In recent years, many listed companies have attached great importance to ESG and published ESG reports. What does this report have to do with us? The 2021 ESG Summit will be held in Ireland on 31 May, while the World Environment Day is set on 5 June. Welcoming the two, we will be looking at the ESG reports of listed companies in Hong Kong and the challenges and future direction of translation of these reports in three consecutive feature articles.

What is ESG?

ESG stands for “Environmental, Social and Governance”, which involves a listed company’s impact on the environment and the wider society within which it operates. It is essential for the sustainability development of a listed company. With the emergence of corporate social responsibility (CSR) and socially responsible investment, the public has become increasingly socially and environmentally conscious. Apart from fundamental business and financial performance, corporate governance and ESG are also considered for investment selection as these factors reflects management strength and engenders investor confidence in the long-term prospects of the company. As such, ESG has become one of the most awared headlines that businesses consider in the past decade. Companies listed in Hong Kong are also required to disclose their ESG performance to the public under relevant regulations.

What is ESG report?

An ESG report discloses the company’s environmental, social and governance performance and the policies and measures adopted. In terms of environment, the report mainly covers issues related to emissions, use of resources, the environment and natural resources and climate change within the company’s business and operations. The business activities of companies in the energy and heavy industries have greater exposure to the environment and natural resources and pose greater impact on the environment, so they generally have more to disclose in the environmental aspect. In terms of social disclosure, companies are required to encompass issues related to operating practices, anti-corruption and community investment, while employee matters including safety and training should also be included. In addition, listed companies are also required to disclose matters of codes of conduct, audit and internal controls and shareholder rights under the Corporate Governance Code. In addition to mandatory disclosure, many companies would also take a step further and disclose additional ESG information in the ESG reports to provide stakeholders with a holistic and comprehensive view of the companies, so as to enhance corporate image and bolster their stakeholders’ confidence.

According to the Listing Rules, companies listed in Hong Kong are required to publish ESG reports on the websites of the Stock Exchange and the companies every year. Whilst some companies opt to include the ESG reports in their annual reports, most companies publish the ESG reports separately after the annual reports.

Next time, we will discuss the challenges of translating ESG reports.