Sustainability Governance – the four signposts; EY and HKCGI joint survey reveals growing focus on ESG among Hong Kong companies

• 79% of companies have established dedicated sustainability committees to oversee ESG matters, indicating a growing recognition of these issues among the Board and Executives
• 61% of companies have incorporated sustainability-related risks into their enterprise risk management, while only 17% have considered both sustainability-related risks and opportunities in their overall risk assessment and business strategy
• 69% of companies have identified the effects of sustainability risks on financials; however, only 12% have disclosed these effects quantitatively
• Only 38% of companies have considered ESG factors in employee remuneration, including that for senior management

EY Greater China Region (EY) and The Hong Kong Chartered Governance Institute (HKCGI) have jointly conducted a comprehensive survey Sustainability Governance – the four signposts, highlighting the increasing emphasis on Environmental, Social, and Governance (ESG) matters among Hong Kong companies. The survey reveals significant strides in ESG oversight, integration, financial impact assessment, and ESG-linked remuneration.

Jasmine Lee, EY Hong Kong and Macau Managing Partner, says: “The rise of sustainability committees within corporate boards marks a transformative moment in corporate governance in Hong Kong. This trend reflects a proactive commitment to ESG principles, positioning companies to not only mitigate risks but also harness innovative opportunities for growth. By integrating sustainability into core strategies and aligning executive compensation with specific objectives, businesses can lead the way in driving positive change and securing a competitive advantage in a dynamic market landscape. This forward-thinking approach enhances reputation and sets the stage for long-term success and resilience.”

Oversight and commitment to ESG

The survey reveals that 79% of companies have established dedicated sustainability committees for ESG oversight. This development highlights that Boards and senior management are now devoting more attention to ESG matters. This is a critical step in elevating ESG issues to the boardroom, enabling guidance and support from the top to address stakeholder expectations, regulatory demands, and investor scrutiny.

Integrating risks and opportunities

61% of companies have incorporated sustainability-related risks into their Enterprise Risk Management, demonstrating that these risks are starting to be managed through more robust mechanisms alongside other key risks. However, only 17% have included sustainability-related opportunities in their risk assessments and business strategies. This finding indicates that while companies are increasingly focused on identifying ESG-related risks, there is significant potential for growth in recognizing opportunities that can enhance competitive advantages, strengthen reputation, and facilitate the transition to a low-carbon economy.

David Simmonds FCG HKFCG, President, The Hong Kong Chartered Governance Institute; Chief Strategy, Sustainability and Governance Officer, CLP Holdings Limited, says: “The research shows that sustainability is a top-of-the-agenda issue, but the extent of capture of risks and opportunities requires more work. It is here that, the governance professional can provide significant impetus and advice to listed companies and other organisations to derive the full benefits of sustainability reporting.” (HKCGI commented)

Financial impact assessment

In terms of financial assessment, 69% of companies report identifying financial areas affected by ESG or climate-related risks qualitatively. However, only 12% have reached the lengths of assessing the impact quantitatively. Quantifying the financial impacts of sustainability risks is essential for enabling a higher level of integration into decision-making and allowing boards to more effectively communicate the companies’ resilience and prospects to stakeholders.

ESG-linked remuneration

The incorporation of ESG factors into executive remuneration remains limited, with only 38% of companies including ESG elements in the remuneration scheme for senior management. To enable market-wide alignment of sustainability objectives and companies’ strategic directions, a greater degree of alignment may be needed, such as in terms of scope, weight, and role coverage.

Ee Sin Tan, EY¹ Hong Kong and Macau Climate Change and Sustainability Services (CCaSS) Partner, says: “Hong Kong’s corporate governance landscape has made commendable progress in integrating ESG principles, marked by increased board-level oversight and the establishment of sustainability committees. While there are opportunities for further growth, such as improving data integrity, standardizing assurance practices, and better aligning management incentives with sustainability performance, these challenges present a chance for continued innovation and progress in the field.”

1. Ernst & Young, Hong Kong

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