As a retirement protection system in Hong Kong, the MPF system has essential commonalities with environmental protection, social responsibility and corporate governance (ESG). They are both long-term and future-oriented, therefore, stable and long-term investment should be pursued.
The MPFA Vice Chairman and Chief Executive Officer Ms Alice Law Shing-mui said that there are 4.4 million plan members in the MPF system in Hong Kong now, and one-third of them are investing in the Hong Kong stock market. When members’ demand for ESG investment increases, it will drive the industry to develop more green MPF products, which will play an important role in promoting green finance.
The MPFA approved the first ESG-themed index-tracking collective investment scheme fund this year. It is hoped that more related products will be launched in the future and provide members with a richer selection of green MPF products.
From the perspective of investment returns, companies with poor ESG performance pose long-term risks to the interests of investors. Therefore, it is necessary to incorporate ESG factors into the investment decision-making process of fund managers. She also believes that when ESG concepts are increasingly valued, green MPF products will be more popular among members.
Improve the quality of ESG reports and deepen investor understanding
The Hong Kong Institute of Certified Public Accountants organized the Best Corporate Governance Award as early as 2000. Its president, Mr. Johnson Kong, said that for many years, he served as the judge of the award and saw the quality of ESG reports of listed companies vary a lot.
He believes that the reason is that the management has not integrated sustainable development into the company’s development strategy. Although different industries have different requirements for reports, in general, a good ESG report must have a high degree of credibility and provide sufficient data for investors’ reference. Social value cannot be reflected in financial reports, while only through ESG reports can the company tell investors about its development philosophy.
Regarding the ESG report, Mr. Ken Sun, the co-chief financial officer of Kaisa Group, believes that it is an opportunity to communicate with investors and tell the company’s story and future development through the report.
Dr. Eva Chan, chairman of the Hong Kong Investor Relations Association, believes that listed companies should not respond to ESG reports with the mentality of handing in their homework, because a company’s financial statements only reflect its past performance, the ESG report is an important indicator that reflects the company’s sustainable development in the future. Even if the company’s financial performance is very satisfactory, but the governance is not done well, it is difficult for investors to feel at ease.
Hong Kong & Bay Area
Expanding the green financial ecosystem, creating a leading ESG position in Hong Kong
The Secretary for Financial Services and the Treasury, Mr Christopher Hui mentioned that ESG and related green finance are by no means empty and noble concepts, but are closely related to everyone’s livelihood.
Mr. Hui pointed out that the local ESG ecosystem has gradually matured. In addition to environmental protection, the market is paying more and more attention to social responsibility elements. As for the elements of corporate governance, Hong Kong already has more experience in this concept and has achieved certain results. In particular, the level of local financial supervision and corporate governance is in a leading position.
The Hong Kong government is actively promoting Hong Kong to become a green financial hub in the region. Mr. Hui expects that the further development of the ESG ecosystem requires the cooperation of suppliers, demanders, and data and information providers connecting both ends of supply and demand.
When increasing supply, there must be sufficient demand to match. The green finance certification issued by the Hong Kong Quality Assurance Agency will help alleviate the market’s worries about the “greenwashing” of green financial products. The Hong Kong Stock Exchange also established a sustainable and green exchange “STAGE” this year, hoping to provide the market with more information about green finance.
The Financial Services Development Council serves as a bridge for public-private collaboration
The Executive Director of the Financial Services Development Council Dr. Au King-lun, said that the FSDC is positioned as a bridge between public and private institutions, to discuss opportunities and challenges in ESG financial development with regulators and industry groups, and formulates recommendations for the government and regulators to refer to.
Dr. Au said that in terms of public-private collaboration, many European and American regions regard ESG as their overall development strategy. In addition to clear policies and support, private sector participation is also the key. However, this kind of thinking has not been widespread in financial institutions in Asia, which is worthy of consideration.
Dr. Au said frankly that there is a strong demand for ESG investment in the region, but there is a shortage of ESG investment products and high-quality information disclosure. Currently, there is plenty of ESG information disclosure in Asia, but the quality of disclosure varies greatly and it is not easy to make comparisons. Therefore, Hong Kong must “equalize quality and quantity” to make Hong Kong companies more attractive to international investors.
Hong Kong should seize the opportunity to build a green financial centre in the Bay Area
Dr Wang Chunxin, Senior Economist of Economics and Strategic Planning Department of Bank of China (Hong Kong), pointed out that green development is an important part of the “14th Five-Year Plan”. It is estimated that during the “14th Five-Year Plan” period, China will need to invest more than US$2 trillion (approximately HK$15.6 trillion) in green projects, and the development of green finance is a top priority. Hong Kong has unique conditions to play an important role in the development of green bonds and green finance in the Mainland. Thus it should seize the opportunities for green finance development and strengthen cooperation with other cities in the Guangdong-Hong Kong-Macao Greater Bay Area.
China currently has a leading position in the development of green finance. The domestic green bond market has been increasingly active in recent years. Last year, a total of nearly RMB 300 billion of green bonds were issued, ranking first in the world in the issuance of labelled green bonds.
Regarding the green finance cooperation between Hong Kong and the Greater Bay Area, he believes that in the future, Hong Kong and the Greater Bay Area can issue benchmark “green bonds”, hold global conferences on green finance and investment, establish a “Green Finance Labelling Program” for green finance projects and securities, and cultivate green finance talents, to build the Greater Bay Area into an important green finance centre in Asia.
Dr. Wang also proposed to take advantage of the green industry investment opportunities along the “Belt and Road” to design the required types of green bonds. Commercial banks in the Greater Bay Area can rely on their international layout to increase the underwriting and issuance of “Belt and Road” green bonds. Meanwhile, Hong Kong can be used as a platform to promote the issuance of green sovereign bonds to provide support for long-term sustainable development and the development of China’s green market.
Huge opportunities for ESG investment in China and Hong Kong
Mr. Jonathan Leung, executive director and senior investment strategist at Alliance Bernstein, pointed out that in recent years, investors regard ESG as a fundamental factor that must be considered, and even integrate ESG scores into the bond investment process as part of effective risk management.
Mr. Bruno Lee, former chairman of the Hong Kong Investment Funds Association, also agreed that investors in Hong Kong and the Greater Bay Area are paying more and more attention to sustainable investment. According to an earlier study by the HKIFA, it was found that local investors generally believe that ESG investment can bring long-term growth opportunities; mainland investors do not focus on sustained profit growth, but instead value whether ESG can improve corporate image and stimulate stock prices.
In order to guide more institutions to issue green loans, the Hong Kong Quality Assurance Agency announced earlier the launch of the “Easy Assessment” online platform for green loans, which provides a simple and fast online green assessment method for institutions interested in green loans.
Mr. P C Chan, Vice Executive Officer of the Hong Kong Quality Assurance Agency, revealed that if the market wants to extend green finance to a broader level, so that more institutions of different sizes can also launch green loan projects, simpler tools to help complete the entire process are needed. As such, the “Easy Assessment” online platform came into being, which is believed to help drive the development of green and sustainable financial markets.