Hong Kong’s Securities and Futures Commission (SFC) is spearheading the development of a Voluntary Code of Conduct (VCoC) for Environmental, Social, and Governance (ESG) ratings and data products providers, as reported by the South China Morning Post on October 31.  This VCoC will focus on four fundamental aspects: transparency, governance, control systems, and conflict of interest management. Its primary objective is to augment the transparency, quality, and reliability of ESG information utilized in investment decisions within Hong Kong’s financial sector. The proposed VCoC, open for voluntary participation by ESG ratings and data products providers, is poised to establish a unified and consistent baseline. It will facilitate asset managers in conducting due diligence and ongoing assessments of ESG service providers.

The development of the VCoC follows a thorough investigation process and industry outreach conducted by the SFC since mid-2022. This initiative sought to comprehend the challenges faced by ESG ratings and data product providers, entities not currently regulated by the SFC. Surveyed asset managers voiced concerns about issues such as data quality, transparency, and conflicts of interest management among these providers. In response to these concerns, the VCoC incorporates recommendations from the International Organization of Securities Commissions (IOSCO). Its implementation is poised to mitigate the risk of greenwashing in investment products. Notably, in 2022, Hong Kong experienced a notable surge of over 40% in green and sustainable debt issuances, amounting to USD80.5bn, representing a significant portion of such debt issued across Asia. This underscores the growing importance of ensuring the integrity and reliability of ESG information in the region’s financial landscape.

Sources:

https://www.scmp.com/business/banking-finance/article/3239840/hong-kongs-market-regulator-backs-development-voluntary-code-conduct-esg-services-providers

https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=23PR126

https://apps.sfc.hk/edistributionWeb/gateway/TC/news-and-announcements/news/doc?refNo=23PR126

Hong Kong’s SFC backs code of conduct for ESG product providers