08 SEP 2015
Institutional investors concerned about listed companies’ ESG disclosure
Oxfam urges HKEx to raise requirements to catch up with international standards
As corporate behaviour becomes increasingly influential to the global economy and social development, international communities, including institutional investors, are placing greater emphasis on corporate social responsibility (CSR). In fact, the voluntary initiatives undertaken by the business sector directly impact poor communities and the result of poverty alleviation efforts. As natural and social resources are the building blocks upon which a corporation operates, business also has a responsibility towards the community and environment.
In view of this, Oxfam conducted a survey, and found that most of the institutional investors that responded felt that Environmental, Social and Governance (ESG) disclosure was important and affected their investment decisions. However, disclosure requirements in Hong Kong lag behind international standards. Oxfam thus urges the Hong Kong Stock Exchange (HKEx) to raise its ESG reporting standards, as a step to drive corporations to improve their corporate social responsibility policies.
Research methodology and findings
Oxfam commissioned Policy 21 Limited to conduct a survey on institutional investors’ views on listed companies’ ESG disclosure requirements between March 2015 and June 2015. Forty two institutional investors registered in Hong Kong responded and took part in our study. Our findings are as follows:
- A total of 85.6 per cent of institutional investors considered ESG factors in investmentdecisions, while 59.6 per cent of respondents said that ESG factors affected their investment decisions.
- Over 80 per cent of institutional investors were concerned about companies’ impact on society and local communities (88.1 per cent); stakeholder engagement (85.8 per cent), and workers receiving a living wage (83.3 per cent).
- Over 70 per cent were concerned about labour protection, including ethical procurement (73.8 per cent); labour and human rights in purchasing and supply management (73.9 per cent), and labour codes of conduct in supply chains (73.8 per cent).
- A total of 78.6 per cent of respondents believed that organisational transparency in foreign direct investment (FDI) is important.
- In total, 64.2 per cent of investors felt that the HKEx should make ESG disclosure mandatory, while 64.3 per cent of investors believed that the HKSAR Government should implement policies to enforce ESG disclosure of listed companies.
Oxfam’s policy call
The HKEx is now conducting a consultation exercise on the review of the Environmental, Social and Governance Reporting Guide to encourage listed companies to disclose this information. Oxfam Hong Kong welcomes this move and recommends the following:
The HKEx should mandate ESG disclosure
In its review of the Reporting Guide, the HKEx is only recommending a ‘comply or explain’ approach to environmental key performance indicators (KPIs). Oxfam Hong Kong recommends the HKEx to require listed companies to fully disclose information on their ESG performance, and set a clear timetable indicating when it will shift from a ‘comply or explain’ approach to mandatory ESG disclosure.
The HKEx should have more stringent disclosure requirements
In comparison with the internationally recognised Global Reporting Initiative’s G4 Guidelines, the HKEx’s standards are much laxer as they only require companies to provide general policy information. The HKEx only requires companies to report on six environmental aspects and 12 social aspects, which is less than half of what the G4 Guidelines require. The HKEx does not require listed companies to disclose KPIs related to human and labour rights in corporate supply chains, despite institutional investors’ concerns as shown in the survey.
The HKEx should improve accountability measures
To increase transparency, the HKEx could revamp the HKExnews website to make it more user-friendly, and establish an easily accessible independent database to help the public understand and compare companies’ ESG reports. The HKEx could also publish a list of non-compliant companies on the HKExnews website and explore the possibility of adopting sanctions clauses for non-compliance.
The HKEx shouldjoin the Sustainable Stock Exchanges(SSE) Initiative
Major stock exchanges around the world – such as the London Stock Exchange, NASDAQ, New York Stock Exchange and Deutsche Börse – have joined the SSE Initiative and are committed to promoting sustainability. As the fifth largest stock exchange in the world in terms of market capitalisation, the HKEx should comply with international standards and participate in the initiative.
Government legislation on ESG disclosure for listed companies
Oxfam Hong Kong recommends the HKSAR Government to regulate listed companies by making ESG disclosure mandatory under the ‘Companies Ordinance’.
Oxfam Hong Kong urges the HKEx to address institutional investors’ concerns, as expressed in the survey, when reviewing the ESG Reporting Guide. Comprehensive disclosure of ESG data not only helps the public more effectively monitor companies’ CSR performance and improves their policies, but also helps reduce poverty and thus benefits poor people.
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Oxfam is a worldwide development organisation that mobilises the power of people against poverty.
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 These include 18 retail and investment banks, six asset management companies and 18 insurance companies, including local note-issuing banks, overseas registered asset management companies – one of which had US$3.3 trillion assets under management – and five insurance companies, which together had more than US$970 billion assets under management, which play key role in Hong Kong investment market.