Esg Reporting In Hk_ricky.pdf

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

2011 Q1

HKEx issued the 2012 ESG Guide (recommended) in Aug 2012

HKEx published the 2nd consultation paper on review of 2012 ESG Guide in July 2015

02

04 2014

2012 Q2

Q3

Q4

Q1

Q2

01

HKEx published the 1st consultation paper on ESG Reporting Guide in Dec 2011

Q3

Q4

Q1

2015 Q2

Q3

03

The new Companies Ordinance (Cap 622) came into effect in Mar 2014

Q4

Q1

Q2

Q3

Q4

05

HKEx issued the 2015 ESG Guide (comply or explain) in Dec 2015. Listed firms to report GD from 2016; and Environmental KPIs from 2017.

Levels of ESG disclosure obligation

Proposed 2015 Guide ESG Reporting Guide

Comply or Explain

Voluntary

2012 Guide Voluntary

1. General Disclosures (GDs) Environmental

X

X

Social

X

X

2. Key Performance Indicators (KPIs) Environmental Social

X

X X

X

Literature relating to lobbying on accounting standard setting process Executive remuneration in Australia ED49 Accounting for Identifiable Intangible Assets

Tutticci (1994)

ED8 Operating Segments

IFRS 2 Share-Based Payments

IFRS 9 Financial Instruments

International accounting standard-setting due process

Research gap

Uniform Disclosure Regulation Katselas et al. (2011)

Giner and Arce (2012)

Hewa et al. (2018)

Stacey et al. (2018) Bamber and McMeeking (2016)

Friedman and Heinle (2016)

Limited literature on Lobbying and ESG Reporting; Limited literature on ESG Reporting in HK;

1st paper on lobbying and HK ESG Reporting using leximancer

Data Stakeholders

Institutions Listed companies Professional bodies Market practitioners NGOs

Other institutions Individuals Listed company staff HKEx participant staff Retail investors Other individuals Total

Initial number Excluding of responses identical submissions

Excluding Final number of Percentage submissions in responses of responses Chinese

37

5

2

30

19%

17

0

1

16

10%

45

2

0

43

27%

18 14

0 0

1 1

17 13

11% 8%

17

3

4

10

6%

1

0

0

1

1%

13 41

0 7

7 9

6 25

4% 16%

203

17

25

161

100%

Stakeholders (examples) in this study

Listed Companies

Professional Bodies

Market Practitioners

NGOs

Other 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

Qs

Explanations

1. Proposal “Comply or explain” requirement

Q1

To require issuers to disclose in their annual reports or ESG reports whether they have complied with the “comply or explain” provisions

2. Reporting a. Reporting frequency

Q2

To require issuers to report on ESG annually 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

b. Multiple reporting format and Publishing time

3. Disclosure a. General Disclosures b-e. Environmental KPIs f. Gender disclosure (Social KPIs under “Employment”)

Q3

Q9 Q11-14 Q15

To upgrade to “comply or explain” To upgrade to “comply or explain” To incorporate gender disclosure in “Social” aspect of ESG reports

Binomial tests (H0: P1=P2=0.5) Themes

Total

Frequency of agreement (observed %, P1)

Frequency Test of proportion disagreemen t (observed %, P2)

1. Proposal “Comply or explain” requirement (Q1) All 118 112 (95%) 6 (5%) Listed companies 27 24 (89%) 3 (11%) Market Practitioners 35 33 (94%) 2 (6%) 2. Reporting a. Reporting frequency (Q2) All 118 114 (97%) 4 (3%) Listed companies 28 26 (93%) 2 (7%) Market Practitioners 35 35 (100%) 0 b. Multiple reporting format and Publishing time (Q3) All 109 86 (79%) 23 (21%) Listed companies 26 23 (88%) 3 (12%) Market Practitioners 31 18 (58%) 13 (42%)

Significance (*** p<0.01)

0.5 0.5 0.5

0.000*** 0.000*** 0.000***

0.5 0.5 0.5

0.000*** 0.000*** 0.000***

0.5 0.5 0.5

0.000*** 0.000*** 0.473

Themes

Total

Frequency of agreement (observed %)

Frequency of disagreement (observed %)

Test proportion

Significance (*** p<0.01)

3. Disclosure a. General Disclosure (Q9) All 116 109 (94%) 7 (6%) Listed companies 27 23 (85%) 4 (15%) Market Practitioners 34 34 (100%) 0 b. Environmental KPIs – emissions and non-hazardous waste (Q11) Total 107 91 (85%) 16 (15%) Listed companies 27 15 (56%) 12 (44%) Market Practitioners 32 32 (100%) 0 c. Environmental KPIs – hazardous waste (Q12) All 108 91 (84%) 17 (16%) Listed companies 27 15 (56%) 12 (44%) Market Practitioners 33 33 (100%) 0 d. Environmental KPIs – use of resources (Q13) Total 106 90 (85%) 16 (15%) Listed companies 27 16 (59%) 11 (41%) Market Practitioners 32 32 (100%) 0 e. Environmental KPIs – environment and natural resources (Q14) Total 109 93 (85%) 16 (15%) Listed companies 27 16 (59%) 11 (41%) Market Practitioners 34 33 (97%) 1 (3%) f. Gender disclosure (Q15) All 132 125 (95%) 7 (5%) Listed companies 28 26 (93%) 2 (7%) Market Practitioners 38 37 (97%) 1 (3%)

0.5 0.5 0.5

0.000*** 0.000*** 0.000***

0.5 0.5 0.5

0.000*** 0.701 0.000***

0.5 0.5 0.5

0.000*** 0.701 0.000***

0.5 0.5 0.5

0.000*** 0.442 0.000***

0.5 0.5 0.5

0.000*** 0.442 0.000***

0.5 0.5 0.5

0.000*** 0.000*** 0.000***

Chi-square or Fisher’s exact tests (H0: Opinion is not influenced by stakeholder group identity) Themes

Total Agreement

No comme nt

Disagreeme nt

Expected N

Residua Significance l (Fisher’s score)

1. Proposal Comply or explain” requirement (Q1) Listed 30 24 3 companies Professional 16 11 5 Bodies Market 43 33 8 Practitioners

NGOs 17 Other 13 Institutions Listed 10 company staff Retail 6 investors Other 25 individuals Total 160

3

21.00

3.00

0

11.20

-0.20

2

30.10

2.90

11 4

6 9

0 0

11.90 9.10

-0.90 -5.10

8

1

1

7.00

1.00

4

2

0

4.20

-0.20

17

8

0

17.50

-0.50

112

42

6

0.017**

Chi-square or Fisher’s exact tests (H0: Opinion is not influenced by stakeholder group identity) Themes

Total Agreement

No comme nt

Disagreeme nt

Expected N

Residua Significance l (Fisher’s score)

2

2

21.38

4.63

2. Reporting a. Reporting frequency (Q2) Listed 30 26 companies Professional 16 Bodies Market 43 Practitioners

11

5

0

11.40

-0.40

35

8

0

30.64

4.36

NGOs 17 Other 13 Institutions Listed 10 company staff Retail 6 investors Other 25 individuals

11 5

6 8

0 0

12.11 9.26

-1.11 -4.26

8

1

1

7.13

0.88

2

3

1

4.28

-2.28

16

9

0

17.81

-1.81

114

42

4

Total 160

0.001***

Chi-square or Fisher’s exact tests (H0: Opinion is not influenced by stakeholder group identity) Themes

Total Agreement

No comme nt

Disagreeme nt

Expected N

Residua Significance l (Fisher’s score)

2. Reporting b. Multiple reporting format and Publishing time (Q3) Listed 30 23 4 3 companies

16.13

6.88

Professional 16 Bodies Market 43 Practitioners

9

6

1

8.60

0.40

18

12

13

23.11

-5.11

NGOs 17 Other 13 Institutions Listed 10 company staff Retail 6 investors Other 25 individuals

8 4

6 9

3 0

9.14 6.99

-1.14 -2.99

8

1

1

5.38

2.63

2

3

1

3.23

-1.23

14

10

1

13.44

0.56

86

51

23

Total 160

0.004***

Chi-square or Fisher’s exact tests (H0: Opinion is not influenced by stakeholder group identity) Themes

Total Agreement

No comme nt

Disagreeme nt

Expected N

Residua Significance l (Fisher’s score)

3

4

20.44

2.56

9

7

0

10.90

-1.90

34

9

0

29.29

4.71

11 6

6 7

0 0

11.58 8.86

-0.58 -2.86

8

1

1

6.81

1.19

3

2

1

4.09

-1.09

15

9

1

17.03

-2.03

109

44

7

3. Disclosure a. General Disclosure (Q9) Listed 30 23 companies Professional 16 Bodies Market 43 Practitioners NGOs 17 Other 13 Institutions Listed 10 company staff Retail 6 investors Other 25 individuals Total 160

0.008***

Chi-square or Fisher’s exact tests (H0: Opinion is not influenced by stakeholder group identity) Themes

Total Agreement

No comme nt

Disagreeme nt

Expected N

Residua Significance l (Fisher’s score)

3. Disclosure b. Environmental KPIs – emissions and non-hazardous waste (Q11) Listed 30 15 3 12 17.06 companies Professional 16 Bodies Market 43 Practitioners NGOs 17 Other 13 Institutions Listed 10 company staff Retail 6 investors Other 25 individuals Total 160

-2.06

7

8

1

9.10

-2.10

32

11

0

24.46

7.54

11 5

6 8

0 0

9.67 7.39

1.33 -2.39

6

2

2

5.69

0.31

2

3

1

3.41

-1.41

13

12

0

14.22

-1.22

91

53

16

0.000***

Chi-square or Fisher’s exact tests (H0: Opinion is not influenced by stakeholder group identity) Themes

Total Agreement

No comme nt

Disagreeme nt

Expected N

Residua Significance l (Fisher’s score)

3. Disclosure c. Environmental KPIs – hazardous waste (Q12) Listed 30 15 3 12 companies Professional 16 Bodies Market 43 Practitioners NGOs 17 Other 13 Institutions Listed 10 company staff Retail 6 investors Other 25 individuals Total 160

17.06

-2.06

7

8

1

9.10

-2.10

33

10

0

24.46

8.54

11 5

6 8

0 0

9.67 7.39

1.33 -2.39

6

2

2

5.69

0.31

2

3

1

3.41

-1.41

12

12

1

14.22

-2.22

91

52

17

0.000***

Chi-square or Fisher’s exact tests (H0: Opinion is not influenced by stakeholder group identity) Themes

Total Agreement

No comme nt

Disagreeme nt

Expected N

Residua Significance l (Fisher’s score)

3. Disclosure d. Environmental KPIs – use of resources (Q13) Listed 30 16 3 11 companies Professional 16 Bodies Market 43 Practitioners NGOs 17 Other 13 Institutions Listed 10 company staff Retail 6 investors Other 25 individuals Total 160

16.88

-0.88

7

8

1

9.00

-2.00

32

11

0

24.19

7.81

11 4

6 9

0 0

9.56 7.31

1.44 -3.31

6

2

2

5.63

0.38

2

3

1

3.38

-1.38

12

12

1

14.06

-2.06

90

54

16

16.88

-0.88

0.000***

Chi-square or Fisher’s exact tests (H0: Opinion is not influenced by stakeholder group identity) Themes

Total Agreement

No comme nt

Disagreeme nt

Expected N

Residua Significance l (Fisher’s score)

3. Disclosure e. Environmental KPIs – environment and natural resources (Q14) Listed 30 16 3 11 17.44 companies Professional 16 Bodies Market 43 Practitioners NGOs 17 Other 13 Institutions Listed 10 company staff Retail 6 investors Other 25 individuals Total 160

-1.44

7

8

1

9.30

-2.30

33

9

1

24.99

8.01

11 4

6 9

0 0

9.88 7.56

1.12 -3.56

6

2

2

5.81

0.19

2

3

1

3.49

-1.49

14

11

9

14.53

-0.53

93

51

25

0.000***

Chi-square or Fisher’s exact tests (H0: Opinion is not influenced by stakeholder group identity) Themes

Total Agreement

No comme nt

Disagreeme nt

Expected N

Residua Significance l (Fisher’s score)

2

2

23.25

2.75

3. Disclosure f. Gender disclosure (Q15) Listed 30 26 companies Professional 16 Bodies Market 43 Practitioners

10

5

1

12.40

-2.40

37

5

1

33.33

3.68

NGOs 17 Other 13 Institutions Listed 10 company staff Retail 6 investors Other 25 individuals

11 10

5 3

1 0

13.18 10.08

-2.18 -0.08

7

2

1

7.75

-0.75

3

2

1

4.65

-1.65

20

5

0

19.38

0.63

124

29

7

Total 160

0.167

Lobbying and consultation conclusions on the proposed 2015 Guide (I) Themes 1. Proposal “Comply or explain” requirement

2015 Guide (proposed)

HKEx decision

This Guide comprises two Adopted levels of disclosure obligations: (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.

Intrepretation

Influenced by majority

Lobbying and consultation conclusions on the proposed 2015 Guide (II) Themes 2. Reporting a. Reporting frequency

b. Multiple reporting format and Publishing time

2015 Guide (proposed)

HKEx decision

An issuer must disclose ESG Adopted information on an annual basis and regarding the same period covered in its annual report. An ESG report may be presented as Adopted information in the issuer’s annual report, in a separate report, or on the issuer’s website. Whichever format is adopted, the ESG report should be published on the Exchange’s website and the issuer’s website. Where not 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.

Intrepretation Influenced by majority

Influenced by majority; Market practitioners (users) failed to lobby

Lobbying and consultation conclusions on the proposed 2015 Guide (III) Themes 3. Disclosure a. General Disclosures b-e. Environmental KPIs

f. Gender disclosure (Social KPIs under “Employment”)

2015 Guide (proposed)

HKEx decision

Intrepretation

“Comply or explain”

Adopted

Influenced by majority

“Comply or explain”

Adopted but the implementation date was postponed by one year (i.e. commencing on or after 1 January 2017)

Influenced by majority;

Adopted (incorporated the wording of “gender”)

Influenced by majority;

All Recommended Disclosures

Total workforce by gender, employment type, age group and geographical region.

Employee turnover rate by gender, age group and geographical region.

May upgrade the Social KPIs to “comply or explain” in due course

Listed companies (preparers) tried to lobby

Some stakeholders tried to lobby