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Hong Kong stock exchange begins tighter environmental and social disclosure standard from 2016

‘Comply and explain’ marks a departure from voluntary reporting approach

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HKEx’s David Graham said benefits included better risk management and lower operational costs. Photo: SCMP Pictures

Tighter standards for environmental, social and governance disclosure from the start of the year could induce greater change in corporate behaviour that may lead to more ambitious cuts in emissions.

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But a more overarching form of “integrated reporting” binding together all financials and non-financials of a company to reflect its true value would be the next step for the city, an international expert said.

Revisions in criteria to the Hong Kong Exchanges and Clearing’s corporate governance code and stricter obligations for environmental, social and governance, or ESG, disclosure were set to take effect on January 1. The change would raise current voluntary levels to a standard of ‘comply or explain’.

READ MORE: Hong Kong government promises lower carbon emissions ahead of Paris summit

David Graham, HKEx’s chief regulatory officer and head of listing, said there was overwhelming support for strengthening disclosure obligations.

“Issuers starting to report on their ESG performance may reap the benefits of better risk management, improved access to capital, greater capacity to meet supply chain demands and lower operational costs,” said Graham in a statement.

Paul Druckman, CEO of the International Integrated Reporting Council, said the move was meant to spark a change in corporate behavior. “More transparency means the company will have an incentive to reduce [carbon emissions],” he said.

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But while tighter ESG disclosure could spur change in corporate conduct as the world seeks to reduce emissions to avoid the worst climate change effects this century, reports should offer a fuller picture that reflects the true value of a company and allow investors to make better decisions, he added.

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