Hong Kong SAR: SFC CEO on ESG Plans in Hong Kong
Ashley Alder, CEO of the SFC gave a speech on environmental finance at the Asian Financial Forum giving an overview of the direction of travel for this hot topic in Hong Kong.
Noting the importance of steps taken over the last year such as the launch of the cross-agency steering group (the Steering Group) to coordinate the management of climate and environmental factors in the financial sector, and its recently announced “bold strategic plan”, Mr Alder underlines that the SFC’s initial focus is on the environment, and specifically the financial risks and opportunities arising from climate change.
The importance of disclosure
The importance of the availability of clear and consistent information on climate change is highlighted as the starting point for the action plan. The SFC has started taking action in this area, for example the recent consultation on requiring fund managers to factor climate-related risks into their investment processes and mandate their disclosure to end-investors. This is one step toward the Steering Group’s goal of ensuring that climate-related disclosures must be aligned with all the Task Force on Climate related Financial Disclosures (TCFD) recommendations no later than 2025.
Mr Alder explains that for disclosures to be meaningful and enable investors to have a clear picture of whether climate is a material issue for a business there are two perspectives;
- financial materiality - how climate affects the value of a company or of a fund’s assets; and
- the external environmental impact of the company’s or a fund’s activities.
The challenge is to ensure that disclosures cover both, in trying to achieve this Mr Alder underlines the importance of mandating the totality of the TCFD requirements in Hong Kong, as well as globally.
Another near-term goal of the Steering Group in this area which is highlighted by Mr Alder is supporting the International Financial Reporting Standards (IFRS) Foundation’s proposal to establish a new Sustainability Standards Board for developing and maintaining a global, uniform set of sustainability reporting standards.
Another area of importance highlighted in the speech is the use of climate focused scenario analyses. Mr Alder describes them as an essential tool to assess the materiality of future physical and transition risks under different climate pathways and to align what is done now with future aims, and therefore the use of scenario analyses will be promoted, and in some cases mandated.
Finally, the Steering Group’s goal to adopt a “Common Ground” taxonomy is also highlighted as vital to the green finance effort as this would provide a universal, common catalogue to enable capital to be allocated to the right places. The taxonomy is being developed under the EU’s International Platform on Sustainable Finance (the SFC and HKMA are members of this platform).
While underlining the potential for Hong Kong to take a leading role in this area, Mr Alder also signals the importance of collaboration between regulators and government agencies globally in reaching the standards set by bodies such as the Financial Stability Board.