There is an increasing global demand for better disclosures by listed companies as stakeholders nowadays concern not only listed companies’ financial performance, but also their performance in environmental, social and governance (ESG) aspects, including anti-corruption. In the international arena, some jurisdictions regulate the disclosure of ESG information through stock exchange listing rules, and some have introduced statutory amendments to codify the disclosure requirements of non-financial information. In nearly all jurisdictions where disclosure of ESG information is required, anti-corruption is one of the essential disclosure aspects.
Anti-corruption measures form a vital part of corporate governance and are thus crucial to a company’s success. These measures include the means by which companies manage corruption risks and tackle corruption-related issues. Apart from the conventional financial and corporate governance reporting, quality disclosure of anti-corruption policy and information helps stakeholders, in particular investors, to understand the companies’ commitment, abilities and performance in anti-corruption initiatives, and to make informed investment decisions.
In 2016, Hong Kong reached an important milestone in the enhancement of the transparency of listed companies’ ESG aspects when the Hong Kong Exchanges and Clearing Limited (HKEX) upgraded its ESG reporting standards. Listed companies need to disclose, among others, information on their anti-corruption policies and compliance with relevant laws and regulations on a “comply or explain” basis, with considered reasons for non-disclosure. Moreover, listed companies are also recommended to disclose details of concluded legal cases regarding corrupt practices brought against them or their employees, and a description of their preventive measures and whistle-blowing procedures.
Anti-corruption system
Compliance with these ESG reporting requirements necessitates the implementation of a robust anti-corruption system. To assist listed companies in establishing and reviewing their anti-corruption systems, the Corruption Prevention Advisory Service (CPAS) of the Corruption Prevention Department, Independent Commission Against Corruption (ICAC) published the Anti-Corruption Programme – A Guide for Listed Companies (the guide), available via the CPAS web portal. The guide provides comprehensive guidance on the components of a robust anti-corruption programme.
The guide recommends best practices in anti-corruption governance with reference to international standards, including the ISO 37001 – Anti-bribery Management Systems – Requirements with Guidance for Use. The recommended practices relate to the following areas:
a. Anti-corruption laws and regulations: major anti-corruption laws and regulations relevant to business entities, including the Prevention of Bribery Ordinance (Cap. 201), overseas anti-corruption legislations, as well as regulations relating to the prevention of corruption in listed companies.
b. Roles and responsibilities: the governance framework in implementing an anti-corruption programme and the suggested roles and responsibilities of different personnel and parties in the programme.
c. Anti-corruption policy: top-level commitment to ethical business practices and anti-corruption, key integrity and conduct requirements for company’s personnel and business partners, the company’s whistle-blowing policy, and a brief description of the corporate anti-corruption programme.
d. Anti-corruption programme: key elements of the code of conduct and recommended practices for corruption risk assessments, anti-corruption controls and integrity training.
Hong Kong’s current scorecard
In 2018, to assess listed companies’ performance in implementing the upgraded reporting requirements in anti-corruption, CPAS reviewed a number of ESG reports and/or annual reports for the financial year commencing in 2016. The samples covered companies with different market capitalization and in different industries listed on both the Main Board and GEM Board, reflecting the landscape of anti-corruption compliance among listed companies in Hong Kong. The major observations of the review were generally in line with those identified in HKEX’s Analysis of Environment, Social and Governance Practice Disclosure in 2016/17. The following is a summary of the major findings of the review:
a. Compliance with the reporting requirements: Although the vast majority of sampled companies disclosed information on their anti-corruption policies and compliance situations, a number of companies did not give considered reasons for non-disclosure which amounted to a breach of the Listing Rules. The review also noted that, on average, only around 75 percent of sampled companies disclosed information relating to HKEX’s “recommended disclosures.”
b. Disclosure of recommended core elements: There was a substantial gap between listed companies’ disclosures and CPAS’s recommended core disclosure elements (see below). For instance, only around 40 percent of sampled listed companies disclosed information about their policies on acceptance of advantages and entertainment, and managing conflicts of interest. As for disclosures on corporate websites, only a small proportion of listed companies made the integrity requirements for directors, staff and business partners, and their whistle-blowing policy available for reference.
c. Quality of disclosure: Despite their compliance with HKEX’s reporting requirements, the quality of disclosures varied. While some listed companies made very good disclosures by providing comprehensive descriptions of their anti-corruption policies and compliance information, other companies appeared to adopt a “box-ticking” approach and sought only to disclose the minimum required by the HKEX. For instance, listed companies either gave a vague description on their anti-corruption policies and compliance information, or merely provided generic statements such as “we have an anti-corruption policy” or “we have complied with all relevant laws and regulations” without further elaboration. Such statements were neither informative nor helpful to stakeholders. As far as anti-corruption policies are concerned, while it may be impractical to set out the policy in full, listed companies are expected to provide a summary of the policy and/or embed links to the related codes of conduct, guidelines, integrity requirements so as to provide useful information for stakeholders.
Recommended core disclosure elements
ICAC understands that a “box-ticking” approach may not be appropriate or effective for listed companies to decide on the information to be disclosed. Nevertheless, non-disclosure of some core anti-corruption elements could be perceived by stakeholders as lacking transparency on the information necessary for assessing the companies’ performance, or of more concern, lacking controls on corruption risks. As there is no one-size-fits-all approach in ESG reporting. Listed companies (and their advisors) should assess the materiality of individual elements and the impact on the companies’ operations when deciding on the anti-corruption information to be disclosed.
In light of the upgraded reporting standards and having taken into account the international practices on anti-corruption disclosure, CPAS recommends the following five core elements of a corporate anti-corruption programme that listed companies should disclose in their ESG reports:
- Anti-corruption policies disclosures: including management’s zero-tolerance against corruption in Hong Kong and elsewhere, and commitment to ethical practices/standards.
- Corruption risk assessment disclosures: including the impact of corruption on the key operations of the company and their materiality assessment on anti-corruption issues.
- Compliance with laws and regulations disclosures: particularly those which have a significant impact on the company (including local and overseas legislations related to corruption), and the number of concluded legal cases regarding corrupt practices brought against the company or its staff, and their outcomes.
- Management approach and measures disclosures: including factors concerning their execution and monitoring: (i) integrity requirements for directors and staff, covering the policy on offering and acceptance of advantages and entertainment, and managing conflict of interest; (ii) whistle-blowing policy, procedures and channels for reporting corruption or irregularities; (iii) integrity requirements for business partners and associates; (iv) corruption prevention controls on high-risk areas or procedures; and (v) clear and measurable target key performance indicators set out for the forthcoming years to facilitate continuous monitoring.
- Capacity building disclosures: their efforts in anti-corruption training to promote ethical business practices and awareness of directors, staff and business partners on corruption prevention, and statistics on anti-corruption training (e.g. number of participants and training hours).
Apart from disclosing the above information in ESG reports, CPAS also recommends listed companies to upload important anti-corruption policy documents to their corporate websites, including their code of conduct for directors and staff, integrity requirements for business partners (e.g. suppliers, contractors) and whistle-blowing policy and procedures, so that the business counterparts and investing public may easily obtain this information.
CPAS is a specialized unit in the Corruption Prevention Department of the ICAC dedicated to providing professional corruption prevention advice and services to private companies, organizations and individuals. It maintains a user-friendly web portal for sharing corruption prevention knowledge and resources. As a cyber-resource centre, the CPAS web portal offers easy access to useful corruption prevention resources, such as corruption prevention guides and toolkits, case studies, quick tips and red flags. Individuals/organizations may also subscribe to CPAS’s email alert service to receive regular news and updates on corruption prevention (including newsletters, training packages). CPAS can be contacted by email: cpas@cpd.icac.org.hk, or via its hotline: 2526-6363. The hotline is available Monday to Friday, 9:00 a.m. to 6:00 p.m., with a voice message after office hours.
This article is contributed by the Independent Commission Against Corruption’s Corruption Prevention Department.
