Lobbying and the 2015 Consultation

Paper on Review of the ESG Reporting

Guide in Hong Kong
By
PhD student: Ricky Chung

Supervisors:
Professor Jacqueline Birt and Dr Lyndie Bayne

Department of Accounting and Finance

UWA Business School

25 March 2019
Terminology – ESG Reporting

• Environmental, Social and Governance Reports

• “ESG” was first proposed by the United Nations
Global Compact in June 2004
• HKEx adopted this term “ESG”

Interchangeable terms for ESG reporting?

• Sustainability reporting
• CSR reporting
• Triple bottom line reporting
• Non-financial reporting, etc.
Timeline – Development of ESG Reporting
in Hong Kong

HKEx issued the 2012 HKEx published the

ESG Guide 2nd consultation
(recommended) in paper on review of
Aug 2012 2012 ESG Guide in
July 2015
02 04

2011 2012 2014 2015

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

01 03 05

HKEx published the The new Companies HKEx issued the 2015
1st consultation Ordinance (Cap 622) ESG Guide (comply
paper on ESG came into effect in or explain) in Dec
Reporting Guide in Mar 2014 2015.
Dec 2011
Listed firms to report
GD from 2016; and
Environmental KPIs
from 2017.
Levels of ESG disclosure obligation

Proposed 2015 Guide 2012 Guide

ESG Reporting Guide Comply or Voluntary Voluntary
Explain
1. General Disclosures (GDs)
Environmental X X

Social X X

2. Key Performance Indicators (KPIs)

Environmental X X
Social X X
 Literature relating to lobbying on
accounting standard setting process
Executive
remuneration in
Australia
ED49
International
Accounting
ED8 IFRS 2 IFRS 9 accounting
for Research gap
Operating Share-Based Financial standard-setting
Identifiable
Segments Payments Instruments due process
Intangible
Assets
Uniform
Disclosure
Regulation

Tutticci Katselas et Giner and Arce Hewa et al. Stacey et al. Limited literature on
(1994) al. (2011) (2012) (2018) (2018) Lobbying and ESG
Reporting;
Bamber and
McMeeking Limited literature on
(2016) ESG Reporting in HK;

Friedman and 1st paper on lobbying

Heinle (2016) and HK ESG Reporting
using leximancer
 Data
Stakeholders Initial number Excluding Excluding Final number of Percentage
of responses identical submissions in responses of responses
submissions Chinese
Institutions
Listed 37 5 2 30 19%
companies
Professional 17 0 1 16 10%
bodies
Market 45 2 0 43 27%
practitioners
NGOs 18 0 1 17 11%
Other 14 0 1 13 8%
institutions
Individuals
Listed company 17 3 4 10 6%
staff
HKEx 1 0 0 1 1%
participant staff
Retail investors 13 0 7 6 4%
Other 41 7 9 25 16%
individuals
Total 203 17 25 161 100%
Stakeholders (examples) in this study

Listed Professional Market NGOs Other

Companies Bodies Practitioners Institutions
Data and Method (with GRI as example)

Responses to close-end questions analysed by:

R (Binomial, Chi-square/Fisher’s exact tests)

Responses to open-end questions analysed by:

Leximancer
Concept map of the consultation responses to
review of ESG Reporting Guide in Hong Kong
Ranked Concepts List
The most important theme – “reporting”
The 2nd most important theme – “disclosure”
The 3rd most important theme – “proposal”
Favourable terms vs Unfavourable terms
 The linkage between themes and
consultation questions
Themes
1. Proposal
“Comply or explain” requirement
2. Reporting
a. Reporting frequency
b. Multiple reporting format and
Publishing time
3. Disclosure
a. General Disclosures
b-e. Environmental KPIs
f. Gender disclosure (Social KPIs
under “Employment”)
Qs Explanations
Q1 To require issuers to disclose in their
annual reports or ESG reports whether
they have complied with the “comply or
explain” provisions
Q2 To require issuers to report on ESG
annually
Q3 To clarify that an ESG report may be part
of annual report, a separate report or
on the issuer’s website, and should be
published no later than three months
after publishing the issuer’s annual report
Q9 To upgrade to “comply or explain”
Q11-14 To upgrade to “comply or explain”
Q15 To incorporate gender disclosure in
“Social” aspect of ESG reports
Binomial tests
(H0: P1=P2=0.5)
Themes Total Frequency Frequency Test Significance
of of proportion (*** p<0.01)
agreement disagreemen
(observed t (observed
%, P1) %, P2)

1. Proposal
“Comply or explain” requirement (Q1)
All 118 112 (95%) 6 (5%) 0.5 0.000***
Listed companies 27 24 (89%) 3 (11%) 0.5 0.000***
Market Practitioners 35 33 (94%) 2 (6%) 0.5 0.000***
2. Reporting
a. Reporting frequency (Q2)
All 118 114 (97%) 4 (3%) 0.5 0.000***
Listed companies 28 26 (93%) 2 (7%) 0.5 0.000***
Market Practitioners 35 35 (100%) 0 0.5 0.000***
b. Multiple reporting format and Publishing time (Q3)
All 109 86 (79%) 23 (21%) 0.5 0.000***
Listed companies 26 23 (88%) 3 (12%) 0.5 0.000***
Market Practitioners 31 18 (58%) 13 (42%) 0.5 0.473
 Themes Total Frequency of Frequency of Test Significance
agreement disagreement proportion (*** p<0.01)
(observed %) (observed %)
3. Disclosure
a. General Disclosure (Q9)
All 116 109 (94%) 7 (6%) 0.5 0.000***
Listed companies 27 23 (85%) 4 (15%) 0.5 0.000***
Market Practitioners 34 34 (100%) 0 0.5 0.000***
b. Environmental KPIs – emissions and non-hazardous waste (Q11)
Total 107 91 (85%) 16 (15%) 0.5 0.000***
Listed companies 27 15 (56%) 12 (44%) 0.5 0.701
Market Practitioners 32 32 (100%) 0 0.5 0.000***
c. Environmental KPIs – hazardous waste (Q12)
All 108 91 (84%) 17 (16%) 0.5 0.000***
Listed companies 27 15 (56%) 12 (44%) 0.5 0.701
Market Practitioners 33 33 (100%) 0 0.5 0.000***
d. Environmental KPIs – use of resources (Q13)
Total 106 90 (85%) 16 (15%) 0.5 0.000***
Listed companies 27 16 (59%) 11 (41%) 0.5 0.442
Market Practitioners 32 32 (100%) 0 0.5 0.000***
e. Environmental KPIs – environment and natural resources (Q14)
Total 109 93 (85%) 16 (15%) 0.5 0.000***
Listed companies 27 16 (59%) 11 (41%) 0.5 0.442
Market Practitioners 34 33 (97%) 1 (3%) 0.5 0.000***
f. Gender disclosure (Q15)
All 132 125 (95%) 7 (5%) 0.5 0.000***
Listed companies 28 26 (93%) 2 (7%) 0.5 0.000***
Market Practitioners 38 37 (97%) 1 (3%) 0.5 0.000***
Chi-square or Fisher’s exact tests
(H0: Opinion is not influenced by stakeholder group identity)

Themes Total Agreement No Disagreeme Expected Residua Significance

comme nt N l (Fisher’s
nt score)
1. Proposal
Comply or explain” requirement (Q1)
Listed 30 24 3 3 21.00 3.00 0.017**
companies
Professional 16 11 5 0 11.20 -0.20
Bodies
Market 43 33 8 2 30.10 2.90
Practitioners

NGOs 17 11 6 0 11.90 -0.90

Other 13 4 9 0 9.10 -5.10
Institutions
Listed 10 8 1 1 7.00 1.00
company
staff
Retail 6 4 2 0 4.20 -0.20
investors
Other 25 17 8 0 17.50 -0.50
individuals
Total 160 112 42 6
Chi-square or Fisher’s exact tests
(H0: Opinion is not influenced by stakeholder group identity)

Themes Total Agreement No Disagreeme Expected Residua Significance

comme nt N l (Fisher’s
nt score)
2. Reporting
a. Reporting frequency (Q2)
Listed 30 26 2 2 21.38 4.63 0.001***
companies
Professional 16 11 5 0 11.40 -0.40
Bodies
Market 43 35 8 0 30.64 4.36
Practitioners

NGOs 17 11 6 0 12.11 -1.11

Other 13 5 8 0 9.26 -4.26
Institutions
Listed 10 8 1 1 7.13 0.88
company
staff
Retail 6 2 3 1 4.28 -2.28
investors
Other 25 16 9 0 17.81 -1.81
individuals
Total 160 114 42 4
Chi-square or Fisher’s exact tests
(H0: Opinion is not influenced by stakeholder group identity)

Themes Total Agreement No Disagreeme Expected Residua Significance

comme nt N l (Fisher’s
nt score)
2. Reporting
b. Multiple reporting format and Publishing time (Q3)
Listed 30 23 4 3 16.13 6.88 0.004***
companies
Professional 16 9 6 1 8.60 0.40
Bodies
Market 43 18 12 13 23.11 -5.11
Practitioners

NGOs 17 8 6 3 9.14 -1.14

Other 13 4 9 0 6.99 -2.99
Institutions
Listed 10 8 1 1 5.38 2.63
company
staff
Retail 6 2 3 1 3.23 -1.23
investors
Other 25 14 10 1 13.44 0.56
individuals
Total 160 86 51 23
Chi-square or Fisher’s exact tests
(H0: Opinion is not influenced by stakeholder group identity)

Themes Total Agreement No Disagreeme Expected Residua Significance

comme nt N l (Fisher’s
nt score)
3. Disclosure
a. General Disclosure (Q9)
Listed 30 23 3 4 20.44 2.56 0.008***
companies
Professional 16 9 7 0 10.90 -1.90
Bodies
Market 43 34 9 0 29.29 4.71
Practitioners

NGOs 17 11 6 0 11.58 -0.58

Other 13 6 7 0 8.86 -2.86
Institutions
Listed 10 8 1 1 6.81 1.19
company
staff
Retail 6 3 2 1 4.09 -1.09
investors
Other 25 15 9 1 17.03 -2.03
individuals
Total 160 109 44 7
Chi-square or Fisher’s exact tests
(H0: Opinion is not influenced by stakeholder group identity)

Themes Total Agreement No Disagreeme Expected Residua Significance

comme nt N l (Fisher’s
nt score)
3. Disclosure
b. Environmental KPIs – emissions and non-hazardous waste (Q11)
Listed 30 15 3 12 17.06 -2.06 0.000***
companies
Professional 16 7 8 1 9.10 -2.10
Bodies
Market 43 32 11 0 24.46 7.54
Practitioners

NGOs 17 11 6 0 9.67 1.33

Other 13 5 8 0 7.39 -2.39
Institutions
Listed 10 6 2 2 5.69 0.31
company
staff
Retail 6 2 3 1 3.41 -1.41
investors
Other 25 13 12 0 14.22 -1.22
individuals
Total 160 91 53 16
Chi-square or Fisher’s exact tests
(H0: Opinion is not influenced by stakeholder group identity)

Themes Total Agreement No Disagreeme Expected Residua Significance

comme nt N l (Fisher’s
nt score)
3. Disclosure
c. Environmental KPIs – hazardous waste (Q12)
Listed 30 15 3 12 17.06 -2.06 0.000***
companies
Professional 16 7 8 1 9.10 -2.10
Bodies
Market 43 33 10 0 24.46 8.54
Practitioners

NGOs 17 11 6 0 9.67 1.33

Other 13 5 8 0 7.39 -2.39
Institutions
Listed 10 6 2 2 5.69 0.31
company
staff
Retail 6 2 3 1 3.41 -1.41
investors
Other 25 12 12 1 14.22 -2.22
individuals
Total 160 91 52 17
Chi-square or Fisher’s exact tests
(H0: Opinion is not influenced by stakeholder group identity)

Themes Total Agreement No Disagreeme Expected Residua Significance

comme nt N l (Fisher’s
nt score)
3. Disclosure
d. Environmental KPIs – use of resources (Q13)
Listed 30 16 3 11 16.88 -0.88 0.000***
companies
Professional 16 7 8 1 9.00 -2.00
Bodies
Market 43 32 11 0 24.19 7.81
Practitioners

NGOs 17 11 6 0 9.56 1.44

Other 13 4 9 0 7.31 -3.31
Institutions
Listed 10 6 2 2 5.63 0.38
company
staff
Retail 6 2 3 1 3.38 -1.38
investors
Other 25 12 12 1 14.06 -2.06
individuals
Total 160 90 54 16 16.88 -0.88
Chi-square or Fisher’s exact tests
(H0: Opinion is not influenced by stakeholder group identity)

Themes Total Agreement No Disagreeme Expected Residua Significance

comme nt N l (Fisher’s
nt score)
3. Disclosure
e. Environmental KPIs – environment and natural resources (Q14)
Listed 30 16 3 11 17.44 -1.44 0.000***
companies
Professional 16 7 8 1 9.30 -2.30
Bodies
Market 43 33 9 1 24.99 8.01
Practitioners

NGOs 17 11 6 0 9.88 1.12

Other 13 4 9 0 7.56 -3.56
Institutions
Listed 10 6 2 2 5.81 0.19
company
staff
Retail 6 2 3 1 3.49 -1.49
investors
Other 25 14 11 9 14.53 -0.53
individuals
Total 160 93 51 25
Chi-square or Fisher’s exact tests
(H0: Opinion is not influenced by stakeholder group identity)

Themes Total Agreement No Disagreeme Expected Residua Significance

comme nt N l (Fisher’s
nt score)
3. Disclosure
f. Gender disclosure (Q15)
Listed 30 26 2 2 23.25 2.75 0.167
companies
Professional 16 10 5 1 12.40 -2.40
Bodies
Market 43 37 5 1 33.33 3.68
Practitioners

NGOs 17 11 5 1 13.18 -2.18

Other 13 10 3 0 10.08 -0.08
Institutions
Listed 10 7 2 1 7.75 -0.75
company
staff
Retail 6 3 2 1 4.65 -1.65
investors
Other 25 20 5 0 19.38 0.63
individuals
Total 160 124 29 7
Lobbying and consultation conclusions
on the proposed 2015 Guide (I)

Themes 2015 Guide (proposed) HKEx Intrepretation

decision
1. Proposal
“Comply or This Guide comprises two Adopted Influenced by
explain” levels of disclosure obligations: majority
requirement (a) “comply or explain”
provisions; and (b)
recommended disclosures. An
issuer must report on the
“comply or explain” provisions
of this Guide. If the issuer does
not report on one or more of
these provisions, it must
provide reasons in its ESG
report.
Lobbying and consultation conclusions
on the proposed 2015 Guide (II)
Themes 2015 Guide (proposed) HKEx decision Intrepretation
2. Reporting
a. Reporting An issuer must disclose ESG Adopted Influenced by
frequency information on an annual basis and majority
regarding the same period covered in
its annual report.
b. Multiple reporting An ESG report may be presented as Adopted Influenced by
format and information in the issuer’s annual majority;
Publishing time report, in a separate report, or on the
issuer’s website. Whichever format is Market
adopted, the ESG report should be practitioners
published on the Exchange’s website (users) failed to
and the issuer’s website. Where not lobby
presented in the issuer’s annual
report, the issuer should publish this
information as close as possible to,
and in any event no later than three
months after, the publication of the
issuer’s annual report.
 Lobbying and consultation conclusions
on the proposed 2015 Guide (III)
Themes 2015 Guide (proposed) HKEx decision Intrepretation
3. Disclosure
a. General “Comply or explain” Adopted Influenced by majority
Disclosures
b-e. Environmental “Comply or explain” Adopted but the Influenced by majority;
KPIs implementation date
was postponed by one Listed companies
year (i.e. commencing (preparers) tried to
on or after 1 January lobby
2017)

f. Gender disclosure All Recommended Disclosures Adopted (incorporated Influenced by majority;

(Social KPIs under the wording of
“Employment”) “gender”) Some stakeholders
Total workforce by gender, tried to lobby
employment type, age group and May upgrade the
geographical region. Social KPIs to
“comply or explain”
in due course
Employee turnover rate by gender,
age group and geographical
region.