(Clockwise) Tori Cowley, Group Chief Communications Officer of Hong Kong Exchanges and Clearing Limited; David Simmonds, Group General Counsel, Chief Administrative Officer and Company Secretary, at CLP Holdings Limited, and Sarah Chapman, Global Chief Sustainability Officer at Manulife Financial Corporation.

The energy company is one of 29 awardees of this year’s Best Corporate Governance and ESG Awards. Previously known as the Best Corporate Governance Awards (BCGA), the awards were renamed and refocused this year to reflect the growing importance of environmental, social and governance (ESG) reporting and practices for different companies and organizations, and their investors and stakeholders. The awards aim to encourage companies to focus on both corporate governance and ESG, and to integrate these two aspects into their strategies and operations to support their long-term sustainability, as well as establish benchmarks of overall sustainability, corporate governance and ESG best practice in Hong Kong.

Also introduced was a new highest category of awards – the Most Sustainable Companies/Organizations (MSCO) Awards. The new category aims to reflect “sustainability” in its broadest sense and not merely focus on ESG. It recognizes companies and public sector organizations that are deeply committed to operating in a transparent, accountable and socially-responsible manner. It also commends organizations that have taken corporate governance and ESG considerations into account in their vision, strategies, investments, risk management and internal controls, stakeholder engagements, and communications.

CLP Holdings Limited won the Platinum award in the Hang Seng Index Category of the Most Sustainable Companies/Organizations (MSCO) Awards.

“Sustainability is at the core of our business strategy, and we have been an early mover on integrating ESG management into our operations.”

Tone from the top

CLP won the Platinum award in the Hang Seng Index Category of the MSCO Awards. Simmonds is pleased with the achievement and attributes it to their company-wide focus on ESG. “CLP is honoured by the award from the Hong Kong Institute of CPAs. Sustainability is at the core of our business strategy, and we have been an early mover on integrating ESG management into our operations,” he says. Indeed, CLP won the Outstanding Achievement Award in 2020, having won an award every year since the BCGA was first launched in 2000, and a Sustainability and Social Responsibility Reporting Award each year since 2011.

Echoing the name of the awards, Simmonds says the company has always ensured that sustainability is embedded within their corporate governance structure, from board-level committees, to management-level group functions, and business units. “The board of directors has overall responsibility for CLP’s sustainability approach,” he explains. “The support of the senior leadership underpins our efforts to integrate sustainability into our business, enabling us to focus on key strategic priorities including decarbonization and digitalization.”

Tori Cowley, Group Chief Communications Officer of Hong Kong Exchanges and Clearing Limited (HKEX), which received the Gold award in the Hang Seng Index Category of the MSCO Awards, says companies can ensure stakeholders’ expectations are met by setting the right ESG strategy from the top. “We are witnessing a fast-evolving ESG landscape, with increasingly high expectations from shareholders, employees, and other stakeholders,” she says. “With growing scrutiny on how ESG factors affect a company’s performance and value, investors and stakeholders are becoming ever more focused on the potential financial and reputational impact of good ESG management. Importantly, the market is now taking a much more proactive approach to monitoring a company’s ESG performance and practices.”

Cowley adds that HKEX’s status as an international exchange operator, market regulator, and public company ensures that they look to lead by example. “We see ourselves as a change agent,” she notes. “As a regulator, we seek to continually enhance Hong Kong’s ESG regulatory framework and education to ensure investor and stakeholder expectations are in-line with international best practices. And as a corporate and exchange operator, we look to promote sustainability in all that we do – across our business, our operations, and our markets.

“HKEX’s board and senior management place good corporate governance and strong ESG management at the heart of our activities,” Cowley says. She adds that factors such as board composition and diversity, independence of non-executive directors, corporate sustainability initiatives, environmental considerations, philanthropy, community engagement, and external communications, are overseen by HKEX’s Executive Management Team and through the Board of Directors. Committees such as its Nomination and Governance Committee, and the Corporate Social Responsibility Committee, are both chaired by the HKEX Chairman.

This direction from the board pervades the organization. Cowley says that at the executive level, there is a corporate social responsibility (CSR) working group, comprised of senior management drawn from across the business, which provides insight, advice and support for implementing the exchange’s broad CSR programme. She notes that CSR performance forms part of the exchange’s scorecard for evaluating the performance of the group’s employees.

To ensure the company is able to meet the expectations of stakeholders and the evolving business and market landscape, policies are reviewed regularly in order to enhance governance standards. Cowley says HKEX also provides ongoing training through webinars and initiatives to reinforce a strong culture of compliance and risk management, as well as CSR awareness, at all levels of the organization.

Hong Kong Exchanges and Clearing Limited received the Gold award in the Hang Seng Index Category of the MSCO Awards.

“As a regulator, we seek to continually enhance Hong Kong’s ESG regulatory framework and education to ensure investor and stakeholder expectations are in-line with international best practices.”

Sarah Chapman, Global Chief Sustainability Officer at Manulife Financial Corporation, says the company uses both a top-down and bottom-up approach to integrate corporate governance and ESG into its performance. “If you think about properly integrating ESG into your performance, it has to be done from the board and executive level. For us, it’s important that this is embedded in people’s jobs across the organization,” she explains. Manulife Financial Corporation received an ESG Special Mention in the Non-Hang Seng Index (Large Market Capitalization) Category.

She notes that the company has a Corporate Governance and Nominating Committee that specifically oversees ESG-related strategies. Manulife has also developed an Executive Sustainability Council, composed of Chapman and nine members of the Executive Leadership Team, who meet at least on a monthly basis. The meetings, she adds, allow them to review strategic ESG initiatives such as the company’s climate action plan and diversity, equality and inclusion focus, and discuss progress. “Below that we’ve got our Sustainability Centre of Expertise, which is a culmination of 60 professionals across the organization from all areas of the business, including all geographies, that comes to together to drive the agenda forwards.”

To educate professionals across the organization on corporate governance and ESG, Chapman notes that the company has developed an internal curriculum and certification process for their investment professionals to get certified on ESG integration. “What’s most important is for people to understand how to integrate ESG themselves into the organization,” she adds.

Having an ESG steering committee led by the board can greatly help and guide companies towards executing their sustainability strategies, notes Nikki Ng, Group General Manager of Sino Group. “Our ESG Steering Committee, chaired by our deputy chairman and comprised of key executives representing the group’s significant business units, is in place to oversee the group’s management approach to sustainability, and to develop strategies and policies to guide the roadmaps and initiatives that advance the goals and targets,” says Ng. Sino Land Company Limited under Sino Group also received an ESG Special Mention in the Non-Hang Seng Index (Large Market Capitalization) Category.

ESG is key to their business strategy, Ng notes, especially as a Hong Kong property developer. “At Sino, sustainability is central to our business operations as we seek to create value for stakeholders and make business a driver of sustainability for a better future. We uphold ESG and sustainability at all levels of operations,” says Ng. The company does its part by pushing for more energy-efficient designs, harnessing renewable energy, reducing waste and carbon emissions, leveraging technology, and advocating green living at their properties.

ESG initiatives are part of the organization’s “Creating Better Lifescapes” vision, which sees the company focused on three key pillars: green living, community spirit and innovative design. “It defines our sustainability strategy and guides us in creating shared value for all our stakeholders,” Ng explains. “With robust governance measures and our three key pillars, this strategy ensures we address sustainability issues that are material to our business.”

It is also crucial for a company’s ESG practices to be reflected in their supply chain, Ng highlights. “On the supply chain, the group is guided by a set of policies and guidelines that outlines our approach to various sustainability issues.” They note that the company has a sustainable procurement policy in place, which integrates environmental considerations into contractor or supplier selection, procurement processes and activities. “These risk assessment mechanisms ensure new and existing suppliers follow sustainable practices in their business,” Ng says.

Manulife Financial Corporation received an ESG Special Mention in the Non-Hang Seng Index (Large Market Capitalization) Category.

“We’ve increased the number of social KPIs this year and have been receiving external assurance on that data to guarantee that it’s met the highest possible standard.”

Material matters

While the judges were able to give out a number of MSCO awards, no Diamond awards, the top level, were awarded this year. The judges noted in their Best Corporate Governance and ESG Awards 2021 Judges’ Report that while regular awardees have been enhancing their corporate governance and ESG practices, the general consensus among the judges is that more could be done. This includes speeding up the board refreshment process, enhancing independent leadership in the board room, establishing quantitative key performance indicators (KPIs) under different ESG initiatives, and improving the disclosure of these KPIs embedded in remuneration.

To ensure a good start, Chapman says it is key for a company’s board to understand their KPIs, as this sets high standards and aids in setting company-wide strategies and goals. While KPIs can be established internally, Manulife chose to seek external help. “We seek external assurance for a large number of our environmental and social KPIs,” she notes. “We’ve increased the number of social KPIs this year and have been receiving external assurance on that data to guarantee that it’s met the highest possible standard.”

Periodic assessments of KPIs, Simmonds adds, will help companies to stay on track. “We regard materiality as fundamental to our ESG reporting,” he says. “The materiality assessment process conducted regularly by CLP ensures we are focusing on topics that are most relevant as our business and operating environment evolve.” This, in turn, will benefit the reporting process and ensure the transparency and accuracy of information when it is communicated to stakeholders. “Transparent and meaningful reporting is key, as we need regular engagement and communication with our stakeholders to provide updates on our sustainability efforts, and increasingly for investors who are integrating ESG considerations into their decision-making.”

Cowley says companies should seek both internal and external insight from stakeholders. “At HKEX, we regularly conduct internal reviews to benchmark our current governance and ESG approach against the market and best practice,” she says. “We also engage externally with stakeholders to ensure that we are successfully evaluating our approach to such areas as governance, sustainability, investor communications, and our brand. This helps us to evaluate our performance and identify areas for improvement.”

Sino Land Company Limited received an ESG Special Mention in the Non-Hang Seng Index (Large Market Capitalization) Category.

“At Sino, sustainability is central to our business operations as we seek to create value for stakeholders and make business a driver of sustainability for a better future.”

Better reporting

There is currently a variety of ESG reporting frameworks for companies to choose from, including The Global Reporting Initiative, The Sustainability Accounting Standards Board (SASB), the Carbon Disclosure Project, the Task Force on Climate-related Financial Disclosures (TCFD), and the International Integrated Reporting Framework. “The challenge that many organizations face is that there aren’t consistent standards for the ways that you report this type of information,” Chapman explains.

Last month, the IFRS Foundation announced the formation of the International Sustainability Standards Board (ISSB) at the United Nations Climate Change Conference 2021 (COP26), marking a step forward towards a global set of ESG standards. The ISSB has pledged to develop standards that result in a high-quality, comprehensive global baseline of sustainability disclosures focused on the needs of investors and financial markets. It will build on the work of existing reporting initiatives including the Climate Disclosure Standards Board, the TCFD, the Value Reporting Foundation’s International Integrated Reporting Framework and SASB Standards, and the World Economic Forum’s Stakeholder Capitalism Metrics, to become the global standard-setter for sustainability disclosures for the financial markets. On 16 December, it was announced that Emmanuel Faber, the former chief executive officer of Danone, a multinational food products corporation, will
take the helm of the ISSB on 1 January 2022.

This presents a paradigm shift in ESG reporting, adds Chapman, who welcomes the move, and notes it will not only enhance consistency, but further drive the notion of sustainability and ESG disclosures among companies worldwide. “I believe that the creation of the ISSB will help to develop global standards that will bring about disclosures, as well as disclosure requirements, to facilitate consistent and comparable reporting by companies across jurisdictions,” she says. “This, in turn, will help direct capital to long-term, resilient businesses in this transition to a low-carbon, socially-responsible economy.” Simmonds agrees: “The formation of the ISSB during the recent COP26 climate summit was a welcome step that will support the development of high-quality sustainability disclosure standards.”

But until the first climate standards come into effect in the second half of 2022 – and until companies transition to reporting their ESG practices using the ISSB’s standards – companies must make a conscious effort to be as lucid as possible in their disclosures, or seek help if they are unsure, Chapman highlights. “Organizations have to take it upon themselves to enhance their disclosures and be transparent about the progress they are making. The process of going through both internal and external assurance is extremely helpful. Building this governance structure into the way organizations track their progress into their ESG journey is key.”

The road ahead

Accountants have an increasingly important role to play in helping companies throughout their ESG journey. “There are multiple areas by which the accounting profession is highly engaged in ESG issues, such as from a risk management perspective and how those risks could have an effect on the finances,” says Chapman. “Accountants are critical stakeholders on this ESG journey and will be increasingly so as we see more standards and regulations. The accounting profession will be playing an even more important role in moving these goals forward.”

Simmonds concurs: “the accounting profession was closely involved in the ISSB’s inauguration and will continue to play a key role in ensuring the availability of consistent financial data to facilitate the global transition to a low-carbon economy.”

The awardees acknowledge that becoming a truly sustainable organization is a continuous journey. “Our focus on sustainability reflects the need to think long-term as we plan large infrastructure investments with multi-decade lifecycles,” Simmonds says, noting that as one of CLP’s key priorities, decarbonization will require the coordinated efforts of all of their stakeholders, including their investors, customers, and the broader community. “We need access to long-term sources of capital for infrastructure projects in the energy transition, while continuing to keep the energy supply reliable and affordable and reliable as we decarbonize.”

A company’s board plays a vital role in driving good corporate governance and ESG practices, Cowley notes, making it crucial for board members to stay ahead of evolving trends. “We arrange ongoing training to help our Board of Directors and our Executive Management Team to keep up-to-date on current issues in areas such as ESG practices, regulatory compliance, and risk management. And we regularly test our progress through our benchmarking programme,” she says. “Corporate governance and ESG performance has become a proxy for a company’s resilience and risk management capabilities – it undoubtedly enhances the long-term value of a business.”

The Institute’s Best Corporate Governance Awards launched in 2000, when there were only three categories, in which diamond, platinum and gold awards, could be given out, with overall one grand award.