Companies need to accelerate their ESG strategies and reporting, while the stock exchange should provide more support to help listed firms overcome challenges arising from the introduction of the tougher requirements, it said on Friday.
The proposed new disclosure rules are based on the Climate Standard of the International Sustainability Standards Board which is built on Task Force on Climate-related Financial Disclosures recommendations.
However, only a handful of them have included a quantitative disclosure of the impact of those risks and opportunities on the finances of the company, such as the actual expenses incurred by each identified issue, it found.
The disclosure rate for Scope 3 greenhouse gas emissions was also “relatively low”, at 69 per cent in 2022, the report found. Both the energy and materials industries reported 100 per cent disclosure rates, while the telecommunications and information technology sectors recorded low disclosure rates, at 33 per cent and 50 per cent respectively, mostly because of the difficulties in obtaining reliable Scope 3 emissions data throughout the complex global supply chain, according to the report.
“Given the challenges of gathering and processing the ESG data, we believe that corporate investments in emerging technologies such as artificial intelligence (AI) and big data not only will minimise the efforts spent on ESG disclosures and substantially improve ESG reporting transparency and accountability, but also will help reduce carbon footprints through optimising energy and emission management of their operations,” Ha suggested.
According to the report, 70 per cent of the large-cap HSCI companies have implemented or invested in AI and big data to improve their operations based on their disclosures.
Just over half the companies have engaged a third party to perform independent audits of their ESG reports, an increase of 19 percentage points from 2021, the report found. However, the ESG review rate of Hong Kong-listed companies still lags behind countries leading the field, according to Ha.
Enterprises need to enhance independent audits of corporate ESG performance to limit the potential for greenwashing – making false claims about the environmental benefits of a product or service – mitigate risks, and prevent corporate scandals, the accounting firm recommended.
“With growing regulatory pressure around the world to address environmental impacts, and the overall shifts in market preferences and expectations on environmental sustainability, climate-related materiality topics will become more paramount to the strategy and decision-making of companies in the future,” said Ha.
“We urge Hong Kong-listed companies to take immediate actions to accelerate catch-up in ESG strategy and reporting in order to stay ahead of the curve.”