HKEX [0388:HK] issued a consultation document on April 16, proposing revisions to the Code on Corporate Governance Practices (CG Code) and Corporate Governance Report and related provisions in the Listing Rules, as reported by Huanqiu.com on April 19. The stock exchange mainly aims to introduce new measures to improve corporate governance of HKEX listed firms, covering ESG related information disclosures and management, corporate culture, board independence, diversification policies, etc. The consultation will end on June 18, and HKEX will release those revised rules at the end of December. Based on past practices, most of the proposed changes in the HKEX consultation paper will be adopted.

HKEX published the ESG Reporting Guide in 2013 and conducted twice revisions of the guidance during the past few years. Specifically, in 2016, the stock exchange lifted the reporting requirements on all environmental KPIs from recommendation to “comply or explain”. Later, in 2019, HKEX added climate-related indicators and mandatory disclosure rules regarding the ESG management of the board, and also changed the reporting requirements on all social KPIs to “comply or explain”. The 2019 revised rules took into force in July 2020. In contrast, the ESG guidelines in the A-share market remain unchanged for a long time. The current ESG regulatory policy changes and development in Hong Kong could be the path followed by the A-share market in the future.

ESG criteria could help investors avoid companies that might pose a greater financial risk due to their environmental or other practices. With the improvement and strictness of ESG supervision, listed companies tend to face higher management and information disclosure requirements. According to the US SIF Foundation report, investors held USD11.6tr in assets chosen according to ESG criteria at the beginning of 2018, and the proportion showed an accelerated growth trend in the past five years. In accordance with current trends, the corporate ESG risk management, control capabilities, as well as disclosure levels will become pivotal consideration indicators for future investors. As reported by SASAC, among 590 of the 611 state-owned listed companies in the CSI 300, CSI 500, and HKEX issued social responsibility reports in 2020, accounting for 96.6% of the total.

Sources:

https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp

https://www.ussif.org/files/US%20SIF%20Trends%20Report%202018%20Release.pdf

https://www.unpri.org/fiduciary-duty/esg-data-in-china-recommendations-for-primary-esg-indicators/4345.article

http://www.jjckb.cn/2021-04/26/c_139907344.htm

https://finance.huanqiu.com/article/42mUta3YFpR

http://www.cinic.org.cn/zgzz/zr/1084413.html