At a recent luncheon with the Hong Kong Investment Funds Association, Ashley Alder, Chief Executive Officer of the Securities and Futures Commission (SFC), gave an update on the SFC’s strategy for the Hong Kong asset management industry.

Besides reflecting on where things are on the key initiatives of the SFC in recent years – namely the mutual recognition of funds arrangements, retail fund distribution, ETF connect, the newly introduced open-ended fund company structure and the ongoing review of the Code on Unit Trusts, formal references were made to green finance and investing with ESG factors.

As stated in the speech:

“Investors increasingly recognise that strong environment, social and governance (ESG) standards are a proxy for overall management quality and long-term sustainability.  Companies with high ESG standards are likely [to] have less exposure to environmental accidents or regulatory breaches which could impose significant costs and harm their brand reputation or other intangible assets.”

“At the same time, many studies have now found that ESG factors actually boost risk adjusted returns, and at worst only have a neutral impact.”

“Growing interest in the area has created a situation where more investors want in, but there is a lack of truly sustainable investment opportunities.”

In this context, it is noteworthy from the speech that the following are key areas the SFC is looking at:

  • Potentially mandating environmental disclosures by listed companies, following the footsteps of Mainland China where such requirements are expected to be introduced in 2020; this is aimed to enhance quality and comparability of ESG data from companies for investment decisions by asset managers;
  • Examining asset manager’s integration of ESG factors into the investment processes, and disclosure of the methodology to investors;
  • Developing consistent disclosures and labelling guidelines for green investment products.

For more see Conventus Law.