資訊洞見

Spotlight on green or ESG funds: year-end compliance for HK retail funds

Background

In its paper published on 21 September 2018 entitled “Strategic Framework for Green Finance”, the Securities and Futures Commission (SFC) alluded to the growth in sustainable investing as a global trend. More than 1700 asset owners, investment managers and service providers representing over US$68 trillion in assets under management have proclaimed their commitment to consider climate change or green or environmental, social and governance (ESG) or sustainability factors in their investment process by signing up to the United Nations Principles for Responsible Investment. There is rising demand from investors for ESG funds. In Hong Kong, the Monetary Authority has incorporated ESG principles into its investment process and in March 2016, the SFC published its Principles of Responsible Ownership to encourage investors to engage with investee companies on significant ESG issues that have the potential to impact on the companies’ goodwill, reputation and performance.

Nevertheless, the SFC noted a number of challenges arising from this trend:

  • Lack of quality and comparability of ESG data; 
  • Insufficient disclosure on whether and how asset managers conduct sustainable investing;
  • ESG preferences not addressed in client suitability assessments;
  • Lack of clarity on the duty of asset managers; and
  • The risk of “greenwashing” (false or misleading claims or representations of commitment to ESG principles).

Circular to managers of SFC-authorised unit trusts and mutual funds

On 11 April 2019 the SFC issued a circular (the Circular) setting out its requirements and expectations in relation to funds marketed as having a focus on green or ESG investing. The Circular can be read here

The key elements are summarised below.

A green or ESG fund should invest primarily (70%) in investments reflecting the particular green or ESG investment focus which the fund’s name represents. 

The offering documents (including the product key fact statements (KFS)) should disclose the following: 

a) a description of the key investment focus (e.g. climate change, green, low carbon footprint, sustainability, etc.) and targeted objective (e.g. financial return, mitigating climate change or environmental damage, etc.) of the fund, and how the key investment focus is considered as green or ESG-related; 

b) a description of the investment strategies, including: 

(i) the relevant green or ESG criteria or principles considered; 

(ii) the expected exposure to the securities or other investments that reflect the stated green or ESG investment focus;

(iii) the investment selection process and criteria adopted by the fund, such as: 

    • assessment criteria of the underlying investments;
    • ESG analysis and evaluation methodology;
    • reference ESG benchmark being tracked and the characteristics and general composition of the benchmark; 

c) a description of any relevant exclusion policy adopted by the fund; 

d) a description of risks associated with the fund’s investment theme (such as lack of standardized taxonomy, subjective judgment in investment selection, reliance on third party providers for environmental scoring / certification / labelling, style drift, concentration in investments with environmental or ESG focus).  

The manager should regularly monitor and evaluate the underlying investments to ensure the fund continues to meet the stated investment objective and requirements set out in the Circular.

Managers of funds seeking SFC authorisation as green or ESG funds will need to provide a confirmation of compliance in the form annexed to the Circular.

Managers of existing SFC authorised green or ESG funds should make any necessary updates and revisions to their offering documents and provide the confirmation of compliance as soon as practicable, and in any event no later than 31 December 2019. 

All SFC-authorised green or ESG funds complying with the requirements set out in the Circular will be listed on a dedicated webpage of the SFC’s website with effect from the end of 2019.

相關業務及行業:

消費品與零售, 基金與投資管理

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