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CSj
March 2019
Green finance
Will it be a game
changer?
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Good governance comes with membership March 2019
About The Hong Kong Institute of Chartered Secretaries
CSj, the journal of The Hong Kong Institute of
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Contents
Cover Story
Finance for sustainability 06
Can green finance be a game changer? CSj takes a look at the growing green finance sector
in Mainland China and Hong Kong.
In Profile
Leading the governance change 12
Peter Greenwood FCIS FCS, former Company Secretary and Corporate Counsel of CLP
Holdings and the winner of the HKICS Prize 2018, highlights the advantages of being a
governance first mover.
In Focus
Green finance: an SFC view 16
CSj interviews Julia Leung, Deputy Chief Executive Officer and Executive Director,
Intermediaries, Securities and Futures Commission, on the potential for developing Hong
Kong as a green finance centre.
Mainland Report
Raising the governance bar 22
The latest Hong Kong Institute of Chartered Secretaries Company Secretary/Board Secretary
Roundtable meeting, held on 17 January in Hong Kong, focused on recent amendments to
Hong Kong’s governance regime.
提高管治標杆 28
今年1月17日，香港特許秘書公會周年圓桌會議順利在香港召開，會議重點討論了近期
監管機構對香港企業管治守則的修訂，包括董事問責制和董事會多樣性等，以進一步
提升香港企業管治水準。
Technical Update
Scripless shares – a new model for Hong Kong 32
CSj looks at the latest proposals for the implementation of an uncertificated, or scripless, HKICS News
securities market in Hong Kong.
President’s Message 04
Sponsor's Feature
Cyber risk – are you a weak link? 36
Institute News 40
A recent Diligent survey indicates that directors are often not the best role models when it Student News 45
comes to digital security best practices.
President’s Message
A roadmap for
green finance
T he business environment we are entering
in 2019 may seem to be a rather daunting
one. The trade war between the US and
deliver positive environmental outcomes,
has been enthusiastically embraced
in Hong Kong and Mainland China.
sustainable investing. How can investors,
for example, know when green funds are
little more than ‘greenwashing’?
Mainland China is having an impact on Developing green finance is a national
businesses in Hong Kong and, in tandem strategy in the Mainland and, as China’s These issues are highly relevant to
with these geopolitical uncertainties, we international financial centre, Hong governance professionals, and while
are also facing looming threats from digital Kong is well positioned to contribute to challenges on the scale and complexity
disruption and climate change. this development. of climate change may appear to be too
daunting for individual businesses to make
In October 2018, the Intergovernmental Panel The Chief Executive of the HKSAR has much of a difference, this month’s journal
on Climate Change (IPCC) warned that we declared green finance as a priority area brings some welcome good news – green
might be underestimating how far and how and the Financial Secretary announced in finance is one growing area of the economy
fast our global warming mitigation measures the 2018-19 Budget a series of supportive where both public and private sector
would need to go in order to avoid serious measures, including programmes to initiatives are already making a difference.
threats to global ecosystems. The 2015 subsidise bond issuance in Hong Kong
Paris climate agreement commits national and to attract Mainland and international I am reminded of the comments made by
governments to keeping temperatures ‘well green issuers and investors to Hong Kong. Edith Shih FCIS FCS(PE), The Institute of
below 2°C above pre-industrial levels’, but the In this month’s In Focus article, Julia Chartered Secretaries and Administrators
latest IPCC report suggests that the target Leung, Deputy Chief Executive Officer (ICSA) President, in her speech at the
should be to limit temperature increases and Executive Director, Intermediaries, Institute’s recent Double Anniversary Gala
to 1.5°C. On our current trajectory, even if Securities and Futures Commission, talks Dinner. She pointed out that the value of
nationally stated mitigation ambitions as about some of the projects under way the principles at the heart of governance
submitted under the Paris Agreement are at the SFC, the government and other – such as transparency and accountability
honoured, we could reach that 1.5°C relevant authorities to further develop – increases in difficult times such as
warming in a little over a decade. green finance in Hong Kong. these. In a very real sense, governance
and governance professionals are part of
The topic of our journal this month brings The picture is not all rosy, of course, the solution.
some very welcome light into this dark and this month’s cover story looks at
picture – addressing the way green finance some of the impediments to the further
initiatives by both government and private development of green finance. These
sector enterprises are contributing to include deficiencies in listed companies’
building a sustainable world economy. disclosure of environmental information,
the lack of comparability of green finance
Green finance, which in its broadest sense information and insufficient disclosure
refers to forms of financing that aim to by asset managers on the metrics behind David Fu FCIS FCS(PE)
March 2019 04
President’s Message
綠色金融路線圖
2 019年的營商環境，看似相當困難。
中美貿易戰影響香港的商業；而除
了這些地緣政治上的不確定因素外，數
的國際金融中心，香港絕對能在這方
面有所貢獻。
難以改變，但今期的月刊也有好消
息：綠色金融正在增長，公營和私營
部門的努力已造就一些改變。
位破壞和氣候變化，也漸漸構成威脅。 香港特別行政區行政長官已宣布綠色金
融為優先工作，財政司司長亦在2018-19 記得特許秘書及行政人員公會國際會
2018年 10月 ， 政 府 間 氣 候 變 化 專 門 委 財政預算案中公布一系列支援措施，包 長施熙德律師 FCIS FCS(PE) 在公會最近
員會警告，全球暖化有可能嚴重威脅 括推出債券資助計劃鼓勵在香港發債， 的雙周年晚宴演講中指出，透明度和
地球生態，我們可能低估了相關消減 並吸引內地和國際集資者和投資者到香 問責性等管治原則的價值，在這些艱
措 施 的 迫 切 性 和 所 需 力 度 。 2015年 的 港參與綠色項目融資。今期In Focus一欄 難的時刻更能彰顯。管治和管治專業
巴黎氣候協定簽署國，承諾控制溫度 的文章中，證券及期貨事務監察委員會 人員，真正是解決問題的答案。
增 長 ， 維 持 在 比 工 業 化 前 水 平 高 2°C （證監會）副行政總裁兼中介機構部執
的範圍內；但該委員會最近期的報告 行董事梁鳳儀介紹證監會、政府和其他
指出，目標應定為把溫度增長限制在 有關機構進一步促進香港綠色金融發展
1.5°C內 。 以 目 前 的 發 展 趨 勢 估 計 ， 即 的一些項目。
使實現了各國在巴黎協定內註明的消
減計劃，我們在十多年內就可能達到 當然，前景並非完全樂觀。今期的封
1.5°C的暖化水平。 面故事，探討綠色金融發展的一些障
礙，包括上市公司在環保資料披露方
本刊今期的主題，為這黯淡的前景帶來 面有缺失、綠色金融資料難以比較，
光明：政府和私營機構均在綠色金融方 以及資產管理人對可持續投資背後的
面努力，建構可持續的世界經濟。 指標披露不足等。例如投資者如何可
以得知綠色基金只是「漂綠」？
廣義來說，綠色金融是指對環境有正
面影響的融資方式。香港和中國內地 這些課題與企業管治專業人員很有關
均強烈支持綠色金融。發展綠色金融 係。儘管氣候變化的規模和複雜性帶
是中國內地的國家戰略，而作為中國 來的挑戰十分重大，個別經營者似乎 傅溢鴻 FCIS FCS(PE)
March 2019 05
Cover Story Finance for sustainability March 2019 06
Cover Story
Can green finance be a game changer? CSj takes a look at the
growing green finance sector in Mainland China and Hong Kong.
A s global temperatures and sea levels
are rising, so is the pressure on world
leaders to actually do something about it. A
as an important part of meeting global
commitments to build a green and
sustainable world economy. In short,
United Nations (UN) report says the world green finance aims to increase financial
is already 1 degree Celsius (1.8° F) hotter flows from the public, private and
today than it was in the pre-industrial not-for-profit sectors – via banking,
era, and temperatures will continue to rise microcredit, insurance and investments –
if the world continues to release heat- to sustainable development priorities.
trapping carbon as today. If we do not
act now, experts warn, we could push the The challenges
climate beyond a tipping point. Although interest and activity in green
finance has grown rapidly in recent
As is so often the case, a successful years, there’s still a lack of consistency in
solution to this problem will depend market terms, standards and evaluation
on access to finance. In 2015, the G20 mechanisms. In fact, there is still some
member countries reaffirmed through doubt about what it really means to be
the Paris Agreement (the 21st Conference ‘green’ or ‘sustainable’. Rebecca Self, Chief
of the Parties Agreement under the Financial Officer for Sustainable Finance
UN Framework Convention on Climate at HSBC Holdings, says that the lack of
Change), that an annual amount of a common standard for non-financial
US$6.9 trillion between 2016 and reporting is an issue that urgently has to
2030 will be needed for investment in be dealt with, but this should not stand in
green, low-carbon and climate-resilient the way of green commitments.
infrastructures globally. But governments
alone can hardly hope to raise such sums. ‘Traditional accounting standards and
traditional industry definitions just don’t
As an answer to the call, green finance work. There’s a lot of confusion because
has gained importance in recent years there are no global standardisations –
Highlights
• green finance has gained importance in recent years as an important part of
meeting global commitments to build a green and sustainable world economy
• further development of the green finance market is hampered by the lack of a
common standard for non-financial reporting and the lack of reliable corporate
environmental, social and governance data
• Mainland China has emerged as a global powerhouse in green bonds issuance,
growing from almost zero in 2015 to having the second-highest issuance by
country in 2018
March 2019 07
Cover Story
this is too new,’ she says. ‘Still, lack of adopted the recommendations of the Climate and Environmental Information
standardisation shouldn’t stand in the Task Force on Climate-related Financial Disclosure Pilot, has proven surprisingly
way of innovation. What’s most important Disclosures (TCFD), which was set up by successful. In this way, Mainland China
is to get started, to move in the right the G20’s Financial Stability Board in 2015 has taken a public leadership position
direction and to make commitments. to develop a voluntary framework for with green finance.
That’s why you have to be transparent companies to disclose the financial impact
about what you are including, and of climate-related risks and opportunities. ‘China is emerging as a leader in green
sometimes even more importantly what finance and is collaborating effectively
you’re not including.’ ‘We are big supporters of TCFD. I think it’s with other countries,’ Self says.
a really good set of standards. They take
As an acknowledgement of the scale of into account that all businesses differ and Long associated with coal power plants
the challenge of making the transition to have different types of exposures and and air pollution, Mainland China might
a low-carbon future, HSBC has announced differences in how they can fight climate well turn out to be a leader in green
its commitment to provide US$100 billion change,’ she says. financing globally – at least, that’s the
in sustainable financing and investment view of experts working in Mainland
by 2025. Among the green financing She adds that she’s looking forward to China’s green finance field. The world’s
projects the bank has so far been launch by the European Union (EU) of most populous country has emerged
involved in is the support of Indonesia’s a unified classification system of what as a global powerhouse in green bonds
first sovereign green sukuk (an Islamic can be considered an environmentally issuance, growing from almost zero
financial certificate), green automotive sustainable economic activity. The in 2015 to having the second-highest
loans in the United Arab Emirates and taxonomy would make it possible issuance by country in 2018. Green bonds
lower-carbon funds through HSBC Global to determine which investments – are bonds where proceeds are earmarked
Asset Management. To date, the London- such as loans, stocks or bonds – are for green projects, typically backed by the
based bank has provided some US$25 environmentally sustainable, making it issuer’s balance sheet.
billion in sustainable financing over the easier for market participants to finance
past two years, supporting projects such these activities and limiting the risk of Mainland China issued US$30.9 billion in
as renewable energy and energy efficiency greenwashing, according to the European green bonds in 2018, according to figures
in 35 countries and territories. Commission website. from the Climate Bonds Initiative (CBI), a
global non-profit organisation that tracks
In Hong Kong, HSBC recently launched a An even greater problem than the lack and certifies global climate bonds issuance.
new Sustainable Financing Programme of a common standard for non-financial That’s just close behind top-ranked US
for its commercial banking clients. Under reporting, Self says, is a lack of reliable at US$34.1 billion. That progress has led
this scheme, companies can apply for loan data. Not all companies publish data on to Sean Kidney, CEO and Co-founder of
rebates on investments that aim to reduce carbon dioxide emissions, for example. CBI, to characterise the development of
carbon emissions. And if you look at methane, nitrous oxide, Mainland China’s green finance field as
or water/air pollution impacts, even less ‘exciting, incredibly exciting’.
‘What we are doing in green finance is is disclosed. If data is published, numbers
really exciting. It’s a way to make money, are often estimates based on arbitrary ‘We’ve been involved with regulators of
but it’s also ethical, green and has social calculations. the [Chinese green bond] market for five
dimensions’, Self says, clearly passionate years now. It’s basically a market that has
about the cause. The China factor been created from nothing. The market
Self also highlights the need for global has grown quickly and it will grow again,’
HSBC’s progress towards the US$100 collaboration and strikes a positive tone the UK-based Kidney says.
billion target will be disclosed in its when it comes to the collaboration with
environmental, social and governance Mainland China. A new platform for Since its founding in 2009, Kidney’s
(ESG) report this year. HSBC has also green finance, officially named UK-China CBI has now become the de facto non-
March 2019 08Cover Story
Traditional accounting
standards and traditional
industry definitions just
don’t work. There’s a lot of
confusion because there are
no global standardisations –
this is too new.
Rebecca Self, Chief Financial Officer for
Sustainable Finance, HSBC Holdings
governmental organisation for tracking Finance, one of Mainland China’s green finance sector in 2017, according
global green bond issuance and it also leading green finance consultancies. to the PBOC’s 2017 Green Finance Report.
has its own certification programme ‘It’s also something that the people of The market has come in for criticism,
called the Climate Bond Standard. China want,’ the Beijing-based Zhang however, directed at what is seen as
It has worked closely with Mainland points out. looser standards on what constitutes a
China’s regulators, namely the National green bond, as compared to international
Development and Reform Commission Syntao Green Finance is China’s first standards.
(NDRC) and the People’s Bank of China Climate Bonds Standard approved
(PBOC), in developing Mainland China’s verifier and a signatory to the UN The PBOC and NDRC guidelines on green
green bond market. Principles of Responsible Investment, bonds – the PBOC oversees financial
a UN body that drives responsible bonds and the NDRC oversees enterprise
The explosive growth in that market investing. It also hosts the yearly bonds, or bonds issued by state-owned
comes as the country transitions from Mainland China Investment Social enterprises – include tolerance for ‘grey’
speed of growth to quality growth. In the Forum, which just had its sixth year sectors such as coal. The NDRC also allows
Communist Party of China annual Central last December. Attendees included for 50% of the proceeds from bonds to
Economic Work Conference, held in officials from Mainland China’s top pay off previous loans or working capital,
December 2018, where the country’s top government agencies and international compared to international standards
leaders typically chart the course of the bodies such as HSBC and United where at least 95% of proceeds need to
economy for the next year, ‘acceleration Nations Environment Programme go towards green projects, according to
of green development’ featured high on Finance Initiative. CBI’s definition.
the agenda.
Looser standards? Zhang points out that Mainland China’s
‘On the whole, China is unlikely to return Development of Mainland China’s priorities are different from those of the
to the past of “growth at all cost” — it’s green bond market is an important West. ‘This is related to how China and
moving to a growth model that is more part of the country’s push towards how the West sees the environment.
sustainable,’ says Raymond Zhang, green finance. That market accounted For the West, the concern is more about
Managing Director of SynTao Green for close to 90% of Mainland China’s climate change, whereas China views it
March 2019 09Cover Story
more in terms of emissions and pollution of Mainland listed companies called the
control,’ Zhang says. SGCX ESG 50, which includes the top 50
listed Mainland China companies based China is unlikely to
Kidney, whose organisation has worked on their ESG scores. The SGCX ESG 50 return to the past of
closely with the PBOC to develop index performed better by 16.6% over
Mainland China’s green bond market, the last three years compared to the ‘growth at all cost’ –
agrees and thinks changes might come to CSI 300 Index, which tracks the top 300 it’s moving to a
align Mainland China’s and international listed companies in the A-shares market,
standards. ‘We track every single green according to Syntao Green Finance.
growth model that
bond issuance worldwide. The regulatory is more sustainable
environment in China is the toughest in The Mainland China market is not
the world by a long way when it comes to known, however, for high levels of
green bonds; the demands on issuers are transparency and Mainland China’s
very high,’ Kidney says. ‘It’s not because green finance sector is still dominated Raymond Zhang, Managing Director,
of an attempt to hide anything, it’s due by commercial banks. ‘If you look at SynTao Green Finance
to a different regulatory framework mature markets overseas, yes, Chinese
and we believe that it’s going to be companies are still lacking. But the pace
changed this year,’ Kidney says, referring of development of Chinese companies
to the expectation that Mainland China adopting ESG practices is very fast,’ he Karine Hirn, a Partner at asset manager
regulators will exclude coal from its green says. Kidney is even more upbeat. He is East Capital in Hong Kong, says that
bonds definition. hoping that Mainland China will take China’s war on environmental damage
on the mantle of co-leading the global is a structural transformation trend
The implications for governance green development with the EU, while that means openings for investors and
Aside from the obvious benefits of a move the US is ‘off for lunch for a while’ businesses, both local and international.
towards more sustainable business, there under Trump. China’s cleantech market is the largest in
are also potential governance benefits the world and grows on average by 20%
from further development of the green ‘China has a history of doing things per year, she says.
finance sector, in particular the imposition quickly. Now, there might be complaints
of tougher transparency standards. about riding over the rights of farmers The firm, which she co-founded in
and things like that, but when you Sweden in 1997, focuses on emerging
‘Going green promotes transparency. are a faced with a major crisis that is and frontier markets. It launched the
Under the NDRC regulations, you need to potentially the extinction of the human East Capital China Environmental Fund
tell people where the money is going and race due to climate change, you want in 2016, which has a climate finance
you have to be specific about linking the people who can do things quickly and label from the Luxembourg labelling
funding to, for example, a railway line or a think ahead. But it can’t do it by itself, agency Luxflag. The fund (which is not
water utility plan. This is an advance on the the challenge we have now as a planet for sale in Hong Kong) has identified
lack of disclosure that we had in the past,’ is how to have a working relationship around 350 publicly listed companies in
Kidney says. with Mainland China as an equal and the the Mainland and Hong Kong markets
large blocks such as the EU,’ Kidney says. in sectors such as cleantech, waste
This raised disclosure level, perhaps not management, renewable energy and
surprisingly, is popular with investors Looking ahead clean transportation.
and may be one of the factors driving Regional differences and the lack
the positive correlation between ESG of common ESG standards aside, all ‘If you look globally at all listed
scores and market performance. Zhang’s interviewees for this article agree on companies in the environmental sector, a
Syntao Green Finance, along with Caixin one issue – green developments offer third of them in terms of market cap are
Data, came up with a sustainability index massive business opportunities. actually in China. But many are unaware
March 2019 10Cover Story
of this fact because these companies are Another challenge, she says, is the risk – to finance environmental protection,
often listed on the A-shares markets, especially in a sector where growth potential according to a Reuters report.
which are just opening up to foreign is very high and taxonomy and standards
capital and are mostly working in China are not yet completely set – of a flurry of Another challenge, Karine Hirn suggests,
only,’ she says. companies and financial service providers is the perception that sustainable
making themselves look sustainable, as this investments are not as profitable as other
With some 20 years experience of window-dressing will deter clients. investments and something for ‘tree-
cleantech investments and 10 years huggers’. This is just wrong, she says. ‘In
experience of investments in China, the ‘There are many definitions and practices the long run it is obvious that companies
team behind the fund has witnessed how in the world of sustainable investing which that do a proper assessment of their own
pollution has come to the forefront of make it sound more complicated than it ESG risks and opportunities will do better
social and political concerns in China. Hirn actually needs to be. Investors should than the ones which do not. I call it the
points out that people in China feel the remain alert and just do their own due “Darwinism of capitalism” – survival of
urgency of change in their everyday life. diligence before investing,’ she says. the fittest.’
‘People in China have another approach In a move to strengthen environmental Johan Nylander and Poo Yee Kai
to sustainability and green investments responsibility and disclosure, the China Journalists
because they pay the price of pollution Securities Regulatory Commission, in
already today, and they can envision collaboration with China’s Ministry of For more on the development
the impact now of what remains for Environmental Protection, has enacted a of Hong Kong’s green finance
others a very long-term trend related to plan by which all listed companies will have sector, see the interview with Julia
climate change,’ Hirn says. ‘The challenge to issue specific environmental reporting Leung, Deputy Chief Executive
however is that Chinese retail investors by 2020. The agency has also pledged to Officer and Executive Director,
are quite short term, while the equity actively support green bonds, encourage Intermediaries, Securities and
market is still lacking strong and large environmentally friendly companies to use Futures Commission, published in
institutional investors.’ the capital market and look for new ways this month’s In Focus article.
March 2019 11In Profile
Leading the
governance
change
Peter Greenwood FCIS FCS, former Company
Secretary and Corporate Counsel of CLP
Holdings and the winner of the HKICS Prize
2018, highlights the advantages of being a
governance first mover.
March 2019 12In Profile
Congratulations on receiving the Hong Kong Institute
of Chartered Secretaries Prize 2018. Could we start
by discussing your route into the Chartered Secretary we consistently found that there
profession – you started as a lawyer I believe? were advantages of moving early
'Yes, I studied law because I came from a family that wasn't
particularly well-to-do. I could only go to university to study
in advance of the broader tide of
something that would lead me directly to a job. My dad used to governance regulations
say that he had never heard of an unemployed lawyer and had
never met a poor lawyer. I was fortunate enough to study law at
Cambridge and went from there into private practice – working
for the law firm Lovells in London.
successor in the company secretary role at CLP was made
I went to Germany to study and spent some time with the army. easier because the corporate culture recognises the need for
The move to Hong Kong came when I visited my old law firm in good governance – was that also your experience?
London. I was down in London for a job interview on a Friday and, 'If you and I were sitting at this table 25 or 30 years ago, the
because the trains back home weren’t that frequent, I paid a visit expression "corporate governance" would have been used
to the Lovells office. They offered me a job in Hong Kong and I seldom if at all. Now it is probably the most used phrase when
accepted on the spot. I started work two days later on the Monday.' reflecting on what the company secretary does and is so much
at the heart of what we do that it is going to be in the name of
Did you transition to company secretarial work at our Institute. It was apparent to us at CLP from the late 1990s
CLP Holdings? onward that the importance of corporate governance was
'When I joined the CLP Group in 1995, I initially worked as going to grow enormously in the years ahead. We were among
Corporate Counsel. When the Company Secretary position the first listed companies, if not the first listed company, to
became vacant, the CEO and the board preferred to fill the adopt our own corporate governance code. In fact, we had a
position internally. It is quite an intimate position in terms of governance code before the listing rules required one. When the
the relationship you need to have with senior management and stock exchange introduced the first governance code in Hong
the board so there can be a bias towards internal appointment. Kong, we were grateful for the flexibility to maintain our own
Given that the company secretary role has a legal and code. We were also fortunate in the support of CLP's chairman,
compliance content, the head of the legal department was board and CEOs whom I served – all of whom quickly and
regarded as the most logical person to take up the job. readily committed themselves to a move to enhanced corporate
governance standards and practices.
I was extraordinarily fortunate to have a very strong team
of experienced practicing company secretaries led by April Highlights
Chan. All I had to do was add a bit of legal background to an
already strong corpus of corporate secretary expertise. The key
really is to find a way of bringing together what you might • the need for governance expertise now extends to a
call the 'regulatory' and 'client' aspects of the job. The former much wider spectrum of economic and social activity
are increasingly complex and demanding and chiefly include
compliance with the Companies Ordinance and the listing rules, • the profession needs to adapt to this changing
and the latter are euphemistically and incorrectly called the environment by widening the knowledge base and
'softer' skills, such as managing the board and contributing to improving the skills of its members
the effective governance of the business.' • the education of the profession now requires a much
better understanding, not just of what constitutes
You mention April Chan, who will be well known to readers
good governance, but of the underlying drivers of
of CSj as a former President of the Institute. In an interview
good governance
with this journal, April has said that her job as your
March 2019 13In Profile
Of course, we were also influenced by the overall business context much better understanding, not just of what constitutes good
and developments in the West. It wasn’t difficult to foresee that governance, but of the underlying drivers of good governance.'
the first corporate governance codes in the UK would gradually
find their way to Asia in one form or another. We also had Do you think there will be more emphasis in the future
positive reactions from shareholders and stakeholders which on the need for members of the profession to think
encouraged us to continue to be an early adopter of practices independently – particularly when questions of ethics arise?
such as the disclosure of director remuneration. We consistently 'That requires a number of things to be done successfully, some
found that there were advantages of moving early in advance of of which are already in hand. The first is clearly is that the nature
the broader tide of governance regulations.' of the profession itself must be understood better by those who
deal with us. In that respect the repositioning of the Institute as
Over the course of your career there has been a broad a "governance institute" is a valuable step in the identification to
shift from a shareholder to a stakeholder orientation in outsiders of what we actually do.
governance – what do you think are the implications of this
for governance professionals? The second thing is that the Institute has to continue to be a
'This has at least two major implications for governance strong, authoritative and convincing voice in the discussion about
professionals. The first is that governance expertise and discipline governance issues. If our individual members have the backing
will be required in any significant organisation, irrespective of of a better understanding of what their profession actually does,
whether it is a listed company, a non-listed private company, and a sense that they belong to a well-recognised and respected
an non-governmental organisation, a state-owned enterprise organisation in the form of the Institute, that will set them on the
or a public authority. The need for governance will extend, as it path to be a more credible voice within the senior management
has already, to a much wider spectrum of economic and social of the organisations where they operate. To that you have to
activity. So the scope for our profession, the ground on which we add education, both initial and continuing, which is relevant to
will be able to deploy our skills, is going to expand. the needs of the profession and allows individuals to speak with
authority and confidence on the topics that cross their desks. We
The second thing is that the nature of the skills we will have have to be masters of the subject.'
to possess as governance professionals will continue to grow.
When people like me started in the profession, we could say the There are still major differences in the governance systems
core skills were minute taking, board meeting preparation and of Hong Kong and Mainland China – does that present
statutory filings. To some people the job might still be defined challenges for members of the Institute?
in those terms, but the job has gone way beyond that and will 'Good governance will not always take the same form across
continue to travel even further beyond that. different political backgrounds. I think this issue is less about
the core principles of governance, which are pretty much
We now need to have expertise in risk management, for example. the same, but more about the way in which governance is
One of the major outcomes of good governance should be the enforced, encouraged and applied. There has been convergence
effective identification and management of risk. As governance in governance standards but divergence in the way in which
professionals, we therefore need to understand the risk that exists those standards are enforced and by whom. In markets and
in the organisations we work for, and play our part in ensuring countries with a free, open and robust press, one of the heaviest
that systems and controls are in place to identify and mitigate sanctions on poor governance is media criticism – and it can be
those risks. an immediate, brutal and severe sanction. If you don’t have a
free press or a strong and independent legal system, you need to
But the role is not just about rules and regulations, it is about replace these with something that ensures good governance is
the way people work together and about contributing to the enforced and bad governance deterred.
relationships within an organisation. So, for example, the revised
qualification syllabus is going to contain a much stronger You have to understand what good governance is and then
emphasis on things like board effectiveness and director reflect on how that can be best promoted and achieved within
remuneration. The education of the profession now requires a the overarching political context. You have to be open-minded
March 2019 14In Profile
seeing across the world that the number of listings is declining
very substantially, so if you are only regulating in governance
there has terms for listed companies, you are increasingly swinging at a
never been a diminishing target.'
better time What's your view of the initiatives promoted by The Institute
to become of Chartered Secretaries and Administrators (ICSA) to
increase the recognition of the centrality of governance to
a company the profession?
secretary 'With regard to the repositioning of our profession, there is no
doubt that ICSA can play a very substantial and valuable role.
Companies carry on international businesses, investors come from
across the world and it’s really only the ICSA which can promote
the understanding of our profession at the international level.
Individual divisions can do that within their own markets, but
only ICSA can transcend those individual markets and help the
because otherwise you are pre-supposing the existence of a profession achieve a much wider global recognition.
governance regime which can only operate in a Western liberal
democratic setting and that cannot be an answer with which any So it’s entirely proper and timely that ICSA should be proceeding
of us should be satisfied.' with the repositioning of the profession and the change of
name of the ICSA to "The Chartered Governance Institute". But
Do you think public sector organisations should be held that rebranding shouldn't just be a change of name, we have to
to the same standards of governance as listed companies backfill it with real substance and that process has started with
– particularly in terms of the degree to which they are the revised educational requirements for joining the profession.
transparent and accountable?
'Firstly, it is extremely difficult to have good corporate governance The ICSA also needs to become more relevant to individual
if you have poor public governance. It is possible, but it is much members. Governance professionals around the world face
more difficult. Secondly, it cannot be right for private sector similar challenges and the ICSA is building an information
enterprises to be expected to govern themselves more effectively resource – for example the publications generated by the ICSA
than public sector enterprises. Throughout Asia, and in Hong Thought Leadership Committee – accessible to governance
Kong itself, significant elements of the economy that affect professionals wherever they are. Whenever individuals are faced
people’s daily lives – transport and health for example – are in the with a particular challenge or question, they can now access
hands of the public sector, but you would not always say that the not just the knowledge-base of their own institute but a global
governance of those enterprises, authorities or statutory bodies information base.'
has been the shining example that it might have been.
What advice do you have for new recruits to the profession?
The third thing is that good governance in listed companies used 'I think we can say to them with confidence that the need for
to be considered the price you pay for access to public money. their skills has never been greater and the recognition of that
Once you move to the premise that listed companies have duties need has never been more widely held. We can say with equal
to a wider stakeholder group – customers, the community and confidence that the dimensions of the job are expanding at a rate
the environment as a whole – then it seems to me that there unparalleled in the history of the profession. That means that
should be little difference between the standards required of the demands on young governance professionals will be greater
non-public companies and those of publicly listed companies. than those borne by their predecessors, but equally the rewards,
Especially when private companies often have more employees, whether tangible in terms of remuneration or intangible in terms
serve more customers, work in more diverse markets and have of job satisfaction, will be much higher than in the past. There has
bigger environmental footprints than listed companies. We are never been a better time to become a company secretary.'
March 2019 15In Focus Green finance: an SFC view CSj interviews Julia Leung, Deputy Chief Executive Officer and Executive Director, Intermediaries, Securities and Futures Commission (SFC), on the potential for developing Hong Kong as a green finance centre. March 2019 16
In Focus
What is the underlying rationale for In Hong Kong, which is the main establishment of the Hong Kong Green
pushing green financing for Hong policy bureau in charge of this area? Finance Association.
Kong? Is it a global trend and what are What are the policy initiatives and the
you seeing globally? complementary role of the SFC in this The SFC has been working closely with
‘Globally, green finance has gathered connection? the government, relevant authorities and
momentum since the Paris Agreement (the ‘Green finance is an area that requires other organisations to exchange ideas on
21st Conference of the Parties Agreement multidisciplinary expertise from different how to further develop green finance in
under the United Nations Framework sectors. As a result, the government, along Hong Kong. As a first step, we published
Convention on Climate Change, concluded with various authorities and organisations, the SFC’s Strategic Framework for Green
in Paris in December 2015), which calls have been playing their part to develop Finance last September to complement
for “making finance flows consistent supporting policies and initiatives. These and move beyond Hong Kong’s current
with a pathway towards low greenhouse include the government’s Green Bond focus on green bonds. In alignment
gas emissions and climate-resilient Programme and Hong Kong’s Climate with the green finance initiatives of
development”. This is particularly relevant Action Plan 2030+, which was prepared by major securities market regulators, we
since the Paris Agreement also applies to the Environment Bureau in collaboration specifically focus on two crucial areas that
Hong Kong, and Mainland China has made with members of the Steering Committee are interrelated and reinforce one another.
green finance an important priority as it on Climate Change, such as the Financial The first is listed companies’ disclosure of
transitions to a sustainable economy. Services and Treasury Bureau. environmental information and climate
change–related risks and opportunities.
Mainland China and Europe have been Other efforts have also been crucial. These The second is asset managers’ integration
taking the lead in pursuing a common include the focus on green bonds by of environmental and climate risk factors
goal of establishing a green financial the Hong Kong Monetary Authority; the into the investment and risk management
system. It is important that these updated How to prepare an ESG report? processes, based on information disclosed
initiatives are coordinated at the global A step-by-step guide to environmental, by companies that they invest in.
level. If a coalition of the like-minded social and governance (ESG) reporting,
forms a large enough block, it can drive issued by Hong Kong Exchanges and Other areas of focus include enhancing
the change better. Clearing Ltd (HKEX); the Green Finance the transparency and comparability of
Certification Scheme of the Hong Kong green/ESG investment products offered to
As China’s international financial Quality Assurance Agency; papers by the retail investors. In view of the innovative
centre, Hong Kong is well positioned to Financial Services Development Council green finance initiatives by leading
connect green finance flows between regarding Hong Kong as a regional green stock exchanges worldwide, we are also
the Mainland and the rest of the finance hub and its ESG strategy; and the in discussion with HKEX on how it can
world, and complement the Mainland’s
green finance development. Given the Highlights
expansion of the mutual market access,
we recognise that Hong Kong needs to
properly align itself with the Mainland’s
• green finance is not solely about issuing green bonds but about changing
ambitious initiatives on green finance.
investment behaviour, measuring environmental and climate risks and directing
It is imperative for Hong Kong to have a
capital flows to sustainable investments
good grounding to develop green finance
locally, and to enhance its green finance • listed companies need to approach environmental sustainability as a major
cooperation with the Mainland and strategic risk and opportunity management issue
overseas jurisdictions. This would require • The Hong Kong Institute of Chartered Secretaries is well placed to provide
Hong Kong to be at the forefront of global training and encourage its members to start integrating environmental
development in green finance, and to go considerations into every aspect of their companies’ strategic direction
beyond green bond issuance.’
March 2019 17In Focus
develop and promote the listing and of the entire sector – the transition It is important to note that the Code on
trading of green financial products such towards a green, low-carbon economy Unit Trusts and Mutual Funds stipulates
as bonds, indices and derivatives. Together presents business opportunities but also that, if the name of the fund indicates a
with the Investor and Financial Education poses risks to those who fail to adapt (for particular objective, the fund should invest
Centre, we are also planning to increase example, Mainland China shuts down primarily (that is, at least 70% of its assets)
investor understanding of green finance.’ highly polluting factories). This transition in investments to reflect the particular
also affects energy and commodity prices, objective which the scheme represents.
Can you explain the approach you have corporate bonds, equities and certain In addition, the offering documents of
taken to put Hong Kong on a path to derivatives contracts. the fund should contain full and proper
becoming a green finance hub? disclosure of the investment policy and
‘As a regulator, we approach green finance Another question is whether there should strategy with sufficient details necessary
a bit differently from others. A few years be greater transparency of these risks and for investors to be able to make an
ago, one would say it’s a corporate social greater disclosure on how these activities informed judgement of the investment.’
responsibility (CSR) to invest responsibly are being handled by companies.
or to reduce pollution. There has been Are you seeing an increase in the
a shift – increasingly, severe weather, To put Hong Kong firmly on the path to number of new fund applications
climate events and environmental becoming a green finance hub, there is adopting, or applications for a change
degradation are demonstrably posing a need to move beyond CSR, and for the of investment strategy to adopt, a
a financial risk to companies and their public, private sector and regulators to green theme?
investors. Questions are being asked along give more thoughts to these strategic ‘We have seen a noticeable increase
these lines on green finance. issues and work out a coordinated action during 2018 in the number of new fund
plan. It’s not solely about issuing green applications and applications for a change
• Should capital flows be orientated bonds but about changing investment of investment strategy to adopt an ESG
towards green investment in order behaviour, measuring environmental and investment theme.’
to achieve sustainable growth? climate risks and directing capital flows to
sustainable investments.’ For listed companies, your Strategic
• If the environment and climate Framework for Green Finance highlights
change are giving rise to financial How many SFC-authorised funds are a number of potential challenges
risks, are those risk factors being there currently with an investment for green finance in Hong Kong, for
properly assessed and managed? focus on climate, green, environmental example areas for enhancement in listed
or sustainable development, or companies’ disclosure of environmental
For example, it is often said that climate some other yardsticks under the information. How does the SFC intend
change gives rise to two main financial green banner (and what are these to tackle this problem?
risk factors. The first is physical risks, yardsticks)? ‘Principle 16 of the International
which are related to specific weather ‘Currently, there are over 20 SFC- Organisation of Securities Commissions
events (such as heat waves, floods, authorised funds with an investment (IOSCO) Objectives and Principles of
wildfires and storms). The physical impacts focus on climate, green, environmental Securities Regulation states that issuers
of extreme weather and climate events or sustainable development. The SFC’s should provide “full, accurate, and timely
are increasingly apparent. They disrupt preliminary review of these funds shows disclosure of financial results, risk, and other
resource availability, production capacity that although most funds have disclosed information which is material to investors’
and supply chains, increase operational ESG-related elements in their investment decisions”. ESG matters, though sometimes
and maintenance costs, and impair asset objectives or strategies, a majority do characterised as non-financial, may have a
values and investment returns. not specifically disclose how investment material short-term and long-term impact
managers integrate ESG factors into the on the business operations of issuers, as well
The second risk factor is transition risks criteria used in the investment selection as on risks and returns for investors and
that could lead to reappraisal of prices process for the fund portfolio. their investment and voting decisions.
March 2019 18In Focus
Mainland China has
made green finance
an important priority
as it transitions to a
sustainable economy
We see a momentum building up
elsewhere in the world that environmental
and climate risks are being regarded and
managed as any other financial risk, as
opposed to CSR. For listed companies,
there needs to be a fundamental
transformation in governance and
thinking: from completely ignoring
environmental degradation and climate
change or getting the sustainability
department to deal with it, to managing it
as a major strategic risk and opportunity
management issue.
As a priority, the SFC is working with
HKEX to enhance listed companies’
reporting of environmental information
emphasising climate-related disclosure,
taking into account the Mainland’s
policy direction to target mandatory
environmental disclosure, and aiming to
align with the recommendations of the
Task Force on Climate-related Financial
Disclosures (TCFD).
HKEX, as the frontline regulator of the
listing rules, also updated its Step-By-Step
Guide to ESG Reporting and Frequently
Asked Questions on its ESG-related listing
rules in November 2018, taking into
account recent international climate-
related disclosure recommendations
and with an emphasis on the issuer’s
governance structure for ESG reporting.
March 2019 19In Focus
clients’ ESG preferences, which gets into major reporting frameworks such as
suitability areas. the Global Reporting Initiative, Carbon
as China’s international Disclosure Project and the Sustainability
financial centre, Hong It’s too early to say whether these Accounting Standards Board, have
proposals should be adopted in Hong announced a joint effort aimed at
Kong is well positioned Kong. As part of our Strategic Framework simplifying reporting standards to align
to connect green for Green Finance, we are preparing a with the TCFD recommendations. This
survey to better understand the ecology, is an area where regulators could work
finance flows between current practices of asset managers and further with the industry.’
the Mainland and the asset owners on how they integrate
Do you think the TCFD framework is a
rest of the world environmental and climate factors into
their commitment, investment and risk good model to follow?
management processes, post-investment ‘The TCFD is a sophisticated disclosure
ownership practices and disclosure. The framework for both the financial and non-
survey will cover asset managers of financial sectors. Traditionally, companies
It is also planning to review its disclosure different types and sizes, as well as those have often focused on disclosing how
framework and have informal discussions using different investment strategies. their business or operation impacts the
with stakeholders with a view towards Based on the survey outcome, we will environment, whereas the TCFD focuses the
consulting the market in mid-2019 on consider appropriate policies, codes other way around, that is, how companies’
proposed changes to its rules.’ and guidance.’ businesses or financial position could be
affected by risks and opportunities arising
For asset managers, how does the SFC Do you think there needs to be from climate change. Not only is this useful
intend to tackle the issue of insufficient more comparability of green finance information for companies to plan their
disclosure by asset managers of the information and data? For example, short-, medium- and long-term strategies,
metrics behind sustainable investing? would you like to see convergence it also helps investors make investment
For example, how can regulators or to a single, international reporting decisions. This is important if we want
investors know that it is not just framework for ESG disclosures? environmental and climate risks to be
‘greenwashing’? ‘Enhancing the comparability of green managed as any other financial risk, rather
‘Regulators’ mandate is investor finance information would be particularly than viewing them only as corporate social
protection. If it is generally accepted helpful to asset managers, analysts and responsibility issues.’
that climate and environment degradation other users of information along the
pose financial risks, and if that is material, investment value chain and to prevent Generally, can green finance succeed
it follows that such risks be disclosed. greenwashing. Currently there is no where governments are failing to ensure
Last December, European Securities and shortage of standards but the many against the risks of climate change – for
Markets Authority (the European Union’s different standards available make example with the US under the Trump
regulator for public and private fund comparison difficult. When one talks Administration?
managers) put out consultation papers about disclosure, is there a common ‘The SFC as a regulator looks at green
on how to integrate sustainability risks language of what is sustainable finance from the perspective of
and factors in investment funds in the EU. investment? The European Union is investor protection, rather than from
Those papers consult on the high-level taking a lead in developing a unified a political angle.
principles that obligate fund managers classification system for sustainable
to assess and manage the relevant economic activities. Beyond a firm’s impact on the
financial risks stemming from climate environment and climate change, there
change and to foster transparency of Globally, the convergence of ESG is increasing attention on the reverse
these activities. Other aspects that are disclosure standards already appears to direction of such interactions, that is,
covered include product governance and be the direction of travel. For example, the growing financial impact of the
March 2019 20You can also read
