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On May 17, 2019 the Hong Kong Exchanges and Clearing Limited (HKEX)  released a consultation paper seeking views and comments on review of the Environmental, Social and Governance Reporting Guide (“ESG Guide” or “Guide”) and related Listing Rules. HKEX received 153 responses from a broad range of respondents, including SFi.

SFi submitted a collective consultation response supported by over 30 co-signatories including family offices, foundations, private investors and asset managers. Our detailed consultation response can be found on HKEX website here

On Dec 19, 2019 HKEX released the results of the consultation. The feedback indicated strong support for the consultation proposals to enhance the ESG reporting framework. HKEX will implement the consultation proposals, with modifications, reflecting comments received. The changes will be effective for financial years commencing on or after 1 July 2020. For SFi’s review of HKEX ESG consultation outcomes please see here. 

SFi followed up with the HKEX in May 2020 to discuss several factors that were not incorporated, including:

SFi’s consultation feedback

1. Overboarding and directors time commitment to ESG matters:

One of the key changes to the disclosure requirements is that the board must release a statement setting out the board’s consideration of ESG matters. This will require boards to be ESG-competent and to devout sufficient time to discuss ESG. However, at a time when almost 95 people occupy 6 or more listed company boards seats in Hong Kong (CLSA 2019), there is concern board members will not spend sufficient time on this matter.

“We can’t stop over–boarding if the shareholders agree that this person is best for the job, but we have made it more difficult. We need them to justify and think about it,” says Katherine.

HKEX in 2018 reviewed the Corporate Governance Code and Related Listing Rules to tackle overboarding and a number of changes were made including setting the board threshold to 7 directorships. In addition, a qualitive assessment framework was implemented setting out factors the board should consider when nominating directors. It is also expected that the issuer should explain to shareholders the reasons for determining that the proposed nominee would be able to devote sufficient time to the board.

“The nomination committee and company need to take responsibility, and you need to explain in your circular to shareholders why you are nominating this person who is already on several boards and why you think he/she has sufficient time,” says Katherine.


SFi believes that the steps taken increase transparency for shareholders and are aligned with international practice such as the Institutional Shareholder Services’ (“ISS”) 2018 Benchmark Policy.

“Investors also need to take some responsibility and question why are you voting this person in,” says Katherine.

SFi is in agreement with the HKEX that investors also have a responsibility to effectively engage listed companies on this issue. “It’s very effective when the investors engage the company and request information. It is important for investors to articulate how that information correlates to the company’s share price,” says Katherine. Investors’ actively raising their thoughts with companies will start to push such issues beyond compliance and a “tick-the-box” exercise by listed companies.


2. Social metrics and lack of reference several international guidelines

HKEX has upgraded social disclosures from recommended best practices to ‘comply-or-explain’ in response to market feedback that the social dimension was somewhat light. It is reassuring to hear that HKEX will place further emphasis on social performance in the future:

“With Covid-19 we are seeing increased activities around social bonds, so social metrics are equally as important as environmental ones. We are likely to see more demands from investors on social metrics disclosure to demonstrate how resilient their investee companies are to deal with shocks like the current pandemic situation. As such, we are likely to further enhance disclosure on a few social metrics in the near future,” says Grace.

“Our ESG guide is a starting point, a framework. It’s not an exclusive guide by any means and it offers some flexibility. This is something that is done for the benefit of investors, and if investors feel a particular guideline would help then they should engage the company and tell them about it,” says Katherine.

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