At present, ESG reporting is voluntary for most companies in the majority of markets globally, but increasingly stock exchanges have started to include sustainability as part of their listing requirements as well as firms choosing to start reporting on these metrics.
In Hong Kong, a listed company is currently mandated to publish an annual ESG report. These reporting demands are expected to be further strengthened by 2025.
To compile these important documents for clients, regulators and investors, companies need to identify ESG issues that are most significant to their business or stakeholders, an exercise called “materiality assessment”.
During these assessments, companies can systematically map out the ESG issues that can have significant impacts (either positively or negatively) on their companies, a process designed to help prioritise ESG objectives and incentives.
Some companies may go further in their assessments, looking to identify “financially material” and “impact material” issues as well. The former refers to factors that may build up or erode enterprise value, while the latter concerns effects on people, the economy and the environment.
To effectively identify material considerations, ESG champions of these companies may pursue a variety of stakeholder engagements, including company-wide (online) surveys, focus groups and senior management interviews.