What does ESG assurance in Hong Kong look like?


A look at the prevalence of ESG assurance among Hong Kong-listed companies, according to a study conducted by the Institute

With the accelerating demand for good quality environmental, social and governance (ESG) information, ensuring the accuracy, reliability and integrity of ESG reports is becoming increasingly important in helping to build stakeholders’ trust in the information disclosed. There is a growing need for some form of external assurance of ESG reporting, however it is not a mandatory requirement under local rules and regulations. The Hong Kong Stock Exchange’s (HKEX) upgraded Environmental, Social and Governance Reporting Guide (ESG reporting guide), which is under the Listing Rules, notes that companies may seek independent assurance to strengthen the credibility of ESG information.

To gain a snapshot of where Hong Kong-listed companies currently stand on ESG assurance, the Institute initiated a brief study last year. The study looked at the ESG assurance status of all 55 Hang Seng Index-constituent companies, investigating those that had published their sustainability/ESG report or incorporated a sustainability/ESG section in their annual reports for 2020/21, as at 28 June 2021. While 49 of them had published this ESG information by the cut-off date, only 23 out of 49 companies (around 47 percent) also sought external assurance on the information disclosed.

The situation of the Hang Seng Index-constituent companies, however, shows only a small part of the story. To further investigate the prevailing ESG assurance practices, the Institute has taken a broader look at listed companies with a financial year ended 31 December 2020, scanning roughly 1,900 companies.


The penetration of assurance on ESG reporting in the listed company sector in Hong Kong is still very low, according to the report. Among the 1,897 companies included in the research, only 85 (4.5 percent) of them obtained external assurance. This suggests that, currently, most listed companies in Hong Kong do not see the benefits of assurance. It may also indicate that they see ESG reporting as primarily an issue of compliance and obtaining assurance is not a requirement, or that they are not entirely confident in the data and other information that they are reporting on.

Based on the findings for December 2020 year-end companies, a significantly higher proportion of large-cap companies (around 20 percent) obtained assurance compared with other categories. Meanwhile, only a very small proportion of small-cap companies (less than 1.5 percent) obtained assurance. The level of assurance was “limited” in over two thirds of the cases (68 percent) and “reasonable” in only 14 percent of cases, and it covered only selected areas of information in around half the cases (47 percent).

Among the 85 companies with assurance, banks accounted for over 30 percent. This may be because banks are more attuned to ESG issues, given that the Hong Kong Monetary Authority has introduced various measures on sustainable banking and green finance and, at the international level, the recommendations of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures have been gaining increasing prominence.

The limited penetration of assurance on ESG reporting is believed to stem from several factors, including the fact that currently, there are no generally accepted ESG reporting standards other than the ESG reporting guide under the Listing Rules in Hong Kong.

Where assurance is obtained, the assurer was a CPA firm in around 50 percent of cases. This is expected given that that main assurance benchmark referred to by all forms of assurers, in nearly two thirds of cases, was International Standard on Assurance Engagements 3000, issued by the International Auditing and Assurance Standards Board. What may be more unexpected is that, where CPA firms undertook ESG assurance, it is generally not the company’s auditor.


The formation of a new International Sustainability Standards Board (ISSB) to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs, announced by the Trustees of International Financial Reporting Standards Foundation last November, is expected to help enhance disclosure quality and instigate the development of rigorous ESG reporting standards. With the increased harmonization and comparability of standards, companies can be more confident in starting to adopt, or to expand, their assurance on their ESG information and data. This can help to validate and lend greater credibility to their ESG reporting.

With the more extensive requirements of the revised ESG reporting guide now in effect, this is also an appropriate time for companies to start, if they haven’t already, considering what data and information should be a priority for assurance, if they do not feel comfortable seeking assurance on all of their ESG reporting. They should consider focusing initially on data that is most material to them and their stakeholders. Good stakeholder engagement processes and the development of a sound materiality matrix can help to identify the key information and data.

There should be more discussion on the merits of a company’s financial statement auditor also being engaged to provide assurance on the company’s ESG report, as opposed to engaging a third party assurer, which could be a different CPA firm, to perform the latter function. While the separation of roles may add to the perception of independence, having the same service provider perform both roles could help facilitate the integration of financial and ESG considerations, as well as corporate governance and ESG, which is something, we believe, regulators, including HKEX, see as the goal.

With the setting up of the ISSB, there is an opportunity for the profession to play a larger role in supporting ESG reporting and assurance. Because of their training, experience and skill sets, as well as their professional ethics and the requirement for them to undertake continuous professional development, accountants are well placed to play a pivotal role in the further development of this space.

Read more about the report here.

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