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Asian businesses are becoming increasingly transparent in the way they report ESG information. This is in part due to new listing rules that require greater focus on this aspect of their operations. In 2015 the Hong Kong Stock Exchange (HKEx) tightened the Environmental, Social and Governance Reporting Guide contained in its listing rules. The initiative has been designed to improve listed businesses’ risk management and access to capital, and to encourage more responsible management of the supply chain.
The rules contain a comply-or-explain mechanism, so companies have to explain why if they don’t meet the guide’s provisions. The updated guide brings Hong Kong’s sustainability reporting provisions into line with international standards. They apply to financial reports issued on or after January 1, 2016 by companies listed on the HKEx.
Singapore has similarly tightened its sustainability reporting rules. Its stock exchange requires listed businesses to publish an annual sustainability report. Last year it also introduced a comply-or-explain device. Similar to how Hong Kong’s rules work, companies listed on Singapore Stock Exchange (SGX) whose sustainability reports don’t comply with the rules must also explain alternate actions they have to take to justify their non- compliance. This requirement has applied since January 1 this year.
Many Asian firms have spent considerable time and resources to ensure they are able to meet these new rules. Here, three standout companies operating in the region detail their approach to ESG communication.
Hang Lung Group: Staff engagement essential
While shareholders may once have had scant regard for such intangible data as ESG indicators, today it is essential information from which investors form their views. This is something the management team of Hong Kong-based property developers Hang Lung Group knows only too well. One reason it pays such close attention to its ESG actions and reporting is that investors now demand it.
Bella Chhoa is vice chair of Hang Lung’s sustainability steering committee. She says investors are highly engaged with the company’s ESG performance. ‘Of course, our financial results are important, but investors must have confidence the business will survive in the long run,’ she explains. ‘This means we have to look beyond growth to how sustainable our company is, and what our impact on society and our social influence are.’
Sustainability is a broad remit for the business and includes achieving the appropriate green building certifications for its business and driving operational efficiencies through sustainability practices – for instance, by reducing overheads through the more efficient use of energy.
But building the right internal culture and appropriately communicating to external and internal stakeholders is equally important. ‘Because we do business in China we have to get it right, so transparency is very important. We want people to think we are among the best developers in China,’ says Chhoa. Hang Lung positions itself as a first mover in sustainability reporting. ‘It’s not just branding or some kind of a vision for the company you can’t measure,’ Chhoa adds. We have candid discussions with management and a set plan to ensure every function knows what it needs to do.’
Accordingly, the business is able to analyze the success of its ESG efforts through looking at measures such as staff retention rates, right down to using mathematical calculations to determine the amount of savings achieved through the company’s introduction of energy-efficiency programs.
The company is fortunate its chair Ronnie Chan champions sustainability in the business. ESG also has strong support throughout the management team and its supporting structures: every department head is a member of the sustainability steering committee and responsible for setting short-term and long-term sustainability targets. The company, which uses easy-to-understand graphics to communicate ESG data in its sustainability information, reports against 83 sustainability measures, even when it does not necessarily excel against a particular benchmark. ‘We’re transparent. If you don’t know your performance, you will never improve,’ says Chhoa.
At the moment Hang Lung is focused on improving operational efficiencies through its ESG program. Ensuring the data is accurate and verifiable is key, as is proper ongoing engagement with external stakeholders to ensure the company is reporting the ESG information the market requires. The business produced its first stand-alone sustainability report in 2012, and each subsequent report became more sophisticated and engaging. ‘But we’re not complacent. We’re looking at producing a sustainability report specifically for investors,’ says Chhoa.
Another idea is to publish a short-form report to engage stakeholders that don’t have in-depth knowledge of sustainability. ‘You have to arouse that interest to ensure that when shareholders perform their everyday tasks, they know what sustainability means to them in their position. That’s for staff and outside stakeholders, too,’ she says.
‘Sustainability reporting is forward-looking. You have to look into macroeconomics, your business models, your resources and long-term planning. Most importantly, however, you have to engage all staff to make sustainability successful.’
This article appeared in the summer 2017 issue of IR Magazine
