The Securities and Futures Commission (SFC) of Hong Kong issued a circular on June 29 regarding enhanced disclosures for ESG-related funds, according to an official announcement by the SFC later that day. The circular replaced a previous version released in 2019 to management companies of SFC-authorized unit trusts and mutual funds. The latest guidance included new disclosure requirements for periodic assessments as well as new guidelines for funds with a climate-related focus. Effective January 1, 2022, the updated version is another step of the SFC’s effort to improve the comparability, transparency, and visibility of ESG funds.

As Hong Kong’s financial regulator, the SFC has played a key role in the promotion of green and ESG-related financial practices in Hong Kong. In September 2018, the SFC published its Strategic Framework for Green Finance to facilitate the development of green investments and to prevent greenwashing. To further standardize ESG disclosure practices for mutual funds, it later formulated the first version of the circular on ESG funds in April 2019. Additionally, the SFC also issued a consultation paper last October aiming to urge SFC-licensed fund managers to properly assess, manage, and disclose climate-related risks in their investments.

The new guidelines came amid the growing awareness and the rapid expansion of ESG investment. Since 2019, the number of publicly available ESG funds in Hong Kong has more than doubled. To date, the SFC has 59 authorized ESG funds with three listed on the Hong Kong Stock Exchange (HKEX) . Among them, ten funds were authorized this year. According to data from Morningstar , the SFC-approved ESG funds also showed a better return than their peers. To illustrate, while the 900 SFC-authorized equity funds in Hong Kong returned an annual average of 19.2% in 2020 and 12.7% in five years, the ESG funds’ 2020 return and five-year annualized return were 28.7% and 14.1%, respectively.

Sources:

https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=21PR67

https://apps.sfc.hk/edistributionWeb/gateway/EN/circular/products/product-authorization/doc?refNo=21EC27

https://www.sfc.hk/en/Green-and-sustainable-finance

https://www.sfc.hk/en/Regulatory-functions/Products/List-of-green-and-ESG-funds

https://fundselectorasia.com/hong-kongs-esg-approved-funds-outperform-peers/

https://hongkong.dentons.com/-/media/pdfs/insights/2021/june/sustainable-financeand-esg-in-hong-kong.pdf