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Environmental, social and governance regulations turn risk into opportunity for Hong Kong businesses

Companies discover that being green can help the environment, boost their public image, and save money

PUBLISHED : Sunday, 24 September, 2017, 2:46pm
UPDATED : Tuesday, 03 July, 2018, 5:31pm

New rules enacted by the Hong Kong stock exchange will strengthen environmental, social and governance (ESG) reporting for upcoming financial statements, placing the spotlight on professional services firms which need to ensure both they and their clients comply.

While many see these requirements as an obstacle to business, ESG reporting benefits firms and the environment. This can be for their own operations and those of their clients, transforming a potential risk into reward via best practice.

Professional services firms would do well to ensure their own operations are green friendly and compliant. A standard reply for professional services firms to questions about ESG compliance is often: “What does this have to do with us?” Yet, for Ricky Cheng, director and head of risk advisory at BDO, being in tune with environmental regulations is essential for any business.

“BDO, as an accounting professional firm, does not have direct carbon emission by the nature of our business operations,” Cheng says. “However, we do recognise our business may have an indirect impact on the environment.”

What does this mean practically? In an office environment, reducing the use of electricity, water and stationery; creating a paperless working environment; installing energy efficient office machines; establishing procedures to monitor the use of resources and disposal of waste; regularly reviewing paper and electricity usage; and partnering with local green organisations to keep abreast of new sustainable initiatives.

For Max Tsang, director of GCA Professional Services Group, elements such as carbon footprint calculation and management can be applied to all business. “Accurate carbon footprint and relevant intensity ratios provide a ground for business to manage its environmental risk by benchmarking with its peers and monitoring the change over time,” Tsang says.

He recommends a detailed analysis of ESG performance at equivalent companies to create indicators for an industry and benchmarks to follow. “Based on a clear understanding of its performance, the industry could set a feasible goal to fulfil its own expectations,” Tsang says.

Other important aspects of professional services’ work include ensuring clients are keeping up with new regulations and abiding by them.

Sammie Leung, director, risk assurance at PwC, says: “When assisting our clients in the ESG areas, we do observe a number of leading practices in managing environmental risks and performances.”

This could include advising real estate clients to implement sustainability practices through sustainable building design, sourcing green materials, adopting green building certifications ,such as BEAM Plus and LEED, and using online management and visualisation tools to reduce the creation of prototypes.

Tsangadvises companies to do an environmental impact assessment on the business or life cycle assessment on their products, so that a professional services firm can assess their sustainable status. “As we calculate the environmental risks from different sources, we could take relevant mitigation measures to relieve the stress and manage the environmental risks,” Tsang says.

Failure to do so could have lasting consequences. “Fulfilling statutory requirements is the most important rule,” he adds. “It is equally important to communicate with stakeholders to ensure the company’s business is not subject to green organisation or public opposition.”

The flip side of going through environmental assessment is a good outcome for sustainability, public image, and the bottom line.

Leung says: “Hong Kong is not short of cases where good management in environmental risks and performance brings [a] positive impact to a company’s financials.

“I’ve known companies enjoying a double digit energy saving simply by replacing their over-aged chilling system with an energy-efficient model.”