Hong Kong SAR: SFC sets out ESG next steps

To the backdrop of another summer of droughts, wildfires and floods across the northern hemisphere, the Securities and Futures Commission (SFC) has published an Agenda for Green and Sustainable Finance (the Agenda) outlining the extent of their work done so far and defining the next areas of focus. The Agenda provides a useful confirmation of the regulator’s direction of travel which has been trailed in speeches and circulars over the last few months, as well as an overview of its work so far in this area.

The SFC has been working on a sustainable finance framework for several years and has underlined the importance of moving towards a more ‘green’ finance approach, both to the firms it supervises and to investors. It first published its Strategic Framework for Green Finance in 2018 and the Agenda describes how the various actions taken since 2018 have been guided by the goals set out in the 2018 Strategic Framework, such as improving disclosures by listed companies and asset managers. According to the SFC, most of the goals have been met and in some cases, exceeded.

Future Focus

In order to continue the transition to a greener economy, the SFC is now planning to focus its work on three key areas:

• Corporate disclosures;
• Monitoring the implementation of and enhancing existing measures; and
• A regulatory framework for carbon markets.

Corporate Disclosures

One of the greater challenges that has emerged in the move towards sustainable finance is the need for clear and consistent environmental disclosures by firms, not only within jurisdictions but also globally. The SFC, and the Ashley Alder as CEO, are very supportive of the IFRS Foundation established International Sustainability Standards Board (ISSB), which is developing and maintaining a global, uniform set of sustainability reporting standards. While the SFC will continue to monitor global developments in sustainability disclosures, there will be a particular focus on assessing whether a standard aligned with those of the ISSB will work for Hong Kong’s listed companies. Licensed firms should therefore be keeping abreast of ISSB developments in particular as part of their ESG monitoring (see our previous blog post). 

Monitoring Existing Measures

Recognising that sustainable finance is an area that is relatively nascent and developing, the SFC will be assessing challenges faced by the corporations they regulate along with how they are complying with measures that have been introduced so far. As the majority of the sustainable finance measures introduced have been for the asset management sector, compliance by asset managers and ESG funds issuers will therefore be a key focus area for the SFC. Work will also continue on reviewing whether to adopt a taxonomy in Hong Kong, such as the Common Ground Taxonomy.

Carbon Markets

The feasibility of carbon market opportunities in Hong Kong has been the subject of review by the SFC and HKEX, with a first set of recommendations published in March 2022. The SFC will continue to be involved in this workstream, assessing potential regulatory frameworks for the proposed carbon market opportunities. The SFC also participates, at an international level, with the IOSCO Sustainable Finance Task Force carbon market workstream, to support the transition to a greener global economy.