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The SFC’s green finance strategy – Impact on asset managers

On 21 September 2018, the SFC announced its strategic framework for the development of green finance in Hong Kong.

According to the SFC, “Globally, green finance has gathered momentum since the 2015 Paris Agreement on climate change, which calls for “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development””. Various policy measures have been developed by regulators and stock exchanges around the world to support the development of green finance.

One of the key areas that regulators have been focusing on is sustainable investing and asset managers’ integration of environmental, social and governance (ESG) factors into the investment process. As awareness increases, investors, especially institutional investors, are increasingly taking into consideration ESG factors in their selection of investment products. The main challenges faced by investors and asset managers as set out in the SFC’s framework are:

(i) lack of quality and comparative ESG data due to different disclosure requirements – the SFC has made it a priority to enhance listed companies’ disclosure of environmental information;

(ii) insufficient disclosure on whether and how asset managers conduct sustainable investing;

(iii) ESG preferences not being addressed in client suitability assessments;

(iv) lack of clarity on the duty of asset managers with respect to the consideration of sustainability factors and risks in the investment process; and

(v) risk of “greenwashing” – there is a concern that asset managers may market themselves as “green” or “sustainable” but do not sufficiently integrate these factors into the investment process.

The SFC notes that authorities are starting to provide regulatory support for the development of sustainable investing, including its own Principles of Responsible Ownership.

As a first step in its action agenda for Hong Kong asset management, the SFC plans to conduct a survey of asset managers and asset owners on four major aspects of sustainable investing – (i) their commitment; (ii) the investment process; (iii) post-investment ownership practices; and (iv) reporting of ESG performance. The survey will cover asset managers of different types and sizes and with different investment strategies. The SFC will then consider appropriate policies, codes and guidance with a view to obligating asset managers to disclosure how and to what extent ESG factors, especially environmental factors, are integrated into investment decisions.

The SFC will also work with organisations such as the CFA Institute and the United Nations Principles of Responsible Investment to provide education and information to the industry on how to integrate ESG factors into the investment process.

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