In 2024, there is no doubt that Environmental, Social, and Governance (ESG) factors are now crucial in the global business landscape, influencing investment decisions and corporate strategies. Perhaps most notably, ESG is no longer a green albatross around the corporate neck, as it has been proven to open genuine revenue streams and substantially increase profits.

Amidst the global green rush, Hong Kong, one of Asia’s premier international financial centres, now plays a pivotal role in green and sustainable finance, contributing immensely to fighting climate change.

Our Hong Kong ESG guide aims to explore the evolving ESG landscape in Hong Kong, focusing on key regulations, emerging trends, and lucrative opportunities for businesses. By understanding the regulatory framework, staying up-to-date on trends, and leveraging rising opportunities, businesses can better work through the complexities of ESG and genuinely thrive in a rapidly changing environment.

Hong Kong’s ESG Landscape

Key Regulatory Bodies and Their Roles

The Hong Kong Exchange (HKEX) plays a pivotal role in promoting ESG practices, while other regulatory bodies work together to ensure these practices are implemented effectively across sectors in Hong Kong:

• HKEX:
  • Introduced the requirement for listed companies to publish annual ESG reports in 2016, with upgrades in 2020 and 2022.
  • Focuses on ESG management approach and progress toward ESG-related targets.
• Securities and Futures Commission (SFC):
  • Implemented ESG requirements for SFC-authorised unit trusts and mutual funds.
  • Provides guidance on ESG disclosure for these funds.
• Hong Kong’s Biodiversity Strategy and Action Plan (BSAP):
  • Focuses on biodiversity conservation and sustainable development.
  • Does not impose formal ESG reporting obligations but encourages consideration of biodiversity in ESG disclosures.
• Council for Carbon Neutrality and Sustainable Development (CCNSD):
  • Advises the government on strategies and measures to achieve carbon neutrality and sustainable development.
  • Promotes cross-sector collaboration and innovative solutions to address climate change and sustainability challenges.

Strategic ESG Regulatory Commitments

Hong Kong has firmly and proudly positioned itself as a leader in the ESG arena, driven by strategic commitments and robust policies. Aligned with global initiatives such as the Paris Agreement and China’s decarbonisation agenda, Hong Kong’s sustainability journey is comprehensive and ambitious.

In 2016, HKEX introduced the requirement for listed companies to publish annual ESG reports, further upgraded in 2020 and 2022. These requirements mandate specified disclosures and include a “comply or explain” provision for any deviations or failures to comply.

In January 2017, The Hong Kong Government introduced the Climate Action Plan 2030+, setting a target to reduce carbon intensity by 65-70% by 2030, using 2005 levels as a benchmark.

In November 2020, Hong Kong’s then Chief Executive, Carrie Lam, announced a bold goal to achieve carbon neutrality before 2050. In October 2021, Hong Kong’s Climate Action Plan 2050 outlined detailed strategies and committed around HK$240 billion (US$31 billion) towards climate change mitigation and adaptation over the next 15 to 20 years.

Hong Kong’s ESG Industry Adoption

While it wouldn’t be fair to assess Hong Kong’s ESG efforts as ubiquitous across all sectors, industries such as finance, real estate, and technology are at the forefront of adopting ESG principles in Hong Kong. The finance sector, in particular, is advancing green finance initiatives, while real estate developers focus on sustainable construction practices. This proactive industry participation is the tip of the spear for the broader trend of integrating ESG values into all business operations.

As of the latest figures from 2021, approximately 52 per cent of Hong Kong’s largest listed companies had implemented ESG reporting,14 per cent higher than the equivalent group in Singapore. However, the rate of ESG reporting among Hong Kong companies is set to increase further, driven by the HKEX ESG Reporting Code, which announced that all listed companies must disclose Task Force on Climate-related Financial Disclosures (TCFD) reporting from January 1, 2025.

As more companies incorporate ESG principles both through legislation and profit motives, Hong Kong will continue to establish itself as a key player in fostering sustainability and responsible governance worldwide.

ESG Trends and Opportunities in Hong Kong

Finance Sector Opportunities

Hong Kong is already a flourishing centre for green and sustainable finance, and its debt market is undergoing significant growth. For example, in 2022, Hong Kong arranged green and sustainable bonds totalling US$27.8 billion, making up 35 per cent of the Asian market.

The private sector contributed around 90 per cent of that total issuance, while green and sustainable loans boosted Hong Kong’s GSF debt volume to US$80.5 billion in 2022. The Hong Kong Monetary Authority (HKMA) is also developing a green classification system to align with international standards and to mitigate greenwashing risks.

Real Estate Sector Opportunities

Real estate developers in Hong Kong are increasingly adopting sustainable practices, focusing on energy efficiency, waste reduction, and green building certifications. Many firms pursue LEED certification for their developments, emphasising their commitment to sustainability. These efforts reduce environmental impact and attract environmentally conscious investors and tenants.

Technology Sector Opportunities

The tech sector in Hong Kong is leveraging innovation to address ESG challenges. This includes a government initiative to advance AI and develop an AI Supercomputing Centre. Government partnerships with IT service providers are developing 76 smart city initiatives to enhance urban sustainability, improve efficiency, and reduce carbon footprints.

ESG Challenges and Strategies in Hong Kong

Key Challenges

Implementing ESG practices in Hong Kong presents several challenges for businesses. One significant obstacle is the ever-evolving climate reporting standards. With Hong Kong regulators moving towards mandatory TCFD reporting by 2025, companies, especially those listed on HKEX, must conduct comprehensive assessments to align with TCFD recommendations.

Preparing for the new International Sustainability Standards Board (ISSB) Climate Standard poses another challenge. This standard requires detailed disclosures on Scope 3 emissions, transition plans, carbon credit usage, and their impact on financial positions and performance.

Hong Kong ESG Effective Strategies

To overcome these challenges, businesses can adopt several effective strategies:

1. Invest in Training and Expertise: Building internal expertise through ESG education and training is crucial. Companies should invest in training for directors and employees to ensure they are well-versed in TCFD and ISSB requirements.
2. Leverage Technology: Utilising advanced technologies such as AI for energy management and blockchain for supply chain transparency can streamline ESG reporting and enhance accuracy.
3. Integrate Reporting: Ensuring consistency between financial and sustainability reporting is vital. Companies should align capital expenditures for emissions reduction or carbon offset purchases with financial statements. The ISSB mandates that companies explain linkages, use consistent assumptions and publish financial and sustainability disclosures simultaneously.
4. Foster Collaboration: Encouraging collaboration at all organisational levels is key. Boards should integrate climate risks and opportunities into their strategic decision-making processes and monitor progress towards set targets. Collaboration between
5. Get Help from Trusted Experts: Engaging with trusted experts like InCorp can significantly ease the transition. InCorp can help businesses comply with regulations, manage environmental and social risks, and improve transparency and disclosure.

By adopting these strategies, businesses can effectively navigate the challenges of ESG implementation and capitalise on the associated opportunities for growth and sustainability.

Where to Next With InCorp

Hong Kong’s proactive stance on ESG principles, supported by comprehensive regulations and forward-thinking industry practices, positions it as a leader in the global sustainability movement. By understanding the regulatory framework, staying ahead of emerging trends, and leveraging the right strategies, businesses can create genuine advantages through ESG.

For personalised guidance and to ensure your business stays compliant with Hong Kong’s stringent ESG regulations, contact InCorp. Our Hong Kong ESG Service offers comprehensive, on-the-ground insights and support to help you manage environmental and social risks, enhance transparency, and improve your sustainability reporting. Let us help you integrate ESG principles seamlessly into your operations for sustainable growth and success.

Contact InCorp today for more insights through our Hong Kong ESG Service.