Globally, the importance of environmental, social and corporate governance (ESG) is growing rapidly. ESG has gradually become an international consensus. The capital market is increasingly inclined to evaluate ESG performance to find companies with a “value engine” for continuous growth, and investment in the ESG sector has ushered in new opportunities and room for growth.

Especially in international financial centers like Hong Kong, the development of ESG issues is even more prominent.

On May 11, Zhitong Finance, together with leading ESG data company Beijing Zhiding Technology Co., Ltd., Zhide Law Firm, which has long focused and studied the ESG field, SGS Standard Technology 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”) to discuss ESG developments in the Hong Kong market, ESG new policies, corporate case analysis, and ESG development trends and suggestions.

In recent years, the Hong Kong Securities Regulatory Commission has introduced a number of measures requiring listed companies to improve the quality and transparency of ESG reports. The Hong Kong Stock Exchange's requirements for ESG information disclosure are also becoming increasingly strict, 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 strategies have become an indispensable competitive element in Hong Kong's capital market, how should enterprises respond positively to ESG challenges, enhance 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 insight to current enterprises, investors and future decision makers, with a view to welcoming a fairer, more sustainable and more transparent future business environment with everyone's joint efforts!

Regulatory leadership, investment-driven, and rapid changes in ESG development in Hong Kong's capital market

Since 2015, in order to promote market participants to better understand and implement ESG principles, the Hong Kong Stock Exchange has continuously updated its ESG reporting guidelines. A series of regulatory measures have not only raised investors' attention to the company's ESG performance, but also encouraged enterprises to improve their own ESG performance, pressing the acceleration button for the construction of an ESG system in the Hong Kong capital market.

In 2023, Hong Kong's capital market ESG regulatory policy is still undergoing a series of evolutions, which has had a profound impact on the Hong Kong capital market over the past year. For example, the Hong Kong Stock Exchange distributed consultation documents on “Optimizing Disclosure of Climate-related Information in the Framework of Environmental, Social and Governance” in the past year and is expected to focus on new climate disclosure requirements based on ISSB climate guidelines.

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, when ESG factors are taken into account by more investment management companies, more ESG-themed investment products and services have also emerged in the market.

According to statistics on the number of ESG reports disclosed by Hong Kong stock listed companies, as of January 31, 2024, the number of independent ESG reports disclosed for FY2022 was 1,258, and the disclosure rate increased dramatically from 20.96% in FY2021 to 50.30%. From the beginning of 2023 to February 2024, Hong Kong stock listed companies issued a total of about 2,475 ESG reports. Real estate construction, industry, and finance became the three industries that issued the most ESG reports.

Judging from the disclosure of ESG reports issued by companies in 2023, Hong Kong stock listed companies are paying more and more attention to details and data accuracy when compiling ESG reports. Through higher quality information disclosure, investors and other stakeholders can more fully understand the company's sustainability and social responsibility performance.

On the other hand, with the gradual improvement of the ESG system in the Hong Kong capital market, ESG ratings and ESG indices are also being applied more and more widely in the market. As mentioned in the “White Paper”, there are currently more than ten ESG-related indices in the Hong Kong capital market, such as the Hang Seng ESG Enhancement Index, the Hang Seng Sustainable Enterprise Index, and the Hang Seng ESG50 Index.

In the investment decision-making process, as more and more investors consider an enterprise's ESG rating as an important investment basis, the ESG index has also become one of the important indicators for measuring the investment performance of fund managers.

Fund products allocate assets based on ESG-related indices, and investors can also indirectly invest in companies with excellent ESG performance by purchasing fund products that track these indices. As the development of ESG ratings and indices continues to deepen, the influence of ESG investment on the capital market will further increase. This trend also indicates that the position of the Hong Kong capital market in the global ESG investment field will be further consolidated.

Leading ESG practices, Hong Kong listed companies in various industries showed positive results

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

In order to build a sustainable, fair and transparent business environment, companies must also integrate ESG into their own business models and integrate ESG concepts into all aspects of the company. Among them, there is no shortage of 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 the energy structure and the co-construction and sharing of low-carbon clean energy. The company's ESG philosophy is closely linked to China's “dual carbon” goals, namely carbon peak and carbon neutrality, and emphasizes its commitment to environmental protection and social responsibility. By implementing energy saving and emission reduction and environmental protection measures, photovoltaic poverty alleviation, and improving corporate governance structures, we continuously promote the integration of the company's ESG concepts, goals, strategies and management structures.

In July 2023, Jingneng International received Fitch Evergreen's ESG Subject Rating of 2, with a score of “76,” which is one of the highest scores in China, and ranked fourth in related industries around the world and second in Asia, with remarkable results in ESG practices.

Pharmaceutical case: Hanson Pharmaceuticals (03692)

As a leading innovation-driven pharmaceutical company in China, Hanson Pharmaceuticals focuses on corporate governance, corporate behavior, product quality and safety, inclusive healthcare, human resources development, environmental protection and community progress as the foundation of ESG management, and focuses on internalizing ESG concepts into employees' minds and externalizing them into corporate trips through production and operation practices and corporate cultural activities to form a corporate culture with Hanson characteristics.

In addition, the company verifies data on the group's three greenhouse gas emission sources to identify the impact of the company's business practices on the environment and the direction of improvement, and sets the 2030 greenhouse gas emission reduction intensity target, and tracks the progress of achieving the target every year. As a result, Hanson Pharmaceuticals' MSCI (Ming Sheng) ESG rating was upgraded to AA.

Real Estate Case: Shenzhen Holdings (00604)

With property development, property investment, and integrated urban operation services as its core business, and also involved in innovative businesses such as high-tech agriculture and high-end manufacturing. Based on the “14th Five-Year Plan” strategic planning goals, Shenzhen Holdings integrates ESG concepts into daily operation management and insists on collaborative development with consumers, industrial chains, employees, the environment and society.

Through various practices such as 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, clarify enterprise-level carbon emissions, energy use, water resources and waste use, and green buildings, and strive to reduce the carbon emission intensity per unit revenue by 15% compared to 2022 by 2030.

Shenzhen Holdings received an “A” rating in the Morgan Stanley MSCI-ESG Index for many years, maintaining a leading position among mainland housing enterprises.

Utility Case: China Water (00855)

China Water is the only listed company in the Hong Kong stock market with tap water business and piped drinking water business as its main business. Adhering to the core price values of a “water-based Dashan society”, the Group proposed the overall goal of “peak carbon by 2030, achieve net zero emissions by 2050” in the “Outline of the “Carbon Peaking and Carbon Neutrality” implementation plan formulated by the Group in 2021. It is 10 years ahead of the carbon neutrality target proposed by the government, which is consistent with the carbon neutrality target of the Hong Kong region and the Science-based Carbon Reduction Target Initiative (SBTi).

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

Fintech Case Study: BairongYun-W (06608)

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

New Energy Case: Jinjing New Energy (01783)

By clarifying the five major development strategies of high-end talents, smart buildings, green energy, new materials and corporate culture, Jin Jing Xinneng aims to achieve environmental protection, social responsibility practices and good governance goals, achieve ESG goals through business upgrading, development in fields such as smart buildings and smart energy, and won many awards in the ESG field, such as the Best Energy and Resources Company, the ESG Outstanding Leadership Award, and the 2023 ESG Innovation Award.

Shaping a Green Capital Market: Hong Kong's ESG Capital Market Development Trends and Suggestions

As the Stock Exchange and the Hong Kong Securities Regulatory Commission push for ESG governance and disclosure of Hong Kong listed companies and companies to be listed in line with ISSB standards in terms of ESG regulatory policies in 2023, place emphasis on mandatory climate information disclosure, and promote standardization of ESG ratings and data product suppliers, listed companies should also pay attention to the new requirements for ESG disclosure.

The “White Paper” also mentioned that Hong Kong listed companies and companies to be listed should also prepare and formulate transition plans in advance, taking into account the latest requirements of the “Environmental, Social and Governance Reporting Guidelines” revised consultation documents and ISSB standards, so as to make adjustments and advance planning.

For example, compare the current status of the company's ESG management and disclosure with the revised consultation document, pay attention to the disclosure requirements for climate-related indicators and targets added in the consultation document, and consider introducing third-party evaluation and digital tools. For listed companies controlled by central enterprises listed in Hong Kong, special attention should be paid to ESG requirements in the “Index System” from relevant departmental policy documents such as the China Securities Regulatory Commission, Ministry of Ecology and Environment, major exchanges, etc., and various national standards.

Today, ESG is not only a moral orientation, but also an investment philosophy that is rapidly spreading in capital markets. As corporate carbon footprints, resource efficiency, and environmental sustainability receive more and more attention from investors, ESG investment is gradually becoming a global consensus.

The application of ESG in the capital market not only provides a new dimension for business operations, but also creates more choices and value for investors. As the application of ESG in the capital market deepens, long-term value and risk management, investors' trend towards ESG investment, capital flows to ESG projects, the importance of ESG data transparency, shareholder activism and the promotion of ESG, regulations and standards are also receiving more and more attention.

Using ESG strategies as a means to enhance corporate competitiveness is particularly important in the Hong Kong capital market. As an international financial center, Hong Kong has a unique geographical location and superior market environment, which has attracted the attention of a large number of international investors. In this context, Hong Kong listed companies must not only face the requirements of local investors, but also meet the expectations of international capital, which forces Hong Kong listed companies to excel in ESG to maintain their market position.

Currently, the Hong Kong Stock Exchange's requirements for ESG information disclosure are becoming more and more strict. It is actively promoting listed companies to improve their ESG information disclosure and improve their environmental and social performance, which will help them enhance their overall competitiveness and stand out from many listed companies.

To read the full report, click here for links and downloads: