While companies and regulators started paying attention to the importance of non-financial reporting around a decade ago, the academic world had already been exploring the topic for many years before that. According to Dr Artie Ng, Deputy Director of School of Professional Education and Executive Development of The Hong Kong Polytechnic University (PolyU SPEED), the origins of environmental, social and governance (ESG) reporting go back to one man – Robert Gray.
The late professor Gray was the Founder of the Centre for Social and Environmental Accounting Research (CSEAR) at the University of St Andrews in Scotland, an international network of academic researchers in the field of social and environmental accounting, and co-author of Accounting for the Environment (1993). “I met him at St Andrews nine years ago, and we built a connection and started collaborating via CSEAR,” says Ng, a Hong Kong Institute of CPAs member. “At the time, people started thinking about corporate social responsibility (CSR) and he was the pioneer who spoke about environmental accounting more than 20 years ago, arguing that companies should be more responsible because the environment is connected to the operations of companies, like oil and gas companies. Unfortunately, he passed away this year. It was a huge loss.”
Ng and Gray are similar not only in terms of their career trajectory – both worked in an accounting firm before pursuing academic jobs – but also in their deep interest in ESG reporting and sustainability. “More recently, in the last five or six years, ESG reporting has been driven by institutional investors. In Europe and the United States, there is talk about ESG risk, and there is a lot of research proving that if companies don’t care about the environment and society, it would have a negative effect on their value. So people no longer care about it only for ethical reasons but also for practical reasons,” Ng explains.
Ng coordinates the CSEAR North Asia Office, set up by PolyU SPEED in 2019. Earlier this year, it worked with BDO on a research report, ESG Disclosures in Asia Pacific, which looked into the 2018 disclosures of 500 Hong Kong-listed companies, focusing on ESG reporting quality, compliance and the breadth and depth of the information. “We found that a lot of companies are, yes, ticking a box. The better ones are the larger companies as there are more resources, more institutional stakeholders so they are more driven to produce quality reports. The ones with global operations also do a better job and have more disclosures, which makes sense because this is a global trend. Whereas the other mid-cap or smaller-sized companies need to catch up,” says Ng.
To do that, Ng believes that companies need to allocate more resources to enhance data capturing capability or processes. “They have to have the data available, like the emission figures. I think a lot of smaller companies have tried to do that but they haven’t allocated the resources as much as the large-caps. However, they could start with small-wins through embedding in their business activities that would improve environmental sustainability, such as through operating a greener office with energy savings, reduce and reuse measures, etc.” Stronger commitment from corporate leadership and complementary culture is also critical, he adds. “We find that if you have senior management or governance that is really committed to ESG performance, they tend to have better disclosures, that’s natural, versus those who think this is just a compliance exercise.”
Enhancing ESG competency
Ng believes in the importance of developing ESG competence among the next generation of accountants. “If accountants want to be relevant, we need to incorporate these kinds of topics more formally into the curriculum, into the training of the future generation of accountants,” he says. “It has to be an interdisciplinary approach. You can no longer have a rigid framework about the concept of accounting and finance. Financial management is ultimately about managing both financial and economic resources for the good, not only maximizing profit. For instance, commitments that enhance social and environmental sustainability of the community would be remembered by the broader stakeholders, including the customers and investors. We have to strike a balance between finance and ESG, and think more long-term beyond short-term gain. CPAs, when well equipped with such pertinent knowledge, would likely to be an ideal internal advisor on optimizing the allocation of resources among the competing interests.”
This need for accountants to have interdisciplinary skills, driven by an ever-changing business environment, will attract more students to study accounting, believes Ng. “Young people today have the perception that working for a big accounting firm means intensive work and long hours and they will question, what is the purpose? With ESG and sustainability reporting, the answer is, it’s beyond just profit reporting, it’s about a more sustainable world and society.”
“It has to be an interdisciplinary approach. You can no longer have a rigid framework about the concept of accounting and finance.”
PolyU SPEED’s accounting degree programme consists of a compulsory year-four subject called corporate social responsibility. “We continue to update the content. More recently, we incorporated topics like ESG issues and sustainability issues.”
In the final year, students have to complete a research project, or Capstone project, on contemporary issues that are pertinent to the accounting profession, including ESG and sustainability. Ng is a supervisor for this project. “Conducting research on real-life cases through reviewing annual reports of listed companies is one of the approaches adopted for these final-year projects,” says Ng. “If their topic is related to ESG or sustainability, we encourage them to look at the annual reports of three or four companies in the same industry, not only in Hong Kong, but in China or the U.S., and compare how they report on CSR and sustainability issues, find out which is a better guide, and how Hong Kong can do better in the future. We find it very useful because students open up their minds about the world when making these comparisons.”
He notes that more than half of the students would choose to focus on a topic related to CSR and sustainability. “I ask them, ‘why did you choose that topic?’ They say they think the environment is important, they care about environmental sustainability and how a company can be more responsible for benefit of society.”
Dr Artie Ng joined PolyU SPEED in 2008. He oversees quality assurance of a portfolio of articulation degree programmes across various disciplines offered by the school.
A crowded space
Ng, like most people in the field, sees the multitude of global non-financial reporting frameworks that are currently available as adding confusion to the work of those preparing ESG reports or providing assurance on those reports. He would like to see an alignment of the different frameworks. “It’s still evolving. I think ultimately there should be one global framework with certain principles to follow, but there should also be flexibility according to a company’s industry, in my opinion. It is encouraging to note that IFRS Foundation has recently started a consultation on a global approach to sustainability reporting.”
In the meantime, according to Ng’s observation, most listed companies in Hong Kong are adopting certain standards, such as the Global Reporting Initiative standards, in their reporting approach, while at the same complying with the Hong Kong Stock Exchange’s (HKEX) ESG Reporting Guide, first released in 2015. “I’m a member of the Institute’s Sustainability Committee, and we have looked into all these different standards. I think the HKEX’s ESG guide is a good example of how a regulator can integrate the more globally accepted standards into a guideline for listed companies in Hong Kong to apply. I think this is a very good approach,” Ng says. He also highlights why he feels it is important for him to serve on the committee. “I’m happy to be able to contribute from a more academic perspective and because I think it’s important for the next generation of accountants and this generation to update themselves about ESG and sustainability issues,” he says.
“I think ultimately there should be one global framework with certain principles to follow, but there should also be flexibility according to a company’s industry.”
Ng notes that while it’s good to see growing enthusiasm around the importance of ESG among professional accountants, establishing solid ESG disclosure practices takes time. “Its early days. Accountants working in listed companies are looking into how to do the reporting when they are asked by the chief financial officer to produce an ESG report. What should be the approach? Where should they start? I think education and training is really important,” he says.
The best approach, he believes, is for companies to have the internal capability to implement good disclosure practices and review ESG-related data on a quarterly basis. “Whether it’s about the energy saving practices of the past three months, or how much paper was used. Is the green policy effective? So I think internally, they have to have a system to report and monitor, then they have the data captured in the process. By year-end, they will have all the historical information on what they have done ready for auditors.”
A major change
As well as being Deputy Director, Ng is also Programme Director of the SPEED’s articulation degree programmes, including accounting and engineering, overseeing quality assurance (QA) to make sure those programmes follow the QA framework of PolyU. “Through seeking input from the industry on a regular basis as well as being an active researcher, we make sure the programmes are relevant to the profession and society, and that we enhance the employability of our students,” he says.
His responsibilities also include promoting research activities as Chairman of SPEED Research Committee. “We are now eligible to apply for research funding from the Research Grants Council of the University Grants Committee, so I facilitate the application process to encourage colleagues to apply for funding.” In October, PolyU SPEED was awarded about HK$3 million for the establishment of its third research centre – Research Centre for Green Energy, Transport and Building. “I’m one of the members of that application. It was quite a competitive process.”
Ng says that his previous experience as a consultant at Coopers & Lybrand (now PwC) comes in handy today as a member of the management team. “I still remember the partner telling me that one of the most important skills a consultant should have is listening, not just talking,” he says. “In this type of institution, it’s good to be a good communicator and someone who can interact effectively with both academic colleagues and students. It’s also important to listen to students’ feedback and concerns, and find ways to address them in a timely manner.”
After Coopers & Lybrand, he worked as an analyst in the power sector on direct investment and project finance for a few years before deciding to go back to school, this time as an educator. “I was always interested in pursuing an academic career. I think it’s about the pursuit of new knowledge and the transfer of knowledge to the next generation that attracts me,” he says.
Ng took a job as a part-time MBA tutor at the Open University Hong Kong and switched to full-time teaching when he joined PolyU SPEED in 2008. But his first foray into teaching took place much earlier. “I was a statistics tutor when I was an undergraduate student at California State University. Hong Kong had very good mathematics education during my time, so I did pretty well in my statistics course in the U.S. The tutorial centre was hiring so I thought I could make some money. So it all started back there.” He was also a computer lab tutor when he later studied for his MBA at the University of Toronto.
One of his undergraduate university professors had a huge influence on the way he views the world and his subsequent decision to go into teaching. “When I was studying international business at California State University, my professor was an economist, Professor Alan Rufus Waters – I still remember his name. He worked for Asian Development Bank and shared a lot of stories about the U.S.-Japan trade war that was going on at the time and international developments, which was eye-opening for a young guy from Hong Kong. I enjoyed getting a different perspective and learning how to be more pragmatic about issues,” he says.
Those lessons prepared him for an academic career, he adds. “To do research you have to be a critical thinker about certain issues, and as a lecturer, you have to make theories practical for business students and make them think more dynamically about societal issues.”
Prior to developing his career in business education, Dr Ng worked at Coopers & Lybrand (now PwC) and in project finance within the power sector.
Collaborating for good
Ng doesn’t teach as much as he used to these days as he has more of an administrative role, but he still keeps himself updated on the latest business and accounting developments. “We have to continuously keep ourselves updated to make sure students get, if not the latest knowledge, the most relevant knowledge, especially in business education, so it keeps us very busy.”
When he does find the time, Ng likes to exercise and go to the gym. What he enjoys the most, however, is writing research papers in collaboration with other academics about topics such as sustainability accounting and green finance. “It’s good to work with other colleagues within our school because sustainability is an interdisciplinary field,” he says. “Also, I’m not an expert in everything but if I work with an expert in China then we can explore some China-related issues then discover something interesting as a result.”
Indeed, collaborating and meeting up with academics around the world is a highlight of his job for him. “We meet up during the annual CSEAR conferences at St Andrews, but these days we interact through webinars,” he says, as he flicks through his copy of Accounting for the Environment, and stops at a page displaying a handwritten message from his friend, professor Gray. “I consider them as my community, it’s not really work.”
On 30 September, the IFRS Foundation published a consultation paper on sustainability reporting, proposing to create a Sustainability Standards Board under the governance structure of the IFRS Foundation to develop global sustainability standards. Read more about environmental, social and governance reporting and assurance in this month’s special report.