ESG reporting survey of 366 HKEX listed companies to assess the reporting quality in the first year of implementation & enhance future reports
KPMG China’s first survey on the environmental, social and governance (ESG) reporting of over 360 HKEX listed companies found that many are at an early stage in the ESG reporting journey, and that a tick-box approach may have been adopted in the first year of implementation of the HKEX ESG Guide.
Globally, there is increasing pressure on companies to disclose ESG information due to the rising concern about the effects of ESG factors on business risk, financial performance and prospects.
The 2017 ESG reporting survey of Hong Kong listed issuers, however, revealed that many companies have yet to demonstrate the awareness of significant ESG risks and effective management of their impacts:
With analysis of the market reporting practice and accompanying recommendations, our survey aims to help companies assess and further develop their own approaches to enhance the value gained from reporting.
Only 16 percent of the surveyed companies have identified one or more ESG risks as principal risks in the business review.
Only 13 percent of the surveyed companies disclosed that their board is responsible for ESG, while the vast majority have not disclosed relevant information on ESG governance structure.
Generally, larger companies tended to report having ESG governance that also involves the board. These companies may have more experience in ESG and are likely to have established ESG governance for more effective ESG management.
Only 33 percent of surveyed companies disclosed a materiality assessment process to highlight the method upon which they identified material issues.
It was identified that the majority of the companies that disclosed their materiality assessment matrix were also reporting under the GRI guidelines. This may have helped create peer pressure for others in the sector to follow suit.
The reason that larger companies were more likely to disclose the materiality assessment matrix in the report may partly be due to a higher tendency to use the GRI.
Disclosure of policies and management approach
Based on the above, category D descriptions are more likely to provide greater insights into how well an ESG Aspect is managed, while category A descriptions provide the least.
Only 18 percent of surveyed companies disclosed negative incidents, challenges or failures, as well as achievements.
The energy sector is more likely to disclose challenges and performance related to safety and the global shift to low-carbon and clean energy, while the telecommunications sector may focus on complaints and improper advertising.
Larger companies were more likely to disclose negative aspects of performance. This can partly be explained by the greater use of the GRI which requires specific disclosure of environmental and social impacts and incidents.
The length of the surveyed reports varies significantly from 2 pages to 233 pages. The majority (66 percent) do not have more than 20 pages, and 42 percent of the sample reports are 10 pages or less.
The amount of information disclosed in a report is associated with the reporting guidelines adopted. Almost all of the reports with more than 40 pages refer to other reporting guidelines in addition to the ESG Guide, predominantly the GRI.
Reports also tend to be shorter when they form part of the annual report, compared with a separate report. The longest ESG report presented in an annual report is 33 pages.