Sustainability, along with environmental, social and governance (ESG) considerations, were a key focus of the ACCA Hong Kong virtual annual conference 2021.
‘The push for being a sustainable organisation and the call for accountants to support them in this has never been as strong as it is today,’ said Sharon Machado, head of business reporting at ACCA, during the online event on 11 September.
Machado expects the total amount going to sustainable investing to top US$150 trillion in the next 15 years. ‘This will take away from more traditional financial return-only investing,’ she said.
For example, Machado said that the investments made by sustainability-focused banks have proven to be 27 times more effective at reducing the carbon footprint than reducing meat consumption, water use and car travel. These banks also provide finance and governance guidance to sustainability-focused businesses, which is a valuable resource for SMEs.
In a 2020 McKinsey & Co survey, more than 65% of respondents said that is vital to limit the impact of climate change, 88% wanted more attention to be paid to reducing pollution by governments and businesses, and 57% are making changes to their lifestyle to lessen environmental impact, Machado said.
‘Consumers are using their purchasing power [to make a difference],’ she said, noting that ‘regulation will increasingly become a driver for business to make necessary changes’.
‘Accountants need to be providing a sense of the total value and how it might change’
Regulation is key
Machado’s presentation was followed by a timely discussion on the role of ESG in rebuilding a ‘better normal’.
A recent survey by ACCA, focusing on the need for climate action by businesses, found that regulation could be the biggest driver of change, with 52% of those surveyed putting it as a top-three motivator, along with the physical impacts of climate on business at 48%, and finance and customer action both at around 40%.
Machado believes a mechanism is needed to value intangible costs, benefits and risks to help recognise, or better recognise, the value that comes from the broader society on whom organisations are dependent and impact. ‘This is another important role for accountants, particularly as international guidance in these areas is still being developed,’ she said. ‘Accountants need to be providing a sense of the total value and how it might change – that means connecting nature, society and financial value together. Accountants must be integrated thinkers, reporters and assurers.’
‘There is much room for improvement in ESG standardisation, such as developing criteria to evaluate ESG performance’
Sustainability and ESG
Ellie Tang, head of sustainability at real estate developer New World Development Company and general manager, sustainability, at K11 Concepts, discussed the difference between sustainability and ESG.
‘There is no conflict between the two,’ she said. ‘The term ESG was coined by the capital market to monitor the performance of specific sustainability parameters within a business. While more people are using ESG and sustainability interchangeably, sustainability traditionally referred to corporate social responsibility, which may not necessarily be related to a company’s business nature.’
ESG, on the other hand, is linked to a company’s operations, including daily business, strategies, core business and risk management.
Mary Leung, head of advocacy for Asia Pacific at the CFA Institute noted that different companies or investors have different criteria for sustainability and ESG, which is an issue they need to address.
Rocky Tung, head of policy research at the Financial Services Development Council, described sustainability as an ‘end’, while ESG is the ‘means’ to the end. ‘ESG investment is used to achieve the ultimate goal of sustainability,’ he said.
Emphasis on ESG
Investors are putting much more emphasis on ESG investment compared to two to three years ago, Tang remarked.
‘You will see more regulations over ESG and climate change. Corporations, investors and accountants need to position themselves to face them’
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Read our article on the ACCA Hong Kong annual virtual conference, in which Tim Lui, chairman of the Hong Kong Securities and Futures Commission (SFC), talks about the risk of climate change.
New World Development, for example, started working on ESG integration over five years ago. The Stock Exchange of Hong Kong now requires ESG reporting from listed companies, which ‘offers a golden time for us to better develop our ESG strategy,’ she said.
Tang added that although she could not summarise it in one sentence as to whether Hong Kong pays more attention to ESG compared to other jurisdictions, ‘Hong Kong has done a good job in ESG investment and sustainable finance in the last two to three years’.
She pointed out that until recently, investors in Hong Kong were not very concerned with ESG, although they were happy to see that New World Development was working on the area. Now, however, they require more ESG disclosures, such as what the company has done and whether it has incorporated ESG into risk management.
‘Of course, there is much room for improvement in ESG standardisation, such as developing criteria to evaluate ESG performance,’ she added. ‘We also need to explore how to localise international standards and improve the development of ESG in Hong Kong and the Guangdong-Hong Kong-Macau Greater Bay Area.’
Disclosure requirements
As ESG gains more attention, Hong Kong regulators are increasing their requirements in this regard.
Leung said she is seeing more and more disclosure requirements for listed companies as well as investors.
In August 2021, the Securities and Futures Commission began requiring asset managers of collective investment schemes to take climate-related risks into consideration in their investment and risk management processes, and make appropriate disclosures.
‘You will see more and more regulations over ESG and climate change. Corporations, investors and accountants need to position themselves to face them,’ Leung said. ‘Although market solutions are the best way for the development of ESG, sometimes the market responds slightly slower – then we need regulations.’
