A majority of surveyed business executives of Hong Kong-listed companies are yet to integrate environmental, social and governance (ESG) as part of their core business strategy, while most indicate they see value in it, finds a joint survey by KPMG, CLP and the Hong Kong Institute of Chartered Secretaries (HKICS).
The report, titled ESG: A view from the top, features a survey of more than 200 senior executives of Hong Kong-listed companies on how they are addressing ESG concerns and driving its development in the region.
It finds that nearly 70 percent of surveyed business executives acknowledge the value of ESG in their businesses. Thirty-eight percent of respondents think ESG is essential as business success depends on environmental and social resources, while 30 percent note that it is good for business in terms of attracting investors seeking long-term sustainable investments.
However, only 37 percent of respondents say that they have integrated ESG issues into their strategic planning, and 41 percent indicate that it has been considered in boardroom discussions. While ESG reporting has become mandatory since 2016, these findings indicate that it is still a peripheral issue for some companies.
The survey finds that three key barriers are affecting more than one third of business executives: limited ESG knowledge; ESG issues are not considered to have a significant impact on the business; and that ESG is expected to deliver limited short- term/immediate returns.
Pat-Nie Woo, Partner, Business Reporting and Sustainability, KPMG China, says: “A number of studies have found that strong ESG performance can create competitive advantages, including a more stable investor base, lower cost of capital and better access to financing, improved employee engagement and customer loyalty. These benefits are vital to the companies seeking to create long-term value and strengthen their corporate performance.”
David Simmonds, Group General Counsel & Company Secretary, CLP Holdings, and a HKICS council member, says: “A company can only survive if it conducts its business in a manner which is consistent with the legitimate interests and well-being of the communities in which it operates, not just those of its shareholders. To achieve that requires good governance and due regard to be paid to the environmental and social impact of business decisions and the sustainability of business models.”
In addition, boards play an important role in terms of driving ESG development and managing their ESG-related risks and opportunities. The survey finds that 43 percent of respondents expect to increase their investment in improving their company’s tracking of ESG issues and related communication to the board in the next three years. However, only 13 percent of respondents indicate they expect to add board member(s) with specific ESG-related skills/experiences to improve board oversight of ESG issues.
April Chan, Past President and Chairman of Technical Consultation Panel, HKICS, says: “ESG issues should be properly addressed in a company’s risk management processes and regularly communicated to the board, no matter if they are identified as strategically significant or material. Rather than viewing them just as a risk, the board should also encourage management to focus on the potential ESG-related opportunities relating to innovation, disruption and value creation.”
It is critical for companies to develop a purposeful culture for ESG, where employees can play a role in contributing to the mission of the company, and have a positive impact on customers and the local community, the report states. Setting an appropriate “tone at the top” can nurture a corporate culture that gives priority to integrity, ethical standards and long-term sustainable value creation. Meanwhile, the board should have effective oversight by focusing their efforts on addressing the strategically significant ESG issues, and drive positive change more effectively.