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Environmental, social and governance

Most Hong Kong firms fall short in ESG disclosures despite progress made, says BDO

Survey of 300 firms last August found that over 60pc met minimum requirements, but more companies did not have a comprehensive strategy, an ESG committee or dedicated personnel

PUBLISHED : Friday, 26 January, 2018, 12:56pm
UPDATED : Friday, 26 January, 2018, 12:56pm

Hong Kong listed firms still have a long way to go to meet investors’ expectations on disclosure of environmental, social and governance (ESG) matters despite a general improvement after it became a compulsory requirement, according to BDO Limited which advises listed firms.

“Investors and peers will [demand] greater disclosure from [listed] companies in the future,” said the world’s fifth-largest accountancy network’s head of risk advisory Ricky Cheng. “The journey of good ESG disclosure has just started in Hong Kong, and there is a still a long way to go for a lot of companies.”

He was speaking at BDO’s inaugural ESG Awards presentation ceremony on Thursday, which recognised firms with outstanding ESG disclosure standards.

The “ESG report of the Year” award for large capitalisation firms went to Lenovo Group, while Melco International Development won in the mid-cap category. Panda Green Energy Group stood out among small-cap firms and Northern New Energy won out among Growth Enterprise Market-listed firms.

Besides enhancing firms’ transparency and their reputation, ESG reporting enables companies to identify opportunities to reduce operating costs and grow revenues through sustainable development, better governance and risk mitigation.

The journey of good ESG disclosure has just started in Hong Kong, and there is a still a long way to go for a lot of companies
Ricky Cheng, BDO

Some 55 firms listed in the city applied or were nominated to contest for the awards, some of which had engaged accountancies or certification bodies to provide third-party assurance on their disclosures.

Cheng noted that many of the contenders have adopted international reporting standards such as the Global Reporting Initiative and ISO, and showed a high level of senior management’s involvement in ESG issues.

They also conducted comprehensive risk assessments by industry specialists and set clear goals on initiatives such as energy-saving, clean energy consumption, staff training and development, community engagement and charitable contributions.

Still, the overall quality of the first mandatory ESG disclosures made by Hong Kong listed firm required under listing rules last year left a lot to be desired.

In August last year, a survey of 300 Hong Kong-listed firms by BDO found that although over 60 per cent surpassed the minimum requirements, more than 80 per cent did not have a comprehensive strategy, an ESG committee or dedicated personnel to deal with ESG matters.

Fewer than half had engaged external stakeholders and conducted assessments to identify key risks.

A review of the disclosures by 366 Hong Kong listed firms by audit and consulting firm KPMG showed that many firms had a low regard for ESG risks as principal risks.

Only 13 per cent of the firms said their board was responsible for ESG risk management, while 83 per cent did not disclose their ESG governance structure.

While 77 per cent of the firms reported on all 11 ESG aspects listed in the guideline, only a third disclosed their methods for determining what risks mattered to their operation.

This may have reflected a “box-ticking approach” adopted by some companies, KPMG said in a report last November.

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