ESG Rules Change Listed Companies To Take The Lead In Hong Kong Stocks, A Shares Are At Hand.

In 2020, listed companies will face the great challenge brought by the change of ESG rules.

The Hongkong stock exchange officially issued the "environmental and social and governance reporting guidelines consultation summary" and "the issuer's disclosure of environmental, social and regulatory practices", and published the new version of the guidelines on environmental, social and governance reports (the new version of ESG guidelines) and the corresponding "Listing Rules on the main board" and "GEM Listing Rules".

The new version of ESG guidelines and related listing rules will take effect in the fiscal year beginning July 1, 2020 or later.

This means that Hong Kong listed companies must follow the new version of ESG guidelines to disclose the ESG report of fiscal year 2021. It is necessary for enterprises to start preparing for them as soon as possible.

At the same time, although the Shanghai and Shenzhen Stock Exchange's guidelines on ESG have not been released yet, it is widely believed that in 2020 or at the exchange level, the important year of ESG disclosure of A share listed companies is further implemented.

Rule change

Combing the new version of ESG guidelines issued by the HKEx and relevant listing rules, we can see that the HKSAR's ESG report has added a number of mandatory disclosure requirements. There are 8 more important changes, which generally show the trend of promoting Hong Kong listed companies ESG reporting compliance disclosure standards to further financial reporting.

The industry believes that the revised ESG guidelines have higher requirements for data quality, and the disclosure of environmental, social and governance reports (hereinafter referred to as "ESG reports") is linked to daily management. Enterprises will face the most direct and challenging impact of the shorter preparation time, the overlap between the preparation period of the report and the preparation period of the annual report, and the demand for information disclosure.

Tang Jiaxin, a partner in climate change and sustainable development in the Greater China region, exchanges with the twenty-first Century economic news reporter, said: "the most obvious feature of the revised recommendation of the Hongkong Stock Exchange on ESG guidelines is to promote ESG reporting further to the financial statements. The listed companies should not comply with compliance. The disclosure of compliance is not the ultimate goal. What is more important is to do well in the strategic, normalized and digital management of ESG, respond positively to the actual needs of global investors for ESG information disclosure, and comply with the ESG investment trend of the capital market, so as to truly promote the sustainable development of enterprises."

It is worth noting that the revision of the ESG disclosure rules of the HKEx was not effective on the date of issuance, but in July 1, 2020. As for why such an implementation node is set up, the reporter has learned that the revision of the rules is not small and requires higher requirements, but it also requires higher requirements for enterprises and takes time to digest and adapt.

Tang Jiaxin also pointed out that compared with the previously published consultation documents, the newly released ESG guidelines issued a deadline of one month for the ESG report. The consultation document calls for the ESG report to be released not later than 4 months after the end of the fiscal year, while the official ESG guidelines will extend the time limit to 5 months.

"The first to be affected by the new ESG guidelines is the end of the fiscal year end of June. Specifically, the company that ends in June every year will disclose the ESG report of June July 2020 in accordance with the new version of ESG guidelines, and the disclosure date should be not later than November 30, 2021. The company that ends in the fiscal year December will be required to disclose the ESG report for the financial year -12 January 2021 in accordance with the new version of ESG guidelines. The disclosure date should not be later than May 31, 2022. Tang Jiaxin said.

The Hongkong stock exchange requested that the release time of the ESG report be in line with the release date of the earnings report, in response to the demand of investors for timeliness ESG information. This means that it will be difficult for issuers to start preparatory work of the ESG report after the release of earnings reports, but should start preparations ahead of schedule.

A share guidelines for departure

Then why does HKEx push to amend the ESG rules at this point?

As Tang Jiaxin said, the ESG rules of HKEx are being iterated. Meanwhile, the A share ESG rules are ushering in a reform that is well established and promoted by rules.

According to the reporter's understanding of the twenty-first Century economic report, the securities and futures commission paid close attention to the ESG information disclosure of the listed companies in the past two years. Therefore, in the process of the revision of the basic principles of listed companies' governance standards at the end of 2018, the ESG part was added, including strengthening the leading role of Listed Companies in environmental protection and social responsibility, and establishing the basic framework of environmental, social responsibility and corporate governance (ESG) information disclosure.

Subsequently, the Shanghai and Shenzhen Stock Exchange also responded, and the Shanghai Stock Exchange issued the guidelines for the disclosure of information on environmental, social and corporate governance of listed companies on the Shanghai stock exchange, and began to seek advice. The Shenzhen Stock Exchange also drafted ESG information disclosure guidelines, and held three consultation symposiums, and invited some companies to compile draft ESG reports according to the guidelines, so as to put forward suggestions for improvement and enhance the usefulness of the guidelines.

Many people in the market believe that the ESG information disclosure guidelines for the two major exchanges will be released after the opening of the science and technology board. But up to now, the Shanghai and Shenzhen stock exchanges have not yet issued relevant documents.

In response, Tang Jiaxin said: "although the exchange level guidelines have not yet been officially released, they have been written and consulted on many listed companies. For various reasons in 2019, the guidelines were not released, but I personally feel that the timing of publication is much more mature this year than last year.

In fact, at present, some frontier investment institutions believe that in the aspect of ESG information disclosure, the A share market will eventually conform to the international standard, and the information disclosure standard of ESG will bring about the change of investment philosophy.

"In developed countries, ESG investment is very popular and its value is recognized by the market. The so-called ESG investment or social responsibility investment is not to evaluate the listed companies in terms of the financial status, profitability level, operating costs and the development space of the industry, but to incorporate environmental, social and corporate governance factors into the investment evaluation and decision making, and take the social welfare, environmental protection and excellent corporate governance as the investment target. A partner in a large private partnership in Beijing told the twenty-first Century business news reporter.

Tang Jiaxin also said: "if China can really do ESG, there will be several changes: one is the investment side, the more institutional investors will choose to invest in A share enterprises; second, for the listed companies, its whole business mode will also change; third, the regulatory mode will also change."