Hong Kong businesses’ ESG planning must look at long term, go beyond regulatory requirements, says CPA Australia

Recently released standards for climate disclosures are only the beginning of reporting demands, says ESG chairman with accounting body
Survey shows 88 per cent of Hong Kong professionals are aware of new standards, but cost and lack of talent inhibit adoption of ESG practices

Business of climate change

Martin Choi

Published: 6:00am, 10 Jul 2023

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Businesses need to make plans to go above and beyond regulatory requirements when it comes to embedding environmental, social and governance (ESG) considerations into their strategies, according to accounting body CPA Australia.

The call for long-term planning comes after the International Sustainability Standards Board (ISSB) launched two new sets of climate and sustainability-related disclosure standards on June 26. The standards aim to set a global baseline and meet rising demand for consistent understanding of how such factors affect companies’ prospects.

Bourse operator Hong Kong Exchanges and Clearing (HKEX) has also proposed, in a consultation paper in mid-April, that the ISSB standards form the framework for mandated climate-related disclosures in listed firms’ ESG reports.

While the new climate reporting requirements for Hong Kong companies are set to commence next year, before the information needs to be published in 2025, businesses need to be ready for even more reporting duties, said Cyrus Cheung, CPA Australia’s divisional deputy president and chairman of the ESG committee in Greater China.

Cyrus Cheung, divisional deputy president and chairperson of the ESG committee at CPA Australia. Photo: Handout

“Climate [related disclosures] is the starting point, but [firms] also need to be aware of future developments as well,” said Cheung, adding that the ISSB is carrying out international consultations to gather feedback about what it should focus on next.

The ISSB was set up by IFRS Foundation, an international financial reporting standards body, during the COP26 global climate summit in Glasgow in 2021 to consolidate various reporting standards.

In May, the ISSB launched a consultation seeking feedback on its priorities for the coming two years, including potential focus areas such as biodiversity and integrating sustainability-related disclosures into financial statements.

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Companies should not only focus on climate-related risks but also start learning about other potential requirements, such as biodiversity, Cheung said.

“Corporates need to identify and keep learning [about] these kinds of international developments, so that they can [allocate] the right resources … to ESG strategy planning,” Cheung said.

Companies should develop long-term plans to embed ESG practices into their organisational strategies, business models, governance structures and risk-management frameworks, beyond the requirements of legislation, Cheung added.

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Most of the accounting and financial professionals working in businesses in Hong Kong and the Asia-Pacific region are already aware of the ISSB’s standards efforts, according to a survey CPA Australia conducted with 469 such professionals across the region, including 119 respondents in Hong Kong, between 15 September and 7 December.

Eighty-eight per cent of respondents from Hong Kong said they had at least some level of awareness of the ISSB’s standards, compared with 87 per cent for all the respondents, according to the survey results, released on Wednesday.

“Quite a lot of the companies [in Hong Kong] have already taken certain steps to prepare for this new requirement,” said Cheung. “They are comparing their current status to the ISSB or the consultation-paper requirements of the HKEX.

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“At the same time, they are trying to not only look at Hong Kong, but also the international best practices to understand what they should do to comply with those ISSB requirements as well in Hong Kong.”

In Hong Kong, costs are the top barrier to the adoption of ESG practices, cited by 45 per cent of the city’s respondents, followed by difficulties in measuring and tracking ESG performance, at 36 per cent.

A shortage in ESG skills in the city’s talent pool is also a key barrier, cited by 35 per cent of respondents.

CPA Australia recommended that the government, professional associations and educators should collaborate to expand the ESG talent pool.

Financial Secretary Paul Chan Mo-po announced plans for a three-year pilot scheme to build green and sustainable finance capacity in his budget plan in February 2022.

The government earmarked HK$200 million (US$25 million) for the trial, which would provide subsidies for training to obtain the relevant professional qualifications in sustainable finance, as part of a collaborative effort to build capacity for the industry.

Unlisted companies in the city feel the lack of resources and talent to a greater extent than listed companies, and the government as well as business community needs to chip in to help them build capacity, according to Ee Sin Tan, EY’s climate change and sustainability services partner for Hong Kong and Macau.

Although they face no regulatory requirements to disclose climate-related information, Hong Kong’s unlisted firms are nonetheless under increasing pressure to make such disclosures, said Tan, speaking at the Redefining Hong Kong event organised by the South China Morning Post on June 29.

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