Mandatory disclosure

Hong Kong financial institutions will follow the Common Ground Taxonomy in green investments between China and European Union when it’s available by mid-2021. The city’s financial institutions will also follow the International Financial Reporting Standards Foundation’s criteria on ESG matters once they’re ready this year.

Hong Kong is the first Asian city to require all locally-based financial institutions, including banks, asset managers, insurance companies and pension trustees, to strengthen mandatory disclosures of climate-related risks relating to their operations under the Task Force on Climate-related Financial Disclosures (TCFD) framework before 2025.

From July this year, the first batch of Hong Kong-listed companies will have to make their ESG disclosures based on the amendments of the ESG Guide and Listing Rules that went into effect a year ago. They’ll have to disclose how they manage climate risks.

The Securities and Futures Commission may also require asset managers to disclose how they manage climate risks through their governance, strategy, risk management practices and targets related to managing climate risks at the entity level. For large asset managers (those with assets under management of $500 million or more), they’ll have to disclose the weighted average carbon intensity of fund levels.

Friends of the Earth (Hong Kong) Board Governor and Green Finance Convener Anthony Cheung said the SAR must not be complacent as the TCFD road map is still unclear. “The United Kingdom has already produced the TCFD blueprint, expecting certain listed companies in some sectors, such as banks and building societies, to fulfill the TCFD requirements from 2021 to 2023. Hong Kong’s financial regulators should provide a similar road map setting a role model for the market.”

Mary Leung, head of advocacy, Asia Pacific, at the CFA Institute, is worried that small and medium-size listed enterprises are still grappling with ESG disclosures as the business environment remains tough amid the COVID-19 pandemic.

“The investor base of listed SMEs is rather narrow. So these companies may not find it beneficial having ESG. They see the issue just from a regulatory compliance angle and do not have a comprehensive framework to tackle ESG risks,” she said.