- First review of its kind by Exchange
- Disclosures by 400 randomly selected issuers examined
- Overall level of compliance with ESG Guide high; quality of reporting varied
The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Friday) published the findings of its review of listed issuers' Environmental, Social and Governance (ESG) reports.
The review involved analysing the disclosures made by 400 randomly selected issuers with financial year-end dates of 31 December 2016, 31 March 2017 and 30 June 2017 (Sample Issuers).
Overall the level of compliance with the ESG Guide was high although the quality of reporting varied. At one end of the spectrum there was some excellent reporting, both in terms of detail and clarity, while at the other end, there were some ESG reports that appeared to show that a “box-ticking” approach had been adopted.
Findings of the review included the following:
- All Sample Issuers published their ESG reports within three months of publication of their annual reports (Note 1);
- Over 80 percent of Sample Issuers complied with the disclosure requirements in nine of the 11 Aspects, covered by the ESG Guide (Note 2) and 94 per cent complied with seven Aspects; and
- Use of Resources had the highest compliance rate, at 98 per cent, whilst Product Responsibility had the lowest, at 73 percent.
To further improve the quality of their ESG reports, and for issuers to benefit from the process of ESG reporting, issuers would do well to include the following key information:
- The issuer’s or the board’s commitment to ESG, management’s approach to ESG and how they relate to the issuer’s business;
- the board’s evaluation and determination of ESG risks and how it ensures that appropriate and effective ESG risk management and internal control systems are in place; and
- the process for stakeholder engagement, which is central to materiality assessment and enables the company and its directors to communicate with their stakeholders.
“We looked at how well issuers did in the first year they were required to report on their ESG performance on a “Comply or Explain” basis and were pleased to see an encouraging level of compliance.” said David Graham, HKEX’s Chief Regulatory Officer and Head of Listing. “As ESG reporting continues to develop, expectations will grow for issuers to better communicate ESG information. Going forward, we will continue to conduct periodic reviews of issuers’’ ESG reporting with the primary objective to help to improve future reports so as to meet stakeholders’ expectations.”
Issuers are reminded that the “Comply or Explain” requirement for the ESG Guide’s Environmental Key Performance Indicators applies to financial years commencing on or after 1 January 2017.
The report, entitled "Analysis of Environmental, Social and Governance Practice Disclosure in 2016/2017", is available on the HKEX website.
The history of ESG reporting at the Exchange is shown in the timeline in the Appendix.
The ESG Guide states: Where not presented in the issuer’s annual report, the issuer should publish this information as close as possible to, and in any event no later than three months after, the publication of the issuer’s annual report (paragraph 3).
||There are a total of 11 Aspects in the ESG Guide requiring general disclosure on a “Comply or Explain” basis of policies and in some cases, information on compliance with the relevant laws and regulations that have a significant impact on the issuers. They comprise Emissions, Use of Resources, Environment and Natural Resources, Employment, Health and Safety, Development and Training, Labour Standards, Supply Chain Management, Product Responsibility, Anti-corruption and Community Investment.
ESG Reporting at the Exchange
- Reporting introduced as Recommended Practice (voluntary) for listed issuers’ financial years commencing on or after 1 January 2013.
- ESG Reporting Guide expanded and General Disclosures upgraded from Recommended Practice to Comply or Explain for listed issuers’ financial years commencing on or after 1 January 2016.
- Environmental Key Performance Indicators upgraded from Recommended Practice to Comply or Explain for financial years commencing on or after 1 January 2017.