Recommendations for the HKEx
Since 2013, the HKEx issued its own ESG reporting guide, which recommended companies to disclose their ESG performance. However, after implementing this guide for over three years, 32 per cent of HSI constituents (16 companies) still fell into the ‘Unstable’ category, while about half underperformed in terms of workplace practices.
The very first step to improve companies’ ESG performance is to enhance their transparency. Therefore, OHK recommends that the HKEx should:
- Extend companies’ reporting obligations to cover all KPIs in social aspects using a ‘comply or explain’ approach.
- Adopt the GRI’s G4 Guidelines as the reporting standard so as to be on par with international standards.
- Set a timeline indicating when the HKEx will shift from a ‘comply or explain’ approach to making ESG reporting mandatory for all companies.
Given the fact that the HKEx is one of the largest stock exchanges in the world, it has enough power to promote and encourage sustainability among listed companies. The HKEx should thus join the Sustainable Stock Exchanges Initiative and sign the commitment letter to promote sustainable stock exchange.
Recommendations for HSI Constituents
Companies should adhere to international reporting standards
Of all the companies appraised, 34 per cent (17) did not employ any of the GRI’s standards. Companies should thus publish stand-alone reports according to international standards (e.g. the GRI's G4 Guidelines). These reports will help external stakeholders better understand companies and their approach to ESG issues.
Both the consumer staples and consumer discretionary sectors should make a greater effort to improve their performance with regard to their social and environmental impact, and workplace practices
According to this study’s findings, both the consumer staples and consumer discretionary sectors performed most poorly with regard to ESG. There is a strong call for these two sectors to develop relevant policies to address ESG concerns and release key non-financial information publicly so as to increase transparency.
Set up procedures and frameworks to prevent the violation of human rights in the workplace and extend them to supply chain partners
With regard to workplace practices and the supply chain, companies should set up procedures and frameworks to prevent the violation of employees’ and human rights. Top performing companies are all signatories of international standards (e.g. UN Global Compact), and have implemented policies based on these standards. OHK thus urges companies to openly support international human rights standards and become signatories.
Companies that do not have policies in place to protect human rights in the workplace should immediately set up and implement such policies. These policies should cover the prevention of harassment and promotion of equal employment opportunities. They should also uphold the freedom of association and the right to collective bargaining, ensure equal pay for equal work, limit working hours and ensure periodic paid holidays, provide paid annual leave and such. Furthermore, companies should extend their human rights policies to their supply chains. Companies should implement supplier codes of conduct, conduct periodic supplier assessments and audits, and work with suppliers to make further improvements (e.g. labour rights education programmes).
Companies should develop policies to consult community stakeholders and respond to stakeholders’ demands publicly
OHK urges companies to implement policies and procedures so as to ensure regular dialogue with different community stakeholders and to fully and publicly disclose stakeholders’ views and key concerns so as to enhance transparency. In addition, companies should show in greater detail how stakeholders’ feedback is integrated into the development of new strategies or decisions.
Establish equal employment opportunity policies that recognise the rights of different groups
OHK urges all companies to develop equal employment policies that are more stringent than legal requirements. Top performing companies had equal employment policies that go beyond legal requirements, and prohibit discrimination based on religion and age.
Recommendations for Investors
OHK urges investors to take ESG into consideration when making investment decisions. Companies that perform well in ESG generally have a better reputation, are less of an investment risk to investors, create more social value for society and even help alleviate poverty. Investors should consider ESG factors when making investment decisions and follow the United Nations Principles for Responsible Investment (PRI) Initiative.
Recommendations for Consumers
Consumers can have an influential role on CSR performance; they should thus demand more ethical products and services from companies. Consumers should think about the lifecycle of products and services they consume and the potential for sustainability. OHK believes that by raising public concern about the sustainability of companies’ products/services, consumers can put pressure on companies to respond with environmentally friendly and socially responsible initiatives.