Globally, the importance of environmental, social and corporate governance (ESG) is growing rapidly, ESG has gradually become a consensus in the international community, and the capital market is increasingly inclined to assess ESG performance to find companies with a ‘value engine’ of sustained growth, and investment in the field of ESG has ushered in new opportunities and growth space for a booming development. The ESG investment field has ushered in new opportunities and room for growth.

Especially in an international financial centre like Hong Kong, the development of ESG issues is particularly prominent.

On 11 May, WisdomTree Financial, together with Beijing Chidding Technology Co., Ltd, a leading ESG data company, Phyllis Teachers, a law firm that has long been focusing on ESG, and SGS SGS, a company that has been working in the ESG field for many years, as well as a number of experts and scholars, jointly launched the brand new ‘Hong Kong Capital Markets ESG Whitepaper 2023-2024’ (‘Whitepaper’), which is the first of its kind in Hong Kong. ‘White Paper"), which provides an in-depth discussion on various levels, including ESG development in the Hong Kong market, new ESG policies, corporate case studies and ESG development trends and recommendations.

In recent years, the Hong Kong Securities and Futures Commission (SFC) has introduced a number of measures to require listed companies to improve the quality and transparency of their ESG reports, and the Hong Kong Stock Exchange's requirements for ESG information disclosure have become increasingly stringent, with ESG factors becoming an important reference for evaluating investment targets.

As ESG becomes an unstoppable trend, it is also bound to cause changes in the capital market. As ESG strategies have become an indispensable competitive factor in Hong Kong's capital market, how should companies actively address ESG challenges, enhance their environmental and social performance, and strengthen their overall competitiveness?

In this regard, the ‘2023-2024 Hong Kong Capital Market ESG White Paper’ provides valuable information and insights for current corporations, investors and future decision makers, with a view to embracing a fairer, more sustainable and transparent business environment of the future with the concerted efforts of all!

Regulatory-led and investment-driven, Hong Kong's capital market ESG development is growing by the day

Since 2015, in order to promote a better understanding and implementation of ESG principles among market participants, HKEx has been continuously updating its ESG reporting guidelines. A series of regulatory initiatives have not only raised investors‘ awareness of companies’ ESG performance, but also encouraged companies to improve their own ESG performance, pressing the accelerator button for the construction of the ESG system in Hong Kong's capital market.

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2023, Hong Kong's capital market ESG regulatory policies are still undergoing a series of evolutions that have had a profound impact on Hong Kong's capital market over the past year. For example, the Hong Kong Stock Exchange distributed the consultation paper ‘Optimising Climate-Related Disclosure under the ESG Framework’ and updated its progress over the past year, with an expected focus on the new climate disclosure requirements underpinned by the ISSB Climate Code.

With the continuous improvement of the ESG disclosure requirements framework, on the one hand, the quality of ESG reports of listed companies has been significantly improved; on the other hand, when ESG factors are taken into consideration by more investment management companies, more ESG-themed investment products and services have emerged in the market.

According to the statistics on the number of ESG reports disclosed by Hong Kong listed companies, as of 31 January 2024, the number of independent ESG reports disclosed by Hong Kong stocks in FY2022 was 1,258, and the disclosure rate was significantly increased from 20.96% in FY2021 to 50.30%.From the beginning of 2023 to February 2024, Hong Kong listed companies issued about 2,475 ESG reports, with real estate construction, Industrial, and Finance became the three industries that released the most ESG reports.

From the disclosure of ESG reports issued by companies in 2023, Hong Kong listed companies are paying more attention to details and accuracy of data when compiling ESG reports. Through higher quality disclosures, investors and other stakeholders are able to gain a more comprehensive understanding of a company's sustainability and social responsibility performance.

On the other hand, with the gradual improvement of the ESG system in Hong Kong's capital market, the application of ESG ratings and ESG indices in the market has become more and more widespread. According to the White Paper, at present, there are more than ten ESG-related indices in the Hong Kong capital market, such as the Hang Seng ESG Enhanced Index, Hang Seng Sustainable Enterprises Index and Hang Seng ESG50 Index.

In the investment decision-making process, as more and more investors will consider the ESG ratings of companies as an important investment basis, ESG indices have also become one of the important indicators to measure the investment performance of fund managers.

Fund products allocate assets based on ESG-related indices, and investors are also able to indirectly invest in ESG-performing companies by purchasing fund products that track these indices. As the development of ESG ratings and indices continues to deepen, the influence of ESG investment on the capital market will further increase, and this trend also signals the consolidation of Hong Kong's capital market position in the global ESG investment arena.

Hong Kong-listed companies in various industries show positive results as ESG practices lead the way

Today, ESG case studies in different industries show that ESG has become a necessity for companies to enhance their competitiveness in the market. More and more companies are beginning to understand that ESG is not just a slogan, but a practice that can truly bring value to their companies.

In order to build a sustainable, fair and transparent business environment, companies need to integrate ESG into their business models and incorporate ESG concepts into all aspects of their organisations. There are many companies in various industries that have shown positive results in ESG practices:

Energy: Beijing Energy International (00686)

Beijing Energy International is committed to promoting the transformation of the energy structure and the sharing of low-carbon and clean energy. The company's ESG philosophy is closely aligned with China's ‘dual-carbon’ targets, i.e. carbon peak and carbon neutral, and emphasises its commitment to environmental protection and social responsibility. Through the implementation of energy saving and environmental protection measures, PV poverty alleviation, and the improvement of the corporate governance structure, the Company continues to promote the integration of its ESG concepts, objectives, strategies and its management structure.

In July 2023, Jingneng International was awarded the Fitch Evergreen ESG Rating Level 2 with a score of ‘76’, one of the highest scores in China, and ranked fourth in the relevant industry globally and second in Asia, with notable achievements in ESG practices.

Pharmaceutical Case: Hensoh Pharma (03692)

As a leading innovation-driven pharmaceutical company in China, Hensoh Pharma takes corporate governance, corporate behaviour, product quality and safety, inclusive healthcare, human resource development, environmental protection and community progress as the focus of attention and the foundation of ESG management, and focuses on internalising ESG concepts in the hearts of its employees and translating them into corporate behaviours through production and operation practices and corporate culture activities, forming a corporate culture with Hensoh's distinctive characteristics.

In addition, the company conducts data verification of emission sources in the three ranges of greenhouse gases across the group to identify the impact of the company's business practices on the environment and the direction of improvement, and sets the 2030 greenhouse gas emission reduction intensity target, and annually follows up and reviews the progress of achieving the target. As a result, Hensoh Pharma' MSCI ESG rating was upgraded to AA.

Property Case: Shenzhen Investment (00604)

With property development, property investment and urban integrated operation services as its core business, and also involved in innovative businesses such as high-tech agriculture and high-end manufacturing, based on the objectives of the ‘14th Five-Year Plan’, Shenzhen Investment integrates ESG concepts into its daily operation and management, and adheres to the synergistic development with consumers, the industrial chain, employees, the environment, and the society.

By strengthening ESG awareness, improving ESG management system and establishing ESG reporting mechanism, the company strives to achieve a balanced development of economic, environmental and social benefits, and defines corporate-level targets for carbon emissions, energy use, water resources and waste use, as well as green buildings, and strives to achieve a 15% reduction in carbon emission intensity per unit of revenue by 2030 as compared with that of 2022.

Shenzhen Investment has been awarded the ‘A’ rating in the Morgan Stanley MSCI-ESG Index for consecutive years, maintaining its leading position among mainland real estate enterprises.

Utilities Case: China Water (00855)

China Water is the only listed company in the Hong Kong stock market that focuses on water supply and piped drinking water business. With the core value of ‘Water as the foundation - Achieving social excellence’, the Group has formulated the ‘Carbon Peak and Carbon Neutral’ Implementation Plan in 2021, which proposes that ‘20% of the total carbon dioxide emissions will be met by the Group's water supply. In the ‘Carbon Peak and Carbon Neutral’ Implementation Plan formulated by the Group in 2021, the Group has set the overall target of ‘reaching carbon peak by 2030 and achieving net zero emissions by 2050’, which is 10 years ahead of the carbon neutral target set by the government, and is in line with the carbon neutral target of Hong Kong, China and the global decarbonisation pathway formulated by the Science-Based Carbon Reduction Target Initiative (SBTi).

Currently, Sinohydro has fully established an ESG management system that meets ESG governance requirements and promotes the synergistic development of Sinohydro. Moody's issued a second-party opinion and awarded the highest score of SQS1 (Excellent) for sustainability quality to Silver Dragon Water Supply Group Limited, a wholly-owned subsidiary of China Water Group, for its sustainable financing framework.

Fintech Case: Bairong,inc. (06608)

Bairong,inc. integrates ESG concepts into the company's strategic objectives, organisational structure and daily operations, aiming to contribute to the United Nations Sustainable Development Goals (SDGs) by facilitating the transformation of financial digital intelligence, supporting the development of employees and the community, strictly adhering to compliance and business ethics, and reducing its own environmental footprint. By promoting a green development path and reducing corporate pressure on the environment, the company has received a number of environmental certifications and awards, such as ISO14001 Environmental Management System Certification and Telecom 5-Star Green Data Centre Certification, as well as a number of ESG awards and certifications at home and abroad.

New Energy Case: Envision Greenwise (01783)

Envision Greenwise aims to achieve environmental protection, social responsibility practices and good governance by defining five development strategies: top talents, intelligent buildings, green energy, new materials and corporate culture, and realises ESG objectives through business upgrades, such as the development of intelligent buildings and intelligent energy, etc. Jinking New Energy has won a number of awards in the field of ESG such as the Best Energy and Resource Company, the ESG Leadership Excellence Award and the ESG Innovation Award for the year 2023. Innovation Award 2023, and many other awards.

Shaping a Green Capital Market: Trends and Recommendations for Hong Kong's ESG Capital Markets

With the Stock Exchange and the Hong Kong Securities and Futures Commission (SFC) 2023 striving to align the ESG governance and disclosure of Hong Kong listed and proposed listed companies with the ISSB Code in terms of ESG regulatory policies, focusing on mandatory climate information disclosure, and facilitating the standardisation of ESG ratings and data product vendors, listed companies should also be mindful of the new requirements on ESG disclosure.

It is also mentioned in the White Paper that Hong Kong listed companies and proposed listed companies should also make adjustments and plan ahead by preparing and developing transition plans in advance, taking into account the consultation paper on revisions to the ESG Reporting Guidelines and the latest requirements of the ISSB Code.

For example, comparing the current status of the company's ESG management and disclosure with the consultation paper on the revision of the Guidelines, paying attention to the new disclosure requirements for climate-related indicators and targets added in the consultation paper, and considering the introduction of third-party assessment and digitisation tools. For Hong Kong-listed central-controlled companies, it is particularly important to pay attention to the ESG requirements in the Indicator System as set out in the policy documents of the China Securities Regulatory Commission (CSRC), the Ministry of Ecology and Environment (MOE), the major exchanges and other relevant departments, as well as in a number of national standards.

Nowadays, ESG is not only a moral orientation, but also an investment philosophy that is spreading rapidly in the capital market. As corporate carbon footprints, resource efficiency and environmental sustainability become more and more important to investors, ESG investment is becoming a global consensus.

The application of ESG in the capital market not only provides a new dimension for corporate operations, but also creates more choices and value for investors. As the application of ESG in the capital market deepens, long-term value and risk management, investors' tendency towards ESG investments, capital flows to ESG projects, the importance of ESG data transparency, shareholder activism and ESG, and the promotion of regulations and standards are also receiving increasing attention.

The use of ESG strategies as a means to enhance corporate competitiveness is particularly important in the Hong Kong capital market. As an international financial centre, Hong Kong has a unique geographical location and excellent market environment that attracts a large number of international investors. Against this background, Hong Kong listed companies not only face the requirements of local investors, but also have to meet the expectations of international capital, thus prompting Hong Kong listed companies to excel in ESG to maintain their market position.

Currently, the Hong Kong Exchanges and Clearing Limited (HKEx) has become increasingly stringent in its ESG disclosure requirements and is actively promoting listed companies to enhance their ESG information dissemination and improve their environmental and social performance, which will help them to enhance their overall competitiveness and stand out from the crowd of listed companies.

For the full report reading link and download, please click:

https://esg-hk.oss-cn-shenzhen.aliyuncs.com/esg-project/manager/7/NLAK4daEJfc5IBL0naDUQ.pdf