ESG in Hong Kong: for a sustainable financial landscape

Today, the financial services sector is one of Hong Kong’s most important economic contributors, accounting for about 21.3% of the city’s GDP as reported by the International Trade Administration official website in its February 2024 publication (Hong Kong - Financial Services & Fintech (trade.gov). Its dynamic growth is backed by more than 163 licensed banks and eight virtual banks to date, according to the site’s same report, which thereby laid the foundation for a sustainable and green financial market to emerge as a leading subsector.

Sustainable and green finance is not something new, having evolved as the next natural course of development – further solidifying Hong Kong’s position as a regional green and sustainable financial hub. The Hong Kong government has in fact been working in concerted efforts with financial regulators and the industry in implementing a multi-pronged strategy to promote green and sustainable finance in Hong Kong. Among the efforts and measures undertaken are developing the Climate-Related Financial Disclosures reporting framework for listed companies, Common Ground Taxonomy jointly formulated by Mainland China and the European Union, as well as a green procurement policy.

These policies have served to exert pressure on regulated industries and all multinational enterprises – at a later stage – on the imperative consideration for Environmental, Social and Governance (ESG) standards in their businesses and operations model.

ESG to the fore

ESG has become a topic of vast significance these days, not just in Hong Kong but globally, too, given that it not only affects the next generation’s future environment but also opens up a new landscape within the business community. For Hong Kong’s financial sector, ESG would well translate into measures and means to be introduced for financial corporations and their customers to meet some of these criteria to carry on with their business operations.

Therefore, the term sustainable finance has since emerged with reference to financial activities that integrate ESG factors into investment decisions for sustainable development. ESG is regarded a critical aspect to the overall sustainability of the ecosystem, and by embracing sustainable finance practices, the financial sector can play a crucial role in driving positive change and mobilizing capital towards sustainable investments.

In the larger context, ESG is also highly relevant to Hong Kong’s multinational companies beyond just financial institutions. There are several reasons for this, the first being reputation and stakeholder expectations. As large multinational companies often have a significant impact on the environment and society, ESG considerations are crucial for maintaining a positive reputation and in meeting the expectations of stakeholders, including customers, investors, employees and regulators.

Secondly, it pertains to risk management. Given that ESG factors can help multinational companies identify and manage risks associated with environmental and social issues, such as climate change, supply-chain disruptions, labor practices and regulatory compliance, addressing these risks meant that companies could enhance their long-term resilience and sustainability.

There’s also the matter of regulatory compliance, seeing as Hong Kong has been strengthening its ESG regulatory framework, including mandatory ESG reporting requirements for listed companies. Therefore, multinational companies would need to comply with these regulations and demonstrate their commitment to ESG principles to avoid legal and reputational risks.

Another reason is access to capital, whereby with investors increasingly looking into ESG factors when making investment decisions, multinational companies that prioritize ESG performance are more likely to attract sustainable investment capital and gain better access to funding.

Finally, embracing ESG practices catalyzes a competitive advantage for multinational companies. It can differentiate them in the market, attract customers who prioritize sustainability and help attract and retain top talents who value working for socially and environmentally responsible organizations.

Towards progressive ESG requirements

There are various ways in which the financial sector, from banks to asset managers, can contribute towards progressive ESG requirements and sustainable strides. Some approaches that can make ESG count are:

• ESG integration: Financial institutions can incorporate ESG factors into their investment analysis and decision-making processes. This includes considering the environmental and social impact of investments and assessing the governance framework of companies
• ESG reporting and disclosure: Banks and asset managers can promote transparency by providing clear and comprehensive ESG information to investors. This enables investors to make informed decisions and encourages companies to improve their ESG performance
• Green financing: Financial institutions can provide funding for environmental-friendly projects and initiatives. This includes issuing green bonds, providing loans for renewable energy projects and supporting sustainable infrastructure development
• Engagement and advocacy: The financial sector can engage with companies, policymakers and stakeholders to promote ESG best practices and advocate for sustainable policies. This can include active ownership, shareholder engagement and participation in industry initiatives

In fact, the Hong Kong government recently announced plans to compel more public-listed companies to disclose their sustainability performance and metrics as part of the mandatory climate-related enactment. Under this mandatory disclosure, impacted companies are expected to provide an ESG report on ESG issues, management approach and strategy. They are subjected to “comply or explain” disclosures on each identified environmental and social aspect, as well as diving into KPIs to demonstrate how they have performed. Across the board, such a mandate could impact future financial loans or grant approvals, land-usage approvals, infrastructure development and building development, though on a corporate lens, these are some of the anticipated impacts:

• Increased transparency: The mandatory disclosure of sustainability performance and metrics will enhance transparency in corporate reporting. It will provide investors, stakeholders and the public with better insights into companies' environmental impact, climate-related risks and mitigation strategies
• Accountability and benchmarking: The disclosure requirements will hold companies accountable for their sustainability efforts. It will enable benchmarking and comparison of companies' performance, fostering healthy competition and driving continuous improvement towards net-zero or carbon-neutrality goals
• Investor confidence: The mandated disclosure will provide investors with standardized and reliable information to assess companies' climate-related risks and opportunities. This can enhance investor confidence, attract sustainable investment and mobilize capital towards companies that are actively addressing climate change
• Strategic decision-making: The availability of comprehensive sustainability data will enable companies to make more informed strategic decisions. It will help identify areas for improvement, set targets and develop effective climate action plans aligned with the city's net-zero or carbon-neutrality goals
• Collaboration and knowledge sharing: The mandatory disclosure can facilitate collaboration and knowledge sharing among companies, industry peers and stakeholders, encouraging the exchange of best practices, innovative solutions and collective efforts towards achieving a sustainable and low or zero-carbon future

The above provides us with insight into how mandatory climate-related disclosure mandates can contribute to advancing corporate reporting and driving climate action, while creating a more transparent and accountable business environment and fostering sustainability and resilience in the city's financial and corporate sector.

ESG adoption by Orange Business Hong Kong

Orange Business Hong Kong has adopted ESG with a key focus on three areas, namely:

• Environmental: To minimize our environmental impact, we implement energy-efficient practices with greater control over our daily office power consumption, reduce waste and promote recycling. We also encourage our employees to adopt sustainable practices in their work and personal lives
• Social inclusion and digital equality: We prioritize the well-being and development of our employees by providing a safe and inclusive work environment. We also support gender equality and diversity and actively engage with local communities for such initiatives
• Governance practices: We strictly adhere to the Orange Group’s corporate governance practices, ensuring transparency, accountability and ethical behavior in all our operations. Our robust policies and procedures help to prevent corruption and promote fair business practices

When it comes to customers, Orange Business Hong Kong ensures that any project deployed entails a careful selection of vendors, partners and contractors to ensure that their ESG standards meet all government regulations, while being monitored throughout the entire project period. We also offer a myriad of ESG solutions and assistance to our customers, based on these examples:

• Energy-efficient solutions: As one of the first Cisco partners to obtain “Environmental Sustainability Specialization,” we provide our customers with technologies and services that help optimize energy consumption and reduce carbon emissions. This includes offering energy-efficient network equipment and data center solutions and recycling of the used and retired equipment
• Sustainable mobility: We offer solutions that enable remote working and virtual collaboration, reducing the need for travel while promoting sustainable mobility practices
• Data privacy and security: We prioritize the protection of customer data and offer robust security solutions to ensure data privacy and compliance with regulatory requirements
• Social impact initiatives: We collaborate with our customers on social impact projects, such as digital inclusion programs, to bridge the digital divide and empower underserved communities

These examples demonstrate our commitment to supporting our customers in their ESG efforts, helping them achieve their sustainability goals while driving positive social and environmental impact.

Since our customers in Hong Kong are mostly in the finance, hospitality (hotels and resorts), transportation and logistics, and manufacturing sectors, we are actively engaging them along the ESG framework to demonstrate that we can not only support their sustainability goals, but also strengthen relationships, drive innovation and collaborate towards a more sustainable future.

Conclusion

ESG is increasingly relevant for Hong Kong’s sustainability-focused and corporate landscape of today as it helps the financial industry and other core sectors with risk management, regulatory compliance, reputation enhancement, capital access and having a competitive edge in the market. At Orange Business, we have demonstrated our commitment to ESG both internally and externally – among our employees within our own workplace and in supporting customers through their ESG efforts and journey, particularly in their growing search for tools and services to measure and monitor carbon emissions, analyze and verify their ESG data and to predict future ESG performance.

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