Sustainable business: more Hong Kong firms are getting their ESG reporting checked by external auditors as investors look for reliable data, industry survey finds

The study by the Hong Kong Institute of Certified Public Accountants found the number of firms opting for external ‘assurance’ has leapt in the last two years
Slower adoption by smaller companies may be because of doubts about the costs versus the benefits, says institute’s president

Business of climate change

Martin Choi

Published: 9:30am, 15 Nov 2023

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Listed companies in Hong Kong are increasingly taking on external auditors to check their environmental, social and governance (ESG) reporting, as investors and stakeholders look for more reliable and verifiable data, according to an industry survey.

“Assurance” for ESG reporting – essentially an audit or evaluation of the claims being made – is not mandatory for listed companies in most jurisdictions, including Hong Kong.

But as the requirements and expectations for such disclosures become more stringent, investors and stakeholders are looking for more reliable and relevant data, the Hong Kong Institute of Certified Public Accountants (HKICPA) said in its “ESG assurance in Hong Kong 2023: An evolving landscape” report published on Tuesday.

All of the roughly 2,600 Hong Kong-listed companies are required to publish annual sustainability reports on their ESG performance, alongside mandatory periodic financial reports.

Obtaining independent verification of their ESG performance can allow companies to build trust and credibility with stakeholders who are increasingly taking such factors into account in their investment decisions, according to the HKICPA.

“Larger companies are responding more rapidly to the fast-moving ESG environment, and the expectations and needs of investors and other stakeholders,” said Loretta Fong, president of the HKICPA in a statement. “This is what we would have predicted, given their more international investor base and greater resources.”

According to the study of 1,882 companies listed in Hong Kong with their financial year ending December 31, some 7.5 per cent, or 141 firms, had opted for external assurance services this year. That compared with only 85 companies, or 4.5 per cent, in 2021.

For the 137 large companies with a market capitalisation of HK$38 billion (US$4.86 billion) or more, this had doubled in the last two years to 41 per cent in 2023.

The slower adoption by smaller companies compared with their larger counterparts may be because of doubts about the costs versus the benefits of assurance, given it is not yet mandatory, according to Fong.

“At this stage, they may not have the full confidence in their own ESG data analysis and collection processes to have the information assured,” said Fong.

“It could also indicate that many companies are publishing ESG reports primarily to fulfil the disclosure requirements of HKEX, and for image reasons, in order to at least meet the minimum expectations of the market.”

Swire Pacific, a sprawling conglomerate with interests spanning everything from property development to aviation and soft drinks, said in its 2022 annual report that it had employed auditing firm Deloitte to “perform a limited assurance engagement in relation to certain sustainable development data.”

Such data points included Swire’s total energy consumption and greenhouse gas emissions from direct operations, according to Deloitte’s independent practitioner’s report.

Electricity provider CLP Holdings took on auditing firm PwC to undertake a limited assurance of selected ESG data, including its greenhouse gas emissions and environmental compliance.

The banking sector accounted for a fifth of the 141 companies that had obtained ESG assurance, the highest among all industries. This was probably because of the “ongoing efforts of Hong Kong’s financial services regulators to promote green and sustainable finance and ESG reporting”, according to the HKICPA.

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