From Zhitong Finance's "Hong Kong Capital Market ESG White Paper", look at the new chapter of ESG in Hong Kong's capital market

Globally, the importance of environmental, social and corporate governance (ESG) is growing rapidly, ESG has gradually become the consensus of the international community, and the capital market is increasingly inclined to find companies with sustainable growth "value engines" by evaluating ESG performance, and ESG investment is ushering in new opportunities and growth space for vigorous development.

Especially in an international financial center like Hong Kong, the development of ESG issues is particularly prominent.

On May 11, Zhitong Finance and Economics, together with Beijing Zhiding Technology Co., Ltd., a leading ESG data company, Merits & Tree Law Firm, which has long focused on and researched the ESG field, SGS-CSTC Standard Technical Service Co., Ltd., which has been deeply involved in the ESG field for many years, and a number of experts and scholars jointly launched the new "2023-2024 Hong Kong Capital Market ESG White Paper" (hereinafter referred to as the "White Paper"). In-depth discussions at multiple levels, such as enterprise case studies and ESG development trends and suggestions.

In recent years, the Hong Kong Securities and Futures Commission has introduced a number of measures to require listed companies to improve the quality and transparency of ESG reports, and the Hong Kong Stock Exchange's requirements for ESG information disclosure have become increasingly stringent, and ESG factors have become an important reference for evaluating investment targets.

When ESG becomes an unstoppable trend, it will inevitably cause changes in the capital market. As ESG strategy has become an indispensable competitive factor in Hong Kong's capital market, how should enterprises actively respond to ESG challenges, improve their environmental and social performance, and enhance their overall competitiveness?

In this regard, the 2023-2024 Hong Kong Capital Market ESG White Paper provides valuable information and insights for current companies, investors, and future decision-makers, with a view to working together to usher in a fairer, more sustainable, and more transparent future business environment!

Regulatory-led and investment-driven, the ESG development of Hong Kong's capital market is changing with each passing day

Since 2015, HKEX has continuously updated its ESG reporting guidelines to promote market participants to better understand and implement ESG principles, and a series of regulatory measures have not only increased investors' attention to the company's ESG performance, but also encouraged companies to improve their ESG performance, pressing the accelerator button for the construction of the ESG system in Hong Kong's capital market.

In 2023, the ESG regulatory policy of Hong Kong's capital market is still undergoing a series of evolutions, which has had a profound impact on Hong Kong's capital market in the past year. For example, the Hong Kong Stock Exchange (HKEX) has published and updated its progress in the consultation paper on "Enhancing Climate-related Disclosures under the Environmental, Social and Governance Framework" over the past year, which is expected to focus on the new climate disclosure requirements based on the ISSB Climate Standards.

With the continuous improvement of the ESG information disclosure requirements framework, on the one hand, the quality of ESG reports of listed companies has been significantly improved; On the other hand, as ESG factors are taken into account by more investment management firms, more ESG-themed investment products and services will emerge in the market.

According to the statistics on the number of ESG reports disclosed by Hong Kong-listed companies, as of January 31, 2024, the number of independent ESG reports disclosed by Hong Kong stocks in fiscal year 2022 was 1,258, and the disclosure rate increased significantly from 20.96% in fiscal 2021 to 50.30%. From the beginning of 2023 to February 2024, Hong Kong-listed companies have issued a total of about 2,475 ESG reports, with real estate and construction, industry, and finance becoming the three industries that have published the most ESG reports.

Judging from the disclosure of ESG reports released by companies in 2023, Hong Kong-listed companies are paying more and more attention to details and data accuracy when compiling ESG reports. Through higher quality disclosure, investors and other stakeholders can have a more comprehensive understanding of the company's sustainability and social responsibility performance.

On the other hand, with the gradual improvement of the construction of the ESG system in Hong Kong's capital market, the application of ESG ratings and ESG indices in the market has become more and more extensive. According to the white paper, there are currently more than 10 ESG-related indices in Hong Kong's capital market, such as the Hang Seng ESG Enhanced Index, the Hang Seng Corporate Sustainability Index and the Hang Seng ESG 50 Index.

In the process of investment decision-making, as more and more investors will consider the ESG rating of enterprises as an important investment basis, ESG index has also become one of the important indicators to measure the investment performance of fund managers.

Fund products allocate assets based on ESG-related indices, and investors can also indirectly invest in companies with high ESG performance by purchasing fund products that track these indices. With the continuous deepening of ESG ratings and index development, the influence of ESG investment on the capital market will be further enhanced, and this trend also indicates that the position of Hong Kong's capital market in the global ESG investment field will be further consolidated.

Leading the way in ESG practices, Hong Kong-listed companies in various industries have demonstrated positive results

Today, case studies of ESG in different industries show that ESG has become a necessity for companies to improve their competitiveness in the market. More and more companies are beginning to understand that ESG is not just a slogan, but a practice that can truly bring value to the company.

In order to build a sustainable, fair and transparent business environment, companies must also integrate ESG into their business models and integrate ESG concepts into all aspects of their companies. Among them, there are many companies in various industries that have shown positive results in ESG practices:

Energy case: Beijing Energy International (00686)

Beijing Energy International is committed to promoting the transformation of energy structure and the co-construction and sharing of low-carbon and clean energy. The company's ESG philosophy is closely aligned with China's "dual carbon" goals, namely carbon peak and carbon neutrality, emphasizing its commitment to environmental protection and social responsibility. Through the implementation of energy conservation and emission reduction and environmental protection measures, photovoltaic poverty alleviation, and the improvement of corporate governance structure, we continue to promote the integration of the company's ESG concepts, goals, strategies and management structure.

In July 2023, Beijing Energy International was awarded Fitch Evergreen ESG Entity Rating Level 2 with a score of "76", one of the highest scores in China, and ranked fourth in the world and second in Asia, with remarkable ESG practices.

Pharmaceutical case: Hansoh Pharmaceutical(03692)

As a leading innovation-driven pharmaceutical company in China, Hansoh Pharmaceuticals focuses on corporate governance, corporate behavior, product quality and safety, inclusive medical care, human resource development, environmental protection and community progress as the foundation of ESG management, and pays attention to internalizing the ESG concept in the hearts of employees and externalizing it into corporate trips through production and operation practices and corporate culture activities, forming a corporate culture with Hansoh characteristics.

In addition, the Company conducts data verification on the three greenhouse gas emission sources of the Group to identify the impact of the Company's business activities on the environment and the direction of improvement, and formulates the 2030 greenhouse gas emission reduction intensity target, and tracks and reviews the progress of achieving the target every year. As a result, Hansoh Pharmaceuticals' MSCI ESG rating has been upgraded to AA.

Real Estate Case: Shenzhen Holdings (00604)

Based on the strategic planning goals of the "14th Five-Year Plan", Shenzhen Holdings integrates ESG concepts into its daily operation and management, and adheres to the coordinated development with consumers, industrial chains, employees, environment and society.

By strengthening ESG awareness, improving ESG management systems, and establishing ESG reporting mechanisms, the company strives to achieve balanced development of economic, environmental and social benefits, clarifies the goals of carbon emissions, energy use, water and waste use, and green buildings at the corporate level, and strives to reduce carbon emission intensity per unit of revenue by 15% by 2030 compared with 2022.

Shenzhen Holdings has been rated "A" by Morgan Stanley MSCI-ESG Index for many consecutive years, maintaining a leading position among mainland real estate companies.

Utility Case: China Water (00855)

China Water is the only listed company in the Hong Kong stock market with tap water business and piped direct drinking water business as its main business, adhering to the core value concept of "water-oriented, good society", the Group put forward the overall goal of "carbon peak before 2030 and net zero emissions before 2050" in the "Outline of the Implementation Plan for Carbon Peaking and Carbon Neutrality" formulated by the Group in 2021, which is 10 years ahead of the carbon neutrality target proposed by the government. Align a global decarbonization pathway.

At present, China Water has fully established an ESG management system that meets ESG governance requirements and promotes the coordinated development of China's water affairs. Moody's issued a second-party opinion on the sustainable financing framework of Dragon Water Group, a wholly-owned subsidiary of China Water Group, and awarded the highest possible score for sustainability quality in SQS1 (Excellent).

Fintech case: Bairong Cloud-W(06608)

Bairong Yunchuang integrates ESG concepts into the company's strategic goals, organizational structure and daily operations, and actively contributes to the United Nations Sustainable Development Goals (SDGs) with the goal of helping the digital and intelligent transformation of finance, supporting the development of employees and communities, strictly abiding by compliance and business ethics, and reducing its own environmental footprint. By promoting the green development path and reducing the pressure on the environment, the company has obtained a number of environmental certifications and awards, such as ISO14001 environmental management system certification and telecom five-star green data center certification, and has won a number of ESG awards and certifications at home and abroad.

New energy case: Jinjing New Energy (01783)

By clarifying the five development strategies of high-end talents, smart buildings, green energy, new materials and corporate culture, Jinjing New Energy aims to achieve the goals of environmental protection, social responsibility practices and good governance, and achieves ESG goals through business upgrades, such as the development of smart buildings and smart energy, and has won many awards in the ESG field, such as the Best Energy and Resources Company, ESG Excellence Leadership Award, and 2023 ESG Innovation Award.

Shaping the Green Capital Market: Trends and Recommendations for ESG Capital Market Development in Hong Kong

As the Stock Exchange and the Securities and Futures Commission of Hong Kong (SFC) in 2023 will strive to align the ESG governance and disclosure of Hong Kong-listed companies and companies to be listed with the ISSB standards, attach importance to mandatory climate information disclosure, and promote the standardization of ESG rating and data product suppliers, listed companies should also pay attention to the new requirements on ESG disclosure.

The White Paper also mentions that Hong Kong-listed companies and pre-listed companies should also prepare and formulate transitional plans in advance in light of the latest requirements of the Consultation Paper on the Revision of the Environmental, Social and Governance Reporting Guide and the ISSB Standards, so as to make adjustments and plan ahead.

For example, we will revise the consultation paper on the current status and guidelines of the company's ESG management and disclosure, pay attention to the disclosure requirements of climate-related indicators and targets added to the consultation paper, and consider introducing third-party assessment and digital tools. For listed companies controlled by central enterprises listed in Hong Kong, it is particularly necessary to pay attention to the ESG requirements in the "Index System" from the policy documents of the China Securities Regulatory Commission, the Ministry of Ecology and Environment, major exchanges and other relevant departments, as well as a number of national standards.

Nowadays, ESG is not only an ethical orientation, but also an investment philosophy that is rapidly spreading in the capital market. ESG investing is gradually becoming a global consensus as corporate carbon footprint, resource efficiency, and environmental sustainability become more and more concerned by investors.

The application of ESG in the capital market not only provides a new dimension for corporate operations, but also creates more choices and value for investors. With the deepening of the application of ESG in the capital market, long-term value and risk management, investors tend to ESG investment, capital flow to ESG projects, the importance of ESG data transparency, shareholder activism and ESG, and the promotion of regulations and standards have also attracted more and more attention.

ESG strategy as a means to enhance corporate competitiveness is particularly important in Hong Kong's capital market. As an international financial centre, Hong Kong has a unique geographical location and excellent market environment, which has attracted the attention of a large number of international investors. Against this backdrop, Hong Kong-listed companies must not only meet the demands of local investors, but also meet the expectations of international capital, which has prompted Hong Kong-listed companies to excel in ESG to maintain their market position.

At present, the Hong Kong Stock Exchange has increasingly stringent requirements for ESG information disclosure, and is actively promoting listed companies to improve ESG information release and improve their environmental and social performance, which will help enhance their comprehensive competitiveness and stand out from other listed companies.

To read the full report and download it, please click here:

https://img.zhitongcaijing.com/pdf/ESG20240507.pdf