various members demonstrating deep fluency in ESG issues and trends, while bringing valuable experience and perspectives gained from their previous positions serving on ESG or sustainability committees of listed companies, as well as in public service and government positions.

Commentary

The board consists of members with knowledge in ESG matters, empowering the board to better understand and evaluate ESG risks and their impacts.

A board should have a balance of skills, experience and diversity of perspectives relevant to the issuer's business. Given the rapid ESG developments in global and local contexts, it would be beneficial to the company if the board's members have ESG-related experiences for better management of ESG risks.

ESG governance

ESG integration

Board’s skill matrix (ESG)

ESG in Practice

Board and governance: ESG governance

Commentary

Board and governance: ESG governance

Commentary

Board and governance: ESG integration

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Board and governance: ESG integration

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Board and governance: ESG integration

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Board and governance: Board's skill matrix (ESG)

Commentary

Board and governance:
ESG governance

Board and governance:
ESG governance

Board and governance:
ESG integration

Board and governance:
ESG integration

Board and governance:
ESG integration

Board and governance:
Board's skill matrix (ESG)