Accounting professionals and business leaders gathered on 15 July at the CPA Congress 2023, organized by the Hong Kong Institute of CPAs, with a range of keynote speeches and panels focusing on the title theme “Creating a Pathway to Advancement: Empowering Enterprises for the Future.”
Finance professionals are being buffeted by the increased digitalization of the industry, which brings challenges and tools to tackle global issues like social and governance issues and environmental degradation. These topics took centre stage in two one-hour panel discussions during the congress’ morning session.
ESG challenges and opportunities
In an impassioned first panel discussion, the audience heard from Anthony Cheung, Managing Director and Head of ESG at Polymer Capital Management; Dr Christine Loh, Chief Development Strategist of the Institute for the Environment at the Hong Kong University of Science and Technology (HKUST); and John Haffner, Deputy Director – Sustainability at Hang Lung Properties Limited. They were joined in the heated conversation by Mark Harper, Group Head of Sustainability at John Swire & Sons (H.K.) Limited; and Hendrik Rosenthal, Director of Group Sustainability at CLP Holdings Limited.
The importance of environmental, social and governance (ESG) is difficult to overstate and as Rosenthal was quick to note, it is no coincidence that this topic launched the congress celebrating the Institute’s 50th anniversary. ESG factors are driving critical decisions by corporate leaders to grow their businesses sustainably. However, it is not always smooth sailing.
The panel started by examining some of the biggest challenges companies face in the process of evaluating their impact on the environment and developing guidelines to help them meet their ESG goals across a range of industries.
Construction and property companies like Hang Lung face the challenge of partnering with upstream suppliers and tenants to reduce Scope 3 emissions, which result from activities from assets not owned by reporting organizations but that are indirectly affected via its value chain. “We’re not alone in facing this challenge, but it’s a large one for us,” said Haffner.
Harper, who leads group sustainability at Hong Kong conglomerate Swire, highlighted the struggle of companies to respond to many different demands to disclose information. He suggested that there needs to be a system for data tagging when it comes to sustainability data, in addition to standards for data verification and accuracy.
Other panellists echoed these concerns, raising questions about the opaque data ownership and collection processes in Hong Kong that make it challenging to gauge companies’ success at meeting their ESG targets.
Above all, greenwashing emerged as a chief concern during the discussion. For Polymer Capital Management’s Cheung, responsible for driving sustainable integration and stewardship at the asset manager, the “G” in ESG is something different: greenwashing. “It’s the single biggest risk for ESG investing… and it leads to the very vital and critical role that every CPA here will need to play,” Cheung told the audience.
“The ambition of every company now should be to make every stakeholder better off.”
He recommended accountants to consider ESG as a form of risk management, as he does. Cheung combats greenwashing by examining whether a company can break their larger ESG commitment into smaller, more manageable interim targets, and how a company incentivizes the setting and meeting of ESG metrics, such as through executive compensation.
Moderator Dr. Stephen Wong, Head of the Chief Executive’s Policy Unit, followed up on the point about greenwashing by putting it in the context of ever-increasing regulatory standards, which may incentivize more companies trying to cut corners.
Some companies do not realize they are greenwashing, said HKUST’s Loh, who pointed to complex data gathering and tracking procedures that many organizations have never had to do before. Others face the issue of “green hushing” – when companies do not share data because they fear it does not look like enough action on their part.
Moreover, still, companies must forge on through these challenges. The world is facing “a planetary crisis,” and “the ambition of every company now should be to make every stakeholder better off,” said Haffner.
CLP came face-to-face with this issue in 2019, according to Rosenthal, who was at the time tasked with updating the group’s climate vision. This job was impossible for him as CLP was simultaneously investing in constructing two coal plants. It was an untenable situation.
So, over the course of a full year, he sparked conversations with senior management and board members, ultimately culminating in the decision to exit those projects. “Every transition plan needs to be reviewed by a third party in order to make sure it is not just a bunch of empty words and a PR exercise,” he added.
The conversation circled back to data. Existing ESG audit and disclosure regimes are already producing significant amounts of information, and as requirements grow, so will the need for standardized metrics to measure improvements in these areas.
“It’s not dollars, it’s a very different currency. We’re talking about CO2 equivalents, we’re talking about cubic meters of wastewater.”
Without specific ESG assurance standards, companies have only been able to conduct limited assurance by applying financial assurance standards to non-financial data such as emissions figures, Harper noted. However, he believes mandatory reasonable or full assurance for ESG data might be inevitable once the recently released draft International Standard on Sustainability Assurance 5000 General Requirements for Sustainability Assurance Engagements by the International Auditing and Assurance Standards Board is finalized. Panellists concurred that this reflected an opportunity for young auditors to be trained in the latest sustainability standards to meet corporate demand in this area. “It isn’t pure accounting. It’s not dollars, it’s a very different currency. We’re talking about CO2 equivalents, or we’re talking about cubic meters of wastewater, for example,” Rosenthal said.
This is not just a corporate issue. While listed companies will comply with strict data-sharing regulations going forward, demands on government bodies in Hong Kong remain murky, according to Loh.
She suggested there is a need to learn more about how people use energy in Hong Kong, pointing out that the city’s three energy companies could share more information about electricity use to spur further innovation. However, some of this information may be regarded as competitive and private, making it crucial for the government to work with companies to navigate these issues.
Ultimately, data holds the answer to many ESG-related problems we face today, and as the panel came to a close, Loh pointed to one of Hong Kong’s most definable infrastructure features as an example of inefficiencies that are within our power to correct.
The city’s towering apartment and office buildings, many of them over 60 years old, are currently a blackhole of information when it comes to energy efficiency data. But they are also ideally suited to retrofitting that would ease their impact on the environment.
“All these things are calculable,” said Loh, who sees within these numbers a roadmap for the types of policies Hong Kong needs to develop over the next 20 years.
Navigating mega trends in technology
A second panel saw Wilson Chow, Global Technology, Media and Telecommunications Industry Leader for PwC China and an Institute member, moderate a discussion between Joanne Chan, Deputy Chief Financial Officer at Animoca Brands; Duncan Chiu, Member of the Technology and Innovation Constituency in the Legislative Council (LegCo); and Sam Lee, Founder and Chief Executive Officer at Coinstreet. Robert Lui, Hong Kong Digital Asset Leader at Deloitte China and an Institute member; and Kelvin Tse, Head of Global Partner Solutions at Microsoft Hong Kong, also spoke on the panel.
As the first panel highlighted, demands on professional service providers are evolving to keep pace with a changing world. The range and scope of technological tools to assist these endeavours are quickly growing.
Panellists in the second discussion reviewed the challenges and opportunities afforded by digital transformation, revealing best practices for companies looking to adopt cutting-edge technologies from artificial intelligence (AI) to virtual assets.
Generative AI ChatGPT, developed by Microsoft-backed research group OpenAI, was on the lips of all the panellists. ChatGPT reached 100 million users within months of launching, while it took around 16 years for the mobile phone to crack that usage threshold, according to Microsoft’s Tse.
Now, more companies are looking to train AI models like ChatGPT with their own data to create in-house versions of the tool. But before they reach that stage, organizations must have accurate and relevant data, and a system needs to be in place to gather data. Referring to the first panel discussion, Lui from Deloitte noted that “the most important thing is that we shouldn’t have to think about how we collect data, [as] Christine mentioned.”
“We always talk about the advancement of Hong Kong in terms of using technology, but not innovating it.”
The success of digital transformation, whether implementing AI tools or upgrading to cloud servers, depends on how well a company can articulate its vision. “Things will get rough along the way, so you will need a north star,” said Chan from Hong Kong Web3 company Animoca Brands.
There is a veritable alphabet of new terms for companies to learn, especially in virtual assets, according to Lee. The founder of Hong Kong digital asset consultancy Coinstreet took the panel through a brief explainer of four types of virtual assets: cryptocurrencies like bitcoin with an underlying blockchain protocol, security tokens with underlying real world assets, non-fungible tokens (NFTs) with underlying collectables, and stablecoins pegged to fiat currencies.
However, these are more than abstract ideas and not necessarily new concepts. For example, for the concept of stablecoin, we are surrounded by different types of stablecoins, according to Lee, who pointed to the U.S. dollar-pegged Hong Kong dollar and Octopus card payment method as examples.
Hong Kong recently rolled out regulations that will allow retail trading of cryptocurrencies as soon as later this year, and the city’s Securities and Futures Commission opened its application portal for virtual asset trading platform licenses on 1 June.
Chiu, who represents the Technology and Innovation Constituency in Hong Kong’s LegCo, contextualized these landmark policy shifts within a larger push to spark digital innovation. “We always talk about the advancement of Hong Kong in terms of using technology, but not innovating it,” he explained.
Secondary students will find AI in their curriculum from September onwards, said Chiu, who sees himself as a middleman between the government and the technology industry. In addition to education, Hong Kong needs regulations to manage how virtual asset companies and AI platforms use personal data, he added.
These promising developments suggest Hong Kong could become an international hub for virtual assets, according to Lui, provided authorities and financial institutions do more to accommodate Web3 and cryptocurrency companies.
“While AI may not replace people, people who understand the technology will replace people who do not.”
According to Chan, Web3 is an umbrella term covering technologies like distributed ledgers and blockchain, and companies operating in this space often struggle to establish themselves in Hong Kong as they are widely underserved by traditional financial institutions.
Opening bank accounts, securing credit loans and finding insurance coverage can be highly challenging, as “while the establishment and robust processes of Hong Kong financial institutions makes Hong Kong an international financial hub, it also creates difficulties for smaller Web3 businesses,” she noted.
Hong Kong’s government must come out and take a leading role in setting guidelines to govern businesses in this sector, Chiu and Lui noted.
The benefits go both ways. Building a broad and rich digital ecosystem with Web3 capabilities would also make data analytics much easier for traditional companies, as data stored on the blockchain is easily accessible and immutable, explained Chan and Lee.
For the panellists, the most significant risks lie with AI, where users must understand and validate the AI models’ different accuracy and precision levels. Moreover, they agreed that setting boundaries and perimeters for data gathering could be challenging.
According to Tse, the AI industry is at the co-pilot stage and cannot run on auto-pilot at this point in time. Human supervision, to deliver constant algorithm optimization and monitor output, is required. To address these needs, companies may need to hire “a doctor for AI for continuous optimizing and diagnosis of the performance of AI,” said Lee.
This all means that fears of AI taking human jobs are mostly unfounded, and for accounting professionals, opportunities lie in the fusion of both professions. The consequences of ignoring these developments will be grave, warned Chiu. He noted that while AI may not replace people, people who understand the technology will replace people who do not.
This generation of budding accountants fall predominantly into the first category, according to panellists’ observations. In fact, Lui was happy to share that he has seen more accounting students wanting to learn about cybersecurity and broader technology applications in addition to auditing and accounting.
It was a fitting end note for the morning session of a congress on the theme of empowering businesses for future success.
A paradigm shift is underway regarding how companies talk about sustainability-related risks and opportunities, and the role of finance professionals in upholding disclosure requirements and supporting companies in this endeavour cannot be understated.
The International Sustainability Standards Board (ISSB) issued the inaugural IFRS Sustainability Disclosure Standards on 26 June, which will become a common language for investors, businesses and regulators to communicate sustainability-related information, according to Julia Leung, Chief Executive Officer of the Securities and Futures Commission, Hong Kong.
At the International Organization of Securities Commissions (IOSCO), Leung co-chairs the Sustainable Finance Task Force’s Corporate Reporting Workstream, which was closely involved in providing feedback to the ISSB in the lead-up to the final standards. She spoke with Loretta Fong, President of the Institute, during a keynote discussion at the CPA Congress 2023.
It is essential for the ISSB to outline a pathway for implementation to encourage the adoption of and transition to the final ISSB standards, Leung noted. “That is, how the standards are set not so high on day one that none of the jurisdictions can adopt them, but high enough for us all to make an effort on this journey.”
A key consideration for the IOSCO workstream in recent months was “whether [the standards] are scalable, flexible and interoperable for all jurisdictions to adopt as a global [framework].” Leung welcomed the proportionate measures embedded into the final ISSB standards, as well as the time-limited transitional reliefs, which could facilitate phasing-in of the requirements.
Hong Kong should adopt the ISSB standards by starting with large listed companies, Leung added, noting that global stakeholders have high expectations for the international financial centre.
Leung noted that another reason for Hong Kong to pay special attention to the ISSB standards is the opportunity from transition finance. Mainland China is committed to the dual climate goals of reaching peak carbon emissions by 2030 and achieving net carbon neutrality by 2060. According to Leung, preparing local financial institutions and listed companies to be well-versed in the ISSB standards would be important to strengthen Hong Kong’s role in international capital intermediation.
In these efforts, the role of accountants and business leaders are crucial. “I look towards the audience in this room to provide support and professionalism that will safeguard the quality and integrity of this market,” she said, addressing the room.