Sustainability reporting is no longer just a matter of ticking boxes; For investors, it’s becoming a key lens for understanding how companies assess risk, strategy, and long-term value. As Hong Kong moves to align its new sustainability disclosure standards with the IFRS Sustainability Disclosure Standards (IFRS SDS), the city is positioning itself as a regional leader in an evolving landscape where voluntary efforts are giving way to mandatory frameworks driven by regulatory change and growing stakeholder demand.
“Hong Kong is critical because it’s an advanced market and a gateway for global capital,” says Nathan Fabian, Chief Sustainable Systems Officer at the Principles for Responsible Investment (PRI). Fabian leads sustainability strategy for the world’s largest investor network, with over 5,200 signatories representing US$139.6 trillion in assets under management, and previously chaired the EU Platform on Sustainable Finance. “We see Hong Kong as being a standard bearer in the region.”
This leadership is taking shape through the Hong Kong Institute of CPAs, which introduced the HKFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and HKFRS S2 Climate-related Disclosures (HKFRS SDS) in December 2024, fully aligned with IFRS SDS.
Accountants play a pivotal role in this shift, translating complex sustainability data into insights investors can act on. The challenge – and the opportunity – now lies in moving beyond compliance to disclosures that genuinely drive value and market confidence.
What investors look for
Investors approach sustainability disclosures through a financial materiality lens, seeking clarity, comparability, and meaningful insight into how environmental and social factors may affect a company’s performance and long-term value.
“The first question is if the material sustainability issues identified by a company align with what we are concerned about,” says Gabriel Wilson-Otto, Head of Sustainable Investing Strategy at Fidelity International. “Then we look at how that’s integrated into their own corporate strategy – where governance, structure and accountability become important – and how they set and perform against the metric targets on those material issues.”
He explains that disclosures serve two main purposes: refining fundamental analysis by assessing risk and opportunity exposure, and determining whether an issuer qualifies for specific sustainable investment products.
At AIA Group, sustainability disclosures are scrutinized as much as quarterly or annual financial statements. “We developed our own in-house ESG Rating Scorecard, which our analysts use to assess investee companies,” explains Corrine Png, the group’s Regional Head of Equities Research and Stewardship. “Our analysts study these sustainability disclosures and compare them with sector peers to see how their practices are faring.”
In addition to self-reported data, Png notes that her team utilizes external databases to track whether the companies are “on an improving trend” relative to global benchmarks. Companies that fail to disclose sufficient information on key risks and have low internal ESG scores may face larger valuation discounts – or be deemed as unattractive investments from a total risk-return perspective.
The HKFRS SDS frameworks aim to meet investor demand for actionable insights by requiring companies to present “connected information” alongside their financial statements. This means explicitly linking sustainability factors – such as climate risks or workforce transitions – to their financial impacts, including future revenues, asset values, and cash flow.
“The sustainability information provides an early indication of how future risks and opportunities might potentially impact the entity’s financial position, performance and cash flow across the short-, medium- and long-term,” explains Eddie Ng, Chair of the Institute’s Sustainability Disclosure Standards Committee, and Partner of ESG Advisory at KPMG. Instead of treating ESG data as a separate report, companies must show investors how these factors – like carbon emissions and water scarcity – could materially affect the prospects.
Ng also says that the new standards cover interactions along the value chain – aspects not fully captured by historical financial statements alone.
Investors use sustainability disclosures to gauge how well companies are positioned to manage policy interventions and supply chain risks, explains Wilson-Otto. For example, if a country plans to phase out internal combustion engines, investors look at how an automaker is adapting to electric vehicles. Likewise, if a company relies on suppliers in regions with weak environmental or labour standards, investors look at whether risks are mapped and contingency plans in place.
The challenges of getting it right
Even with high investor appetite for sustainability data, companies are still figuring out what constitutes “meaningful” disclosure. A common misconception, investors say, is that every number has to be perfect. In reality, investors care more about whether the data is relevant, transparent and consistent than whether it’s mathematically precise.
“There are always grey areas – like whether a particular spend counts as climate-related, or how far down the value chain you go,” Wilson-Otto explains. “For most companies, these are ballpark numbers around those impacts and estimates, which, from my standpoint, is perfectly fine, as long as assumptions are clear.”
“What’s important is that companies are clear when they’ve got high confidence in a measurement versus when they’ve relied on assumptions. Investors can make their own judgement from there.”
This transparency is what matters most, adds Fabian. “We understand it’s challenging,” he says. “What’s important is that companies are clear when they’ve got high confidence in a measurement versus when they’ve relied on assumptions. Investors can make their own judgement from there.”
Forward-looking planning is often more complex. “Companies are often uncertain how far ahead they should plan, especially around capital expenditure for transitions,” Fabian notes. “Even so, signalling intentions through targets or ranges gives investors something to work with.”
Still, one challenge towers above the rest. Nearly 80 percent of major Chinese companies have yet to report Scope 3 greenhouse gas emissions. These indirect supply chain emissions are largely untracked in Asia due to technology gaps, unclear methods, and low confidence in estimation models. “The biggest gap I see is around Scope 3,” says Wilson-Otto. “The data is less consistent, and many firms are still finding their footing.”
In China, that gap is even more visible. Bei Zhang, ESG Manager at China Pacific Insurance Group (CPIC), says acquiring and verifying data from “upstream and downstream players in the value chain” remains difficult, as many Chinese companies began collecting and integrating sustainability-related data relatively late.
“A lot of companies simply don’t trust the quality of their estimation models,” says Katherine Han, Head of ESG Research at Harvest Fund Management, one of China’s largest asset managers. “Some refrain from disclosing Scope 3 altogether.”
Such inconsistency has left investors wary. “The quality and consistency of Scope 3 disclosures, particularly in this region, varies considerably,” says Cameron Bretnall, Senior Manager of the Investment ESG Centre of Excellence at AIA. “Some investors we’ve spoken to completely ignore disclosed Scope 3 emissions because they’re just not comparable across companies. Instead, they model them based on sector characteristics.”
As reporting standards evolve beyond climate to include nature-related risks, the task only grows more complex. Fabian notes that while “the standards are less developed on the nature side,” issues like water or biodiversity are “deeply relevant local issues,” which makes “comparability quite challenging across countries”.
Nevertheless, this difficulty should not deter disclosure, as Fabian argues that requiring companies to apply the standards and disclose data is the only way to “drive the practice through as many jurisdictions as possible”. And as Png puts it, companies with strong management leverage disclosures to their strategic advantage, enabling them to secure more favourable valuations and financing terms as investors and lenders are able to price the risks more efficiently. Otherwise, investors and lenders may discount the “worst case scenario” given the greater uncertainty and unknown risks, which could be “extremely costly” for companies during market disruptions.
In fact, since the adoption of the IFRS SDS, the push for clarity and quality is improving the data foundation across the region. In Mainland China, asset managers are tailoring frameworks to local needs. Zhang highlights the Ministry of Finance’s new Enterprise Sustainability Disclosure Standards – Basic Standard, which provides “practical and implementable directives” to ease alignment with international requirements.
“Reporting has improved over time, not just in narratives but in performance metrics. Many companies now map their disclosures to international standards, and some even have third-party assurance,” says Han.
As Han observes, progress is evident across industries. In China’s steel sector, for instance, robust sustainability reporting supports the shift toward cleaner technologies and participation in carbon trading. Renewable energy companies, especially battery and solar manufacturers, have integrated sustainability into their operations from the outset, aligning disclosures with international benchmarks to stay globally competitive.
Global standards meet local realities
Data alone isn’t enough; For investors, reliable, comparable reporting has become the currency of trust.
“The interests of global investors are to have standardization and comparability in disclosure as much as possible,” Fabian says, adding that disclosure standards should not be viewed as exclusive to the “peculiar or particular economic transition dynamics in any one country.”
The rationale is clear: when disclosure frameworks diverge, capital becomes cautious. “If investors think a jurisdiction is developing unique standards that make it difficult to compare performance,” Fabian explains, “it becomes a higher-cost place to invest.” That’s why the global baseline set by the International Sustainability Standards Board (ISSB) – and endorsed by the International Organization of Securities Commissions – acts as an anchor for fair, efficient capital allocation.
Yet achieving global alignment hasn’t always been straightforward. Companies and auditors have long navigated what the Institute’s Ng calls the “alphabet soup” of overlapping sustainability frameworks. “In Hong Kong, we currently converge with the ISSB Standards to reduce fragmentation, providing investors with a baseline framework,” she says.
“A Hong Kong listing gives confidence to global investors because the level of disclosure, whether financial or sustainability-related, is much richer.”
Asset managers, meanwhile, are finding their own balance between global comparability and local nuance. Han says while her company’s proprietary ESG assessment framework aligns with IFRS S1 and S2, the Task Force on Climate Related Financial Disclosures and the Global Reporting Initiative, localization remains vital. Her team identifies investment-relevant ESG signals by blending quantitative analysis with sector expertise to link ESG data to business outcomes.
While challenges remain, regulatory momentum in Hong Kong and its regional peers is quickly closing the gap, pushing the region towards comparable, globally consistent reporting.
“Hong Kong-listed companies are generally very strong in disclosures – really among the best in class,” says Png of AIA. “A Hong Kong listing gives confidence to global investors because the level of disclosure, whether financial or sustainability-related, is much richer.”
Addressing greenwashing
As reporting moves from voluntary to mandatory, confidence is everything. “When accountants prepare financial statements, they must consider the investor’s perspective,” says Ng, adding that the same principle now underpins the profession’s role in sustainability disclosures.
As Hong Kong’s sustainability disclosure standard setter, the HKICPA is helping companies navigate the transition by offering practical guidance and capacity-building initiatives to align global standards with local practice.
Ng argues that professional accountants bring unique value: they understand financial materiality, are trained to ensure connectivity between sustainability and financial statements, and possess the analytical rigour to support forward-looking estimates – expertise built for credibility.
Yet smaller companies still struggle with resources, evolving taxonomies, and limited senior buy-in. “There should be more technical consulting or training for senior management to really understand these issues,” notes Han.
The push for quality also reflects rising scrutiny over greenwashing. “International disclosure standards require companies to set quantifiable ESG targets and performance indicators,” says Zhang. “That drives internal governance and ensures alignment between ESG commitments and actual actions, helping regulators, investors, and the public assess corporate effectiveness and guard against the risk of greenwashing.”
The next step is assurance. The Accounting and Financial Reporting Council (AFRC) plans to consult on a local sustainability assurance framework in 2025 – a critical step to cement trust in disclosures and strengthen market integrity.
Building market resilience
Ultimately, sustainability reporting is evolving from a compliance exercise into a test of credibility that is non-negotiable for long-term investors. “The biggest risk for us,” says Bretnall, “is putting money into business models that might be jeopardized by climate risks or stranded assets.”
He adds that climate science leaves little room for complacency: “At the end of the day, the science only points to two outcomes – either we face massive physical risks, or we face massive transition risks eventually.”
“The biggest risk for us is putting money into business models that might be jeopardized by climate risks or stranded assets.”
Improved reporting quality and more consistent, verifiable disclosures strengthen market transparency. Companies that treat disclosure as a strategic tool are better positioned for long-term transitions, giving regulators and investors confidence that ESG commitments are actionable in a world increasingly shaped by climate change and environmental shocks.
Despite global political headwinds, regulatory momentum across Asia remains strong. “In Asia Pacific, the outlook is very strong,” notes Fabian. “About 11 jurisdictions have said they’ll adopt IFRS SDS in some form.”
Bretnall concurs, noting recent advancements in Hong Kong, China, and Southeast Asia, as well as significant global momentum. To date, 37 jurisdictions representing 60 percent of global GDP are adopting or taking steps to introduce the ISSB Standards, with most targeting implementation by 2026-2030. “And we’re not seeing a slowdown from regulators,” he contends.
5,200
The Principles for Responsible Investment (PRI) is the world’s leading investor network for sustainable finance, representing over 5,200 signatories representing US$139.6 trillion in assets under management – more than half of global professionally managed investments. Backed by the United Nations since 2006, the PRI guides institutional investors in integrating environmental, social and governance factors into investment decisions.
