Hong Kong exchange to amend listing rules to boost corporate ESG disclosure

Move at Asia’s third largest exchange comes amid proposals for a stewardship code

The Hong Kong stock exchange is proposing changes to its listing rules to require companies to disclose more, on a “comply or explain” basis, about a range of ESG factors, including emissions and other environment-related data, workforce data like diversity and working hours, and policies on managing environmental and social risks of the supply chain.

The exchange is Asia’s third largest bourse in terms of market capitalization and the move is in reaction to a mooted Hong Kong Stewardship Code that would recommend that investors encourage their investee companies to have ESG policies.

The HKEx, which is not a member of the UN-backed Sustainable Stock Exchanges Initiative, has launched a consultation on strengthening its existing ESG reporting guide with a range of amendments. The amendments include a “comply or explain” requirement for a number of ESG disclosures and the guidance on reporting to be more in line with international standards.

The Exchange plans to implement its new ESG guide in January 2016, with companies required to publish their ESG reports under the new guide in 2017.

In a consultation paper on the proposals, the exchange notes that a growing number of exchanges have introduced sustainability-related requirements and cites studies which indicate that ESG reporting helps improve access to capital. It says ESG reporting can encourage innovation, talent retention and lead to cost savings.It also notes that Hong Kong’s Securities and Futures Commission (SFC) has proposed a UK-style stewardship code, and launched a consultation on a non-binding, comply-or-explain, set of Principles of Responsible Ownership aimed at guiding investors on their responsibilities as asset owners.

One of the proposed principles state that investors should engage with investee companies if they have concerns about certain matters, including social and environmental factors; and another principle recommends that investors encourage their investors to have ESG policies, a first for a Stewardship Code.

David Graham, the exchange’s Chief Regulatory Officer and Head of Listing, said: “We believe strengthening issuers’ ESG disclosure obligations will enhance the quality, sustainability and reputation of our market.”

Elsewhere, new research from environmental data firm Trucost found that, in 2013 only 19% of companies listed on the HKEx reported on their greenhouse gas emissions, compared to a worldwide carbon reporting rate of 45%.

The research, conducted on behalf of the British Consulate-General Hong Kong with funding from the UK Foreign and Commonwealth Office, also found only two Hong Kong-listed companies reported data over the three-year period in line with best practice as set out in the GHG Protocol. The deadline for responses to the exchange’s consultation is September 18. Link