Hong Kong ESG disclosure reporting

On 20 August, the Securities & Futures Commission of Hong Kong (SFC) published its conclusions following its consultation on the management and disclosure of climate-related risks.

The reporting requirements have been broken down into Baseline and Enhanced requirements at fund and entity level, and fund groups are divided into Large Fund Managers (those with HK$8bn (US$1bn) or more AuM) and others.

The Fund Managers Code of Conduct (FMCC) entails more than disclosure.

At a Baseline level, there are governance requirements related to the roles, responsibilities and procedures at board and management level. There is also a requirement within investment management to identify, assess and factor in climate-related risks, unless they are deemed irrelevant for certain strategies or funds (in which case this should be disclosed and records kept).

Finally, there are risk management requirements. Groups must ensure appropriate steps are taken to identify, assess, manage and monitor material climate-related risks.

Large Fund Managers required to meet Enhanced requirements must assess the usefulness of scenario analysis to evaluate the resilience of funds and strategies to climate-related risks under different scenarios and, if deemed useful, carry out scenario analysis. They must also identify the portfolio carbon footprint of Scope 1 and Scope 2 GHG emissions of underlying investments, where data is available or can be estimated.

Disclosures

Baseline

All fund groups need to report on Baseline requirements at entity level. These are:

Disclosure of the governance of climate-related risks at both a board and management level
Disclosure of the process for identifying and managing climate-related risks

Where climate-related risks are deemed to be irrelevant, these could be at entity level or fund level and should be disclosed at the appropriate level.

Disclosure should be proportionate to the extent to which climate-related risks are taken into account, it should be in writing and should be made available to investors by electronic means, e.g. on the company website.

Enhanced

Enhanced disclosures only apply to Large Fund Managers.

Entity level - disclose the company’s engagement policy with investee companies and illustrate how material climate-related risks are managed in practice.

Fund level - portfolio carbon footprint of Scope 1 and Scope 2 GHG emissions (where it is available or can be reasonably estimated), indicate calculation methodology, assumptions, limitations and proportion of investments included in calculations.

Deadlines

12 month transition period (i.e. to 20 August 2022) for Baseline disclosures for Large Fund Managers

15 month transition period (i.e. to 20 November 2022) for Enhanced disclosures for Large Fund Groups and Baseline disclosures for other groups

The carbon footprint disclosures for Large Fund Managers must be disclosed as at the first fund year end on or after 20 November 2022 and each year thereafter. This disclosure must be through a channel they feel is appropriate and not later than the usual due date of the fund’s report and accounts.

Disclosures should be reviewed at least annually and updated as necessary. Carbon footprint disclosure may be made more frequently than annually if the group wishes.