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Navigating Hong Kong’s ESG: Regulations, Trends, and Opportunities

Hong Kong has set clear climate goals that align with global initiatives like the Paris Agreement. In 2017, the Hong Kong government launched the Climate Action Plan 2030+, aiming to cut carbon intensity by 65-70% by 2030 compared to 2005. By 2050, Hong Kong plans to achieve carbon neutrality, backed by a HK$240 billion (US$31 billion) budget for climate change measures over the next 15 to 20 years.

Hong Kong's ESG Regulatory Framework

Hong Kong's ESG regulations primarily target listed companies, banks, and asset managers. Listed companies must report on environmental, social, and governance (ESG) aspects, using a comply-or-explain approach. Financial regulators are also pushing banks and asset managers to address climate risks and disclose their efforts.

Key regulatory updates include:

  • May 27, 2022: Ashley Alder of the Securities and Futures Commission (SFC) outlined ESG regulatory priorities.

  • June 2022: Hong Kong Stock Exchange (HKEX) encouraged listed companies to prepare for new ESG reporting requirements.

  • April 14, 2023: HKEX proposed changes to the ESG Reporting Code to improve climate reporting, set to take effect on January 1, 2025.

ESG Reporting in Hong Kong: Key Requirements

The ESG reporting framework in Hong Kong, led by HKEX and SFC, focuses on:

  • Board Responsibility: Boards are responsible for ESG disclosures, ensuring leadership and resource allocation.

  • Future-Oriented Management: Companies must plan for future sustainability challenges and strategies.

  • Stakeholder Integration: ESG reporting enhances engagement with stakeholders, making the process transparent and responsible.

Steps for ESG reporting:

  • Board and ESG Working Group: The board initiates the reporting process.

  • Reporting Assessment: Review processes and conduct a materiality assessment.

  • Drawing ESG Strategy: Define objectives and strategies.

  • Writing the Report: Present a clear and comprehensive sustainability report to stakeholders.

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Impact on Businesses

Adapting to New Reporting Standards

Hong Kong regulators are moving towards mandatory Task Force on Climate-related Financial Disclosures (TCFD) reporting by 2025. Companies should align with TCFD recommendations and prepare for the International Sustainability Standards Board (ISSB) Climate Standard, which requires detailed disclosures on emissions, transition plans, and financial impacts.

Consistency Between Financial and Sustainability Reporting

Auditors and CFOs need to ensure sustainability disclosures are relevant to financial statements. ISSB standards require companies to link financial and sustainability reports, using consistent assumptions and reporting periods.

Collaboration Within Organizations

Boards should integrate climate risks and opportunities into strategic decisions, with collaboration between sustainability, finance, and communications teams being crucial.

Green and Sustainable Finance in Hong Kong

Hong Kong is a leading hub for green and sustainable finance, especially in the debt market. In 2022, Hong Kong arranged US$27.8 billion in green and sustainable bonds, representing 35% of the Asian market. The city's green and sustainable loan market is also growing, contributing to a total GSF debt volume of US$80.5 billion in 2022.

Government Policies and Incentives

The HKSAR Government's proactive policies and the Green Bond Programme (GGBP) are driving the growth of Hong Kong's green bond market.

Demand for ESG Roles and Skills in Hong Kong

Hong Kong has seen a 25% increase in ESG job hiring from 2020 to 2022. Companies are offering salary premiums to attract top ESG talent, reflecting a commitment to sustainability. The financial sector, especially banks and investment funds, is actively seeking ESG professionals.

Why Hong Kong is a Strategic ESG Hub

Hong Kong’s commitment to climate goals makes it a key hub for ESG opportunities. The city's strengths in financial services, capital, and skilled talent support its role in green finance. Hong Kong is also strategically positioned to benefit from the Greater Bay Area and China’s Belt and Road Initiative.

Businesses should seize the opportunities within Hong Kong's evolving ESG framework to align with global sustainability goals.


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