Chinese accountants see rising demand for ‘green’ certification work in wake of food scandals
While auditors traditionally verify financial statement of companies, there is increasing demand for accounting professionals to carry out reviews of Hong Kong and mainland listed companies to ensure compliance with “green” standards stipulated by governments and stock exchange regulators.
Ivan Tong Ka-yan, managing partner of climate change and sustainability services for accounting firm EY, said more and more listed companies want to make sure their policies meet new environmental and social responsibility requirements.
“Previously, listed companies focused only on their bottom line and auditors mainly checked whether the financial statements were fair and accurate. But now, they want the accountant to check whether they have followed all the anti-pollution and social responsibility requirements,” Tong said in an exclusive interview with the South China Morning Post.
In 2009 EY established a dedicated team of accountants, now numbering 80, to cover services related to climate change, social responsibility and the issuance of green bonds, which are debt issuances whose funds are exclusively used for environmentally friendly projects.
Tong said the 2008 tainted milk scandal in mainland China forced authorities to start issuing guidelines and regulations requiring companies to adopt social responsibility requirements.
Over the past two years mainland authorities have further stepped up efforts to require companies to follow anti-pollution practises while the stock exchanges of Hong Kong, Shanghai and Shenzhen all require listed companies to report on their social responsibility efforts. In December 2015 Hong Kong Exchanges and Clearing, operator of the Hong Kong bourse, introduced a rule requiring all listed companies to report on their social responsibility policies.
“These regulatory requirements have led to a surge in listed companies appointing accounting professionals to carry out audit work to check that their social responsibility and environmental protection measures comply with all regulatory requirements,” Tong said.
Another driving force behind the trend is the issuance of green bonds. Tong said companies that want to issue green bonds would like to hire accounting professionals to carry out audits to ensure they follow the requirements for green bonds.
Global issuance of green bonds is expected to increase more than 20 per cent to US$100 billion this after almost doubling in 2016, with China expected to maintain its global lead in the sector, according to Benjamin Lamberg, global co-head of medium term notes and private placements at French-based Credit Agricole CIB.
However, some fund managers face the risk of “green-washing”, where investments achieve less sustainable goals than expected but are made at the expense of more worthwhile alternatives, according to Bertrand Gacon, head of impact investing and socially responsible investment at Lombard Odier, the Swiss private bank.
Tong said this has led to increasing demand from green bond issuers to appoint accountants for third party audits to ensure projects fit the international requirements of green bonds.
He noted that there are two internationally recognised green bond standards – one issued by the International Capital Market Association, and the other by Climate Bonds Initiative.
“Green bond issuers who can get third party professionals to check that their bond structure and usage of proceeds are up to these international green bond standards would find them easier to sell to investors,” Tong said.
“Investors who believe green initiatives are important are willing to accept green bonds at a lower yield in exchange for a long term benefit for society. This lowers the cost for green bond issuers to raise funds,” he said.
Tong believes demand for green related advisory and auditing services will grow in future.
“Many big players such as HSBC, CLP and Swire have adopted integrated reporting frameworks to report their financial statement and their environmental protection and social responsibility reports together. This is a trend that shows companies are now taking green related policies seriously,” he said.