Hong Kong is expected to catch up with other developed markets in environmental disclosure in the next two years when such reporting becomes mandatory.
Under tighter standards on environmental, social and governance (ESG) disclosure, reporting will be raised to a “comply or explain” level.
Hong Kong lags ESG disclosure standards on integrated reporting compared with other jurisdictions including China and countries in South Africa, Eunice Chu, policy head of the Association of Chartered Certified Accountants, said.
“This is mainly due to a large number of companies in the service industry that might not have much to do with environmental disclosure as, say, factories do,” she said.
In June, Hong Kong Exchanges and Clearing Ltd. (HKEx, 00388.HK) did a survey to see how listed companies are complying with ESG reporting.
It plans to raise the level of obligation to “comply or explain” in 2015.
Management discussion, governance and remuneration, environmental, social and financial information will become part of integrated reporting to improve ESG standards.
“Hong Kong companies will slowly be asked to do integrated reporting after raising the obligation level of ESG disclosure,” Chu said.
Chu said the practice will reflect on management and could require more manpower and higher spending.
“It can help improve communication among departments and increase the focus and awareness of senior management about the long-term sustainability and risks of the business,” she said.
Britain has been requiring companies to disclose carbon emission figures in annual reports since last year.
Also, business reviews have been replaced with “strategic reports” which include more non-financial issues such as human rights, boardroom and staff diversity this year.
In South Africa, listed companies are required to file integrated reports on a “comply or explain” basis.
The Chinese Institute of Certified Public Accountants supports integrated reporting as part of efforts to promote reform in company reports, said Li Yong, a vice minister of finance and the group’s president.
“I firmly believe that with China’s active participation, the concepts of integrated reporting and good practices will provide useful reference to us and promote further reform of Chinese corporate reports,” Li was quoted as saying on the International Integrated Reporting Council (IIRC) website.
Globally, more than 100 companies have joined a pilot program launched by IIRC in 2012 to publish integrated reports.
These include Volvo Group, Deutsche Bank A.G., SAP S.E., Tata Steel Ltd., Microsoft Corp., ACCA and Hong Kong’s CLP Holdings Ltd. (00002.HK)
However, ACCA said not many companies have done a good job of linking ESG disclosure to company performance.
“Companies should link social responsibility and environmental protection to its development strategy instead of treating them as a separate part in their reports,” Chu said.
Chu said HK Electric Investments Ltd. (02638.HK) reports its environmental and social strategies as well as governance but these are being mixed in with the chairman’s statement and chief executive’s report, making it difficult to make a comparison with those of other companies.
She said companies and stakeholders should adopt a framework for integrated reporting.
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