Reaching three years since the Hong Kong Stock Exchanges announced the “Comply or Explain” provisions in December 2015, Alaya Consulting is presenting its third Survey of ESG Reports in Hong Kong, focusing on ESG reports of the largest (by market capitalization) 200 Hong Kong listed companies (T200). The survey aims to study the prevailing ESG reporting practices and identify any gaps for ongoing improvement.

Key Findings

  • 35% Board CEO involvement in ESG governance body
  • 37% Climate change risks recognized in annual/ ESG report
  • Environmental narratives lack of explanations and results achieved
  • Disclosures on labour standards, human rights and conflict minerals remain weak

More and more GRI frameworks to be adopted

            Almost 30% of the T200 companies were found to be using GRI Standards or GRI G4, on top of the HKEX ESG Reporting Guidelines. The Survey showed use of diverse reporting standards as companies listed in China are obliged to follow rules of their respective stock exchanges. With more adoptions of GRI and other frameworks, Alaya was positive that companies are increasingly becoming committed to higher transparency.

Board involvement – easier said than done

            An encouraging figure of over 50% of boards of companies were involved in sustainability governance. However, only 35% of the companies had a governance body specifically for ESG matters with board/CEO involvement. To make ESG reporting more than a compliance exercise, Alaya states that setting up a board level ESG governance body to break down silos and create a company-wide cooperation mechanism.

Environmental disclosure needs more than just narratives

            You can’t manage what you don’t measure. The survey unveiled a noteworthy number of companies that have not stated any form of explanation, with 57% not offering reasons for non-disclosure. Most of the explanations stated that “the topic was not material to business nature” or that “monitoring systems were still in development.” Although narrative KPIs including description of resources conservation and emissions reduction measures demonstrate a high level of disclosure, more detailed measurements would be needed with narratives functioning as explanations.

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