Global investor focus on ESG an opportunity for Hong Kong

Demand for improved corporate sustainability disclosures continues to grow globally, and Hong Kong is no exception. 

Regulators here and abroad are driving convergence in environmental, social and governance reporting standards, and investors are losing patience with companies that fail to embrace the role of ESG practises in mitigating risk and enhancing returns. 

Against this backdrop Morrow Sodali, the leading provider of strategic advice and shareholder services to companies worldwide, has expanded its Hong Kong office in order to better help its clients adapt to these forces, which are shaping the capital flows of today and the growth markets of tomorrow.

Morrow Sodali is headquartered in New York and London, and operates from 14 offices around the world, with more than 700 corporate clients in 80+ countries, including many of the world’s largest multinational corporations and financial institutions. 

Hong Kong’s role as an international financial centre makes it an ideal base from which to support our clients across Greater China and other countries in the region. 

Our new Hong Kong equities team is led by Morrow Sodali’s Managing Director for Hong Kong and Mainland China, Raymond Chen, who says the city has an opportunity to act as a role model for neighbouring jurisdictions as Asia transitions to sustainable investing. 

“The past few years have seen more money than ever being invested across China and Southeast Asia by sophisticated institutional investors such as global pension funds and sovereign wealth funds,’’ he says.

“The world’s leading asset managers such as BlackRock have had a very strong presence in Hong Kong for many years, and as a result Hong Kong’s regulators have responded to their concerns over issues such as climate change and the need for more transparent stewardship of companies.

“The Special Administrative Region can therefore provide an example to the rest of China and her neighbours of how to approach the development of sustainability reporting.’’

As the world’s largest emitter of fossil fuel carbon dioxide emissions, China is key to efforts to protect the global environment. In recent years, the Chinese government has taken a leading role in the transition to a low-carbon future by committing to ambitious emissions reduction targets and launching initiatives such as the world’s largest carbon emissions trading scheme.

Chinese President Xi Jinping’s statements on phasing down China’s coal consumption in his September address to the United Nations General Assembly are the latest indicator of this proactive approach from Beijing, says Chen.

“However there is still ample room for improving emissions-related performance and disclosures by Chinese companies,’’ he says.  

“The integration of sustainability goals into their long-term planning to deliver better risk-weighted returns continues to lag that of firms in other major markets worldwide. Failure to address these issues will increasingly impact on their international competitiveness and ability to attract capital.’’

The valuation of corporate assets such as brand value and reputation is becoming increasingly complex, making ‘non-accounting’ information such as ESG data more relevant. These metrics are also important to socially conscious investors who want to drive change in society and to avoid ‘greenwashing’.

In Hong Kong, the regulatory environment with regard to ESG reporting is robust, multifaceted and constantly evolving to keep up with global trends.

It includes the Stock Exchange of Hong Kong (HKEX), which stipulates ESG disclosure obligations for listed entities consisting of both mandatory requirements and “comply or explain” provisions. The HKEX is currently considering new measures aimed at further enhancing standards in areas including corporate culture, diversity and climate-related disclosures, says Chen.

“The latest consultation paper from the HKEX on corporate governance really cast the net wide to look at all leading jurisdictions worldwide to pick and choose best practice from various markets,’’ he says.

The Hong Kong government’s Securities and Futures Commission (SFC) sets standards for fund managers relating to disclosure of ESG data such as climate-related risks.

“The SFC also works with the Hong Kong Monetary Authority and other bodies via the Green and Sustainable Finance Cross-Agency Steering Group, whose goals include ensuring that climate-related disclosures aligned with TCFD recommendations will be mandatory across relevant sectors in Hong Kong by 2025,’’ says Chen.

Morrow Sodali provides corporate boards and executives with strategic advice and services relating to IPOs and M&A, as well as corporate governance, shareholder and bondholder communication and engagement and capital markets intelligence.

Our global network of offices, partners and clients provides us with deep insights into markets such as the European Union, where ESG considerations are well integrated into the business environment and are increasingly seen more as an opportunity than a threat.

For example the EU’s Sustainable Finance Disclosure Regulations, released in March, aim to provide a competitive edge to companies producing genuinely sustainable products. 

Chen says investors’ focus on climate-related issues in particular has been sharpened by the UN Climate Change Conference in the UK in November 2021 and other current international events.

‘’The COP26 talks come at a critical time, as the world is currently grappling with an energy crisis that has resulted in fuel shortages in several countries and power blackouts in parts of China,’’ he says.

“Such events are convincing more investors that issues such as sustainable development, ethical investing and tackling climate change cannot be ignored.’’