Hong Kong Exchanges and Clearing (HKEX) chairman Laura Cha has emphasized the importance of harmonized taxonomy for environmental, social, and governance (ESG) disclosure by corporates to achieve a coordinated approach to compliance with global carbon emission standards.
In an interview at Sibos 2021, the annual banking and financial conference organized by the Society for Worldwide Interbank Financial Telecommunication (Swift), Cha says: “I think the important thing is really to harmonize the taxonomy and standards because while disclosure is one thing, people disclose different things based on different standards. Now, there is a pretty strong voice saying that we need to look at the taxonomy and the standards much more seriously in order to have a coordinated effort.”
Cha, who became the first female chairman of HKEX in 2018, was instrumental in the launch of HKEX’s Sustainable and Green Exchange (STAGE), Asia's first sustainable investment platform, in December 2020.
While Asia still lags behind the United States and Europe in terms of how companies manage and disclose their ESG risks and impacts, a lot of work is being done by the various exchanges, corporates and the financial sector in the region to improve ESG disclosure and compliance, Cha says in the interview.
Common standards
But while many corporates have begun to disclose their ESG compliance initiatives, more work needs to be done in making such disclosures measurable using common standards.
“It is very important for the company to measure what it has done and I feel that it’s the same for the exchange as well. At the end of the day it will be the board that sets the direction [for ESG]. The commitments come from the senior management and the board, then it’s a matter of implementation,” Cha says.
“We talk about it a lot and we want to see the talk translated into action. We measure the actions by measurable goals and targets. We really need to have some hard numbers to look at and to realize how much you have done and how much more you should do,” Cha says.
On the issue of greenwashing, or the practice by some companies of misleading investors and consumers about their green or ESG credentials, Cha says this can be addressed by having a common set of taxonomy and standards.
“That would be a lot easier to distinguish [between green and non-green] rather than people just using the narrative. At the end of the day, certainly in the financial market, the institutional investor has a very strong voice and they will help expose if a company is not really green or it’s just greenwashing. So heightened understanding, heightened awareness of turning talk into action, all these will help to combat greenwashing.”
Good for society
While the exchange can mandate the rules, Cha says ESG should not be premised on compliance but on doing good for the company, its stakeholders, and the environment.
“Yes, the exchange can mandate these rules. We can say whether you meet these rules or not. But unlike in a financial statement where you can just say you’re profitable or not, the green is more nebulous and therefore it requires a different kind of angle to analyze how green is your green story. As with other developments, I think this will also become more mainstream in the sense that investors will scrutinize the company’s disclosure. Now that we have disclosure, people will want to know how accurate is your disclosure,” Cha says.
The HKEX chairman also believes a watchdog body for ESG is not necessary because it may turn ESG disclosure into an excessive regulatory burden and make corporates lose sight of their main goal, which is doing good rather than just complying. “I think the focus should be this is what you should do because it is good for your company, it’s good for society,” she says.
