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ESG REPORTING: Hang Seng companies have transparency shortcomings
Hong Kong, 12 December 2022 – Companies in the Hang Seng Index rank in the midrange internationally in terms of the quality of their ESG reporting. This is the finding of the Global ESG Monitor 2022 (GEM), Regional Report Hong Kong/China, published today. The GEM is considered an international leader in analysing the non-financial reporting of leading companies in Europe, North America, Asia and Australia. According to the latest GEM study, the companies listed in the Hang Seng Index score an average of 57 points out of a maximum possible 100 points for the transparency of their non-financial reports. This result places the Hang Seng Index at the lower end of the midrange among the total of ten international indices from North America, Europe, Asia and Australia that were examined as part of the GEM, and ranks just above the level of S&P Asia (56 points) and Australia’s ASX50 (53 points).
At the top of the index league are three companies – sports equipment supplier Anta Sports Products, financial services provider Hang Seng Bank and Internet services provider and software developer Tencent Holdings – on a score of 77.
With a rate of 97 percent, a generally high level of willingness exists among Hang Seng Index companies to base their non-financial reporting on a standard international framework. In a global comparison, however, they tend to be more focused with an average of 6.7 referenced frameworks and standards. This is also reflected, among other things, in the length of the reports, which rank among the most concise of the ten indices examined. “As you go through the Hang Seng data, you then notice that this focus is not always an advantage,” comments Ariane Hofstetter, co-founder and Head of Research and Data Science at GEM. “In many cases, there’s a lack of important details that would lead to better comprehensibility, reliability and comparability of the data.”
Contextual information such as company size, number of employees and product and service portfolio is comparatively well established in non-financial reporting. Four out of five companies surveyed (81 percent) also describe the environmental parameters in which they operate. However, Hang Seng companies are less likely to address socioeconomic or political conditions (75 percent and 54 percent respectively). And only one-third (32 percent) from this group report on their value chains. “Greater sustainability nevertheless also requires close collaboration along the entire supply chain. How well Hang Seng companies achieve this undertaking remains in part an open question. Because here, too, there’s a lack of information that enables the information to be classified,” notes Michael Diegelmann, co-founder of GEM. “Although 83 percent of the reports contain descriptions of supply chains, once again there’s a lack of detail to help rank the risks associated with the supply chain.” For example, slightly less than a third of the companies provide information on the type of suppliers they do business with, and just under half state the estimated number of suppliers along the supply chain.
The relevant topics of Environment, Social and Governance are covered by a majority of Hang Seng companies in their non-financial reports. Around a third, for example, say they are already climate-neutral. A further 44 percent aim to achieve this objective in the future. In contrast to this statement, however, only three-quarters of companies identify their main sources of emissions in their reports and outline the biggest challenges they face in terms of climate-related emissions.
In the area of social issues, the topic of employee and human rights is not one of the most present in Hang Seng reporting. For example, 82 percent fail to state the extent to which specific incidents of discrimination and harassment have occurred. In contrast, the reports reflect more transparency on the subject of health and safety, where 89 percent of companies state their position – even though only seven out of ten companies report more specifically on “the number and rate of fatalities due to work-related injuries” and only a quarter provide information on “the number and rate of work-related injuries with serious consequences”.
When it comes to governance, reporting by Hang Seng companies tends to focus more on structures and less on the functioning of the supervisory board. Around seven out of ten companies report how they ensure or promote their supervisory boards’ collective knowledge about financial and non-financial issues and decisions. Only just under two-thirds of the companies (64 percent) report on the supervisory board’s role when it comes to assessing environmental and social risk management. The scores are particularly low in connection with critical concerns and issues reported to the supervisory board. Here, only a quarter of the companies provide information, with only four percent then being specific and outlining the total number of critical concerns that were communicated to the supervisory board.
“One reason many reports lack detail and transparency is that they are prepared according to the HKEX ESG reporting guidelines,” is Diegelmann’s assessment. “This is where it then becomes noticeable that these guidelines have lower minimum requirements and don’t go into much depth, especially compared to the Global Reporting Initiative requirements.”
Among Hang Seng Index companies, it is also striking that there is little willingness to submit the non-financial report to an auditor. Only just under one-third of issuers (32 percent) issue a corresponding audit engagement. It is striking that in 70 percent of the cases no information was provided on the depth of the audit and only 16 percent of the reports were audited with “reasonable assurance”.
“Hang Seng companies are generally convinced that their development towards greater sustainability must be accompanied by appropriate reporting,” is the conclusion of Joanne Chan, Regional Partner Hong Kong and CEO of LBS communications in Hong Kong. “However, an enormous amount of work will be required for Hang Seng companies to ensure that their reports can contribute to sustainable change through transparency.”
Michael Diegelmann (Wiesbaden, Germany), Global ESG Monitor
michael.diegelmann@globalESGmonitor.com +49 61120585512
Joanne Chan (Hong Kong, China), LBS Sustainability & Investor Relations
email@example.com, (852) 3679 3671
ABOUT THE GLOBAL ESG MONITOR
The Global ESG Monitor is a unique study that examines transparency in non-financial reporting by many of the largest companies in the world. The goal is to help companies provide better ESG reporting for their stakeholders. Transparency is measured using the GEM ASSAYTM a research tool developed specifically for this purpose. The GEM ASSAYTM is based on the relevant guidelines of Global Reporting Initiative (GRI), ISO Standard 26000, World Economic Forum and Accountability and Transparency, 2010a. The Global ESG Monitor compares publicly listed companies across sectors, regions and globally.