13 SEP 2012
Hong Kong Stock Exchange adopts second rate reporting guide for Hong Kong companies
Oxfam sees lack of ambition in the Hong Kong Stock Exchange Environmental, Social and Governance Guide concluded
The Environmental, Social and Governance (ESG) Reporting Guide issued by the Hong Kong Stock Exchange (HKEx) does nothing more than validating the existing, substandard approach to reporting and disclosure by many Hong Kong listed companies, says Oxfam, the international development and humanitarian agency.
In a written submission to the HKEx in April 2012, Oxfam Hong Kong recommends that the ESG Reporting Guide brings the standards and practices of Hong Kong listed companies closer to international standards, with particular attention to food and agriculture companies. But after more than four months of consultation with companies, investors and civil society, the guide is “business as usual”: it fails to look globally to best practices promoted by leading stock exchanges and major companies.
“We are disappointed that the Hong Kong Stock Exchange has squandered this one-time opportunity to provide world class guidance to Hong Kong companies,” said Sun Xuebing, Policy and Campaign Director of Oxfam Hong Kong. “By providing shelter to companies with subpar corporate social responsibility practices, the HKEx is undermining its own standing amongst major global stock exchanges, and is delaying the reforms that Hong Kong listed companies should institute to meet the major challenges of the 21st century. Without clear and adequate guidance, companies in Hong Kong will only fall further behind as their global competitors continue to improve their reporting practices and policies in the ensuring decade.”
While Oxfam welcomes the proposed timeframe to raise the ESG Reporting Guide from a “voluntary” to a “comply or explain” regime in 2015, the agency’s long-term expectation is that the HKEx would announce a timetable to adopt mandatory reporting standards.
“Mandatory ESG reporting would provide a level playing field so that socially and environmentally responsible companies that disclose their policies and impacts are not disadvantaged by competing against companies that ignore such issues while operating in secrecy and focusing only on short-term gains,” said Sun.
The HKEx has emphasised the duty of companies to report, but the guidelines for company disclosure are inadequate. In particular, Oxfam disagrees with the HKEx that the Guide should introduce only simplified standards and ‘define-as-you-want’ key performance indicators (KPI). In the Guide, listed companies are free to choose to report on the basis of KPIs of their own preference and interpretation. Yet without well-defined KPIs, it is likely that these standards will not be strict enough to ensure quality reporting and adequate accountability. Other key areas of reporting, such as gender disaggregated data and gender-based policies, have been completely ignored, even though gender specific policies are increasingly critical to companies to meet societal expectations of sustainability.
The HKEx also failed to heed Oxfam’s call for improved reporting of listed food and agriculture companies in order to improve their impacts on smallholder farmers and global food security. In its written proposal, Oxfam recommended specific provisions to improve disclosure for agribusiness firms. Oxfam’s current global campaign GROW aims to change the food system which now leaves approximately 1 billion people, most of them farmers, hungry every day. Food and agriculture companies need to show that they are acting responsibly to minimise harm for the farmers and rural communities they contract or impact.
Oxfam’s demands for improved reporting are shared by other key stakeholders. Submissions provided to the HKEx this year indicate that institutional investors also requested a stronger ESG Guide. Socially or environmentally irresponsible corporate behavior is an increasing material risk for these investors, many of which have a more long term perspective than the HKEx. Without a robust and compulsory ESG Reporting Guide, investors that are concerned about these risks may choose to invest in other markets and companies which offer greater information and transparency on the practices of leading and lagging companies.
“We hope that this is just the first step in a process to ensure that HKEx demands more of its companies, and of itself, with respect to transparency and disclosure. If the HKEx wants recognition as a leading global stock exchange, the ESG reporting standard should be strengthened to address concerns about corporate environmental and social risks,” said Sun.