In a momentous celebration of its 50th anniversary last year, the Hong Kong Institute of Certified Public Accountants concluded the Best Corporate Governance and ESG Awards 2023 in November 2023 with a record-breaking number of winners. Thirty-four organizations were recognized for their outstanding corporate governance (CG) and environmental, social and governance (ESG) performance.
Supported by the Hong Kong government, financial market regulators, investor groups and the business community, the awards set benchmarks for best practices in CG and ESG, fostering transparency, accountability and stakeholder engagement.
According to Salina Yan, Permanent Secretary for Financial Services and the Treasury (Financial Services), who was guest of honour at the 2023 awards presentation ceremony, the awards are significant and in an address to the winners and other guests, she said: “You have demonstrated clearly that doing good to society and the environment also means doing good for your businesses. From a big picture point of view, concerted efforts by individual organizations to attain a high level of governance can also help foster the credibility and resilience of our financial markets to weather changes and challenges.”
The awards are focused on the voluntary adoption of practices and disclosures that surpass the minimum legal requirement. While the evaluation centres on information disclosed in annual and sustainability reports, the judging panel also takes into consideration other public information that provides insights into how companies and organizations are managed in practice.
“We are pleased to see more very strong performances in 2023 and a number of new winners emerging, particularly in the separate ESG section of the awards,” says Loretta Fong, the Institute’s Immediate Past President, who was President at the time of the 2023 awards and Chairman of the Judging Panel.
“The tone from the top helped us greatly in the further implementation of ESG improvements.”
The rise of ESG reporting on the Mainland
The Institute noted that there is clear improvement in the ESG reporting of Mainland enterprises listed in Hong Kong and more companies that are establishing connections between their ESG vision, strategies and action plans. Most notably was an increase in the disclosure of quantitative environmental key performance indicators (KPIs), as well as a growing integration of ESG-related risks into risk management frameworks.
The Institute also noted that a driving force could be the Hong Kong government’s emphasis on achieving carbon neutrality by 2050, and the Mainland government’s 2060 target which is putting mounting pressure on institutional investors to prioritize sustainable developments.
And many agree. CK Poon, Head of ESG at Geely Automobile Holdings Limited, which received a special mention in the 2023 Awards’ H-share Companies and Other Mainland Enterprises Category of the ESG Awards, believes that government initiatives and public awareness around ESG issues have been firing up companies in the Mainland to improve ESG reporting practices.
“The Chinese government’s double carbon targets improved the public awareness on ESG issues such as climate change,” he explains. “The stock exchanges in the Mainland have also been actively promoting and will introduce guidelines/ regulations in ESG reporting.”
And many see this as a welcoming move. According to Cerin Yip, ESG Director at Alibaba Group Holding Limited, which also received a special mention for the ESG Awards in the same category, says: “Alibaba’s mission is ‘To Make it Easy to Do Business Anywhere’. The design of our ESG foundation is critical to the realization of mission and strategy.”
To fulfil this mission, since April 2021, the e-commerce company has organized its ESG material issues into seven long-term strategic directions based on its capabilities and priorities. These align with the United Nations’ 17 Sustainable Development Goals and China’s key development policy initiatives.
And this is something that Poon has observed among Mainland companies today. “I started to observe some ESG reports of Mainland enterprises that mention more ESG reporting standards such as Task Force on Climate-related Financial Disclosures or Sustainability Accounting Standards Board standards besides the typical Global Reporting Initiative, with more emphasis on environmental issues rather than social issues,” he says.
This gives comfort to investors, stakeholders and the wider business community, and shows how well enterprises are prepared for managing their ESG-related risks and opportunities. According to JD Logistics, which also received a special mention in the ESG Awards in the same category, an increased focus on ESG reporting has multiple positive effects, including boosting a company’s public image, ensuring compliance, access to capital, investor attraction and retention, competitive advantage and even risk mitigation.
“A strong and effective ESG governance structure is key to
ensuring that the ESG issues Alibaba faces are incorporated
into the corporate agenda.”
“ESG reporting is not just a compliance requirement, it has become a strategic imperative for Mainland enterprises to thrive in a global business environment that values sustainability and responsible business practices,” says Dong Wang, Vice President and Director of Public Affairs Department of JD Logistics.
While many Mainland enterprises have jumped on the ESG bandwagon, some confess that they are still at a relatively young stage compared to their global peers. However, some have also adopted a clear vision and mission, adopting a top-down approach and a strong governance structure to help them pave the way forward.
“A strong and effective ESG governance structure is key to ensuring that the ESG issues Alibaba faces are incorporated into the corporate agenda,” says Yip at Alibaba Group. “And the tone from the top helped us greatly in the further implementation of ESG improvements,” adds Geely’s Poon. And they aren’t just speaking on their organizations’ approaches, but also on the entire industry.
To bolster this point, Eddie Yue, Chief Executive of the Hong Kong Monetary Authority (HKMA), says that institutions, governments and regulators also need to take the lead. “Within our organization, we have actively incorporated sustainability considerations into our internal operations with our aspirations structuring around the three pillars of environment, people and social responsibility,” he explains. HKMA won an ESG Award for the Public Sector/Not-for-profit Organizations (Large) Category.
With the introduction of multiple ESG initiatives and the oversight of its Green and Sustainability Steering Committee, the HKMA has made a number of achievements. A notable one being a double-digit reduction on a per-capita basis across greenhouse gas emissions, total energy consumption and total paper consumption in 2022, compared to 2015 when it first started tracking carbon footprint.
“As the central banking institution of Hong Kong, we recognize the need to lead by example, and our responsibility to guide the banking industry to strengthen their climate-resilience, power them for the transition, as well as promote the healthy growth of a sustainable finance ecosystem,” Yue says. But he also admits that there may be challenges for companies to adopt effective ESG practices along the way.
Both the HKMA and many of Mainland companies cite similar challenges faced by the industry in general. These include a lack of data and common standards for sustainability reporting, insufficient talent to handle the technical work, or businesses that are spread across many regions which makes ESG reporting particularly difficult.
Yet despite these challenges, the awardees agree that enterprises now are more motivated than ever to monitor, measure, assess and manage ESG performance by identifying areas for improvement, benchmarking global best practices, setting metrics and targets, and tracking and managing the process.
JD Logistics believes that moving forward, Mainland enterprises can take several steps to advance their ESG reporting practices. These include integrating ESG considerations into the overall business strategy, advanced technology adoption, supply chain transparency, education and training, and innovating for sustainable solutions. But Wang also advises these companies to aim high.
“Mainland enterprises can not only meet current ESG reporting expectations, but also position themselves as leaders in sustainability, contributing positively to environmental and social goals,” he says.
“ESG reporting... has become a strategic imperative for Mainland enterprises to thrive in a global business environment that values sustainability and responsible business practices.”
For the HKMA, for example, they, together with fellow regulators, have launched a data repository, which contains various government data sources relevant to the assessment of physical risks in Hong Kong. They are also planning to launch a cloud-based platform for physical risk assessment to facilitate banks’ assessment of the impact of physical risk on residential and commercial buildings in Hong Kong under different climate scenarios. Meanwhile, the Hong Kong Exchanges and Clearing (HKEX) which received a special mention under the Most Sustainable Companies/Organizations (MSCO) Awards (Hang Seng Index Category), has set itself new targets including achieving group carbon neutrality by 2024 and net zero by 2040.
“As a frontline market regulator, we are committed to promoting high CG standards among our issuers, helping to elevate the Hong Kong securities market’s quality and attractiveness. We will be implementing enhanced climate-related disclosure requirements following the International Sustainability Standards Board’s IFRS Sustainability Disclosure Standards,” says a HKEX spokesperson.
But for now, as companies forge ahead in this space and tackle their challenges, they agree on one thing: internal buy-in and collaboration will be key. These could include international and regional discussions, stakeholder engagement and company-wide support and coordination. “We need less PR content talking about the good side and more on illustrating how the company handles ESG risks and opportunities,” Geely’s Poon says.
Keeping sight of CG
While the awards celebrated the countless achievements and progress that has been made in ESG reporting, ominously, Hong Kong’s progress and development in CG has been lagging, reflecting Asian Corporate Governance Association’s latest CG rankings in Asia Pacific.
Its research showed that Japan shot to second place overtaking Hong Kong, which fell from its second-place position to sixth place. This finding was also apparent in the 2023 Awards. While Fong attributed this trend to the additional time and resources directed toward developing sustainability practices and reporting, nonetheless, she emphasized the inseparable relationship between CG and ESG performance, urging companies to continue prioritizing things like board diversity, independence and other CG best practices.
“Good CG underpins everything that a business does, so it is important to have the right governance structures in place, as well as high standards of ESG to ensure long-term sustainability of the business,” she explains.
“We recognize the need to lead by example, and our responsibility to guide the banking industry to strengthen their climate-resilience.”
Johnson Kong, a panel judge of the 2023 Awards and Vice President and member of BlackRock’s Investment Stewardship team, concurred. “While improvements were noticed, such as board refreshment and climate target-setting becoming more common, some potential key enhancements remain yet to be realized over the years,” he says.
These issues range from independent board leadership and nomination processes to transparency of remunerations, including how companies might decide to consider the use of additional metrics like ESG. “Investors would benefit from boards and management focusing on achieving meaningful approaches that align with the interests of all shareholders and key stakeholders, even if it may take extra efforts to move the needle,” Kong says.
Indeed, Kong commented that one shouldn’t see consideration of material sustainability issues as a trade-off for CG. In fact, both constitute a core component of having an effective governance framework. “Well-managed companies will effectively evaluate and manage material sustainability-related risks and opportunities, just as they do for other business-relevant risks and opportunities. We consider sound CG a cornerstone of a company’s long-term value creation and economic success,” he says.
There are companies out there that are setting the bar in this space. One such being Hong Kong’s very own MTR Corporation Limited, which received a special mention under the Hang Seng Index Category of the MSCO Awards.
Not only has the company set clear goals and KPIs for its climate-related initiatives, it has also maintained a supermajority of Independent Non-Executive Directors (INEDs), conducted a board evaluation exercise with external consultants, and ensures that the remuneration is clear and transparent, while working on other achievements such as increasing the number of female directors.
“Good corporate governance not only serves as a foundation for building long-term growth; it also helps enhance brand
building, foster trust from stakeholders and attract quality
investors – a win-win situation for all parties.”
According to Gill Meller, Legal and Governance Director of MTR Corporation, the company’s commitment towards balancing CG and ESG is what contributes so much towards its success. “For a company to be sustainable in the long term, it needs to take a holistic approach to its operations and growth which allows it to be financially sustainable, while addressing the needs of the communities in which it operates, and managing its impact on the environment,” she says. “Good CG not only serves as a foundation for building long-term growth; it also helps enhance brand building, foster trust from stakeholders and attract quality investors – a win-win situation for all parties.”
The road ahead
The awards have highlighted several growing trends and offered companies some suggestions for key areas that need improving. But as a priority, the judges stressed that companies need to make effort in paying equal attention to CG and ESG.
In terms of CG, some observations include transparency around long-serving INEDs and board diversity, as well as “over-boarding”. Both issues limit opportunities and restrict new perspectives. Directors sitting on a number of listed company boards may also not be able to devote sufficient time to the work of each board.
“We believe that introducing fresh INEDs onto a board and expanding its diversity offers opportunities for new perspectives to be considered, which can be a competitive advantage in a dynamic business environment with markets that continue to develop often in new and unexpected directions,” advises Patrick Rozario, Chairman of the 2023 awards Review Panel.
“Investors would benefit from boards and management focusing on achieving meaningful approaches that align
with the interests of all shareholders and key stakeholders, even if it may take extra efforts to move the needle.”
Turning to ESG, the Institute noted that a number of targets remain qualitative, especially regarding the “social” aspect, the “S” in ESG, which often leaves stakeholders without a complete understanding of the actual situation. Adopting external ESG assurance to go through performance data and information will remain a key challenge and opportunity for most companies.
Overall, the companies say the awards motivated them to think out-of-the-box and to raise the bar in CG and ESG standards. “We are thankful for the acknowledgement of our ongoing efforts in strengthening our ESG practices,” says Alibaba’s Yip. “The award has motivated us to do more to build a green and sustainable new business ecosystem and create value beyond commercial outcomes.”
Since its inception in 2000, the Best Corporate Governance and ESG Awards have evolved over the years to become one of Hong Kong’s most prestigious business competition. The awards set benchmarks for best practices in corporate governance and environmental, social and governance fostering transparency, accountability and stakeholder engagement.