Many investors in large companies require firms to disclose ESG risks, and Mr Ho pointed out that the Hong Kong Stock Exchange (HKSE), Hong Kong Monetary Authority (HKMA) and other institutions have gradually increased ESG requirements in recent years. This obliges large companies to implement such policies.
"I believe ESG requirements will soon be implemented and impact SMEs,” he said, suggesting that the first step for such companies is to establish a risk-management system that covers company-wide operations. ESG and operation-related departments should not operate independently; all departments and employees must conduct ESG risk management in coordination to increase corporate flexibility.
King Lai, Chief Financial Officer and Group Director of Leo Paper Group (Hong Kong), said companies needed to understand two issues with ESG –firstly that resources allocated to ESG constitute investments, not expenses, and the allocation will achieve ideal returns in the long run. The second issue is that firms need to take the initiative, regarding ESG as a challenge and an opportunity rather than something that are forced to do.
Mr Lai said that ESG has become obligatory because customers, the Central Government and the Hong Kong SAR Government all require companies to do it. He believes proper execution of ESG can have a positive brand impact and improve publicity and promotion.
He explained that Leo Paper started from scratch 40 years ago as a micro-enterprise. It had grown to more than 13,000 people with three factories, including plants in Hunan and Vietnam. Leo Paper is not listed but since 2003 it has produced annual reports in accordance with the requirements of the HKSE for listed companies to disclose company information and improve transparency. Since 2009, it has also published corporate social responsibility/ESG reports for 12 consecutive years.
So far, the company has obtained 32 internationally recognised management system certifications, including social responsibility, quality management, environmental protection and risk management. The group expects to achieve four targets by 2025, including an 80% reduction in organic emissions, a 60% reduction in hazardous waste, and a 25% reduction each in carbon dioxide and industrial water output.
Engineer CS Ho, General Manager of the BEAM Society Limited, said that if SMEs can seize the ESG opportunities, they can become large companies or even go public in future – and listing regulations require listed companies to have ESG policies. The Hong Kong Companies Ordinance also mentions that the annual report submitted by the company must include disclosure of all aspects of the environment – meaning that as long as it is a registered limited company, it must be done.
He also pointed out that bank lending is increasingly focusing on enterprise risk management. At the end of last year, the HKMA announced the results of its climate risk stress-test pilot scheme. The test found that climate risk could have a material adverse impact on the banking industry and that banks needed to manage climate risk, including incorporating broader climate risk factors into the risk assessment framework, as well as dedicating more resources to green financing and providing transition financing to clients to assist them in transitioning to low-emission business models.
A number of foreign surveys have also shown that green buildings bring a variety of benefits, including increased occupancy rates, rents and asset values of properties. On the corporate side, green buildings can reduce employee allergies and respiratory problems, reduce sick leave and improve productivity. They can also reduce employee turnover due to optimism about the company's sustainable development prospects.