As global warming threatens lives, how the Hong Kong stock exchange can lead the climate battle

The “Pray for Australia” message has had an overwhelming effect on social media in recent days, with the severe bush fires blazing since September having destroyed an area reaching the size of nearly 100 Hong Kongs.
Though Hong Kong seems to be far away from this disaster, the cumulative effect may be closer than we imagine. We should do our bit for the world and its environment, by requiring listed companies to go green.
Listed companies in Hong Kong are required to produce annual environmental, social and governance (ESG) reports disclosing their performance in this regard, a key aspect of which is disclosure on their effort to reduce greenhouse gas emissions to address climate change.
Between May and July 2019, the Hong Kong Exchanges and Clearing Limited (HKEX) consulted the public on updating ESG reporting to align its guidelines with international standards.
With regard to the reporting on greenhouse gas emissions, 12 out of the 17 investment managers surveyed asked for more detailed disclosure. Yet, in its final recommendations, the HKEX stopped short of bringing the guideline up to international standards.
It is common to measure a company’s greenhouse gas emissions in three ways: Scope 1 emissions come from direct fuel burning; Scope 2 emissions relate to energy purchases (indirect); and Scope 3 covers all activities not listed in Scope 1 and 2.
Scope 3 emissions can be substantial. For example, a large consumer product distributor in Hong Kong has reported that its Scope 3 emissions accounted for more than 60 per cent of its total greenhouse gas emissions in 2018.
The European Union, Britain, Australia, Japan and even mainland China have made the Task Force on Climate-related Financial Disclosure – a set of voluntary climate-related financial risk disclosures – the standard for companies, which includes reporting or explaining their Scope 3 emissions.
Last year, the EU held a consultation similar to the HKEX’s and concluded that companies should not “exclude any activity that would compromise the relevance of the reported Scope 3 greenhouse gas emissions inventory”.
Further, The Green Earth’s study on ESG reporting, released last September, showed that only 30 per cent, or 15 of the 50 Hang Seng Index constituent companies, had voluntarily disclosed all three scopes of greenhouse gas emissions.
Unfortunately, despite all these findings, the HKEX concluded that it did not consider it “appropriate” to impose a requirement for Scope 3 emission disclosure, while pushing for reporting on Scope 1 and 2.
As an international financial centre in Asia, it is unwise for Hong Kong to let go of this opportunity to drive businesses to help combat the climate emergency.
When we turn to summer-wear between Christmas and the Lunar New Year, can the city be far from feeling the effects of extreme climate?

Credit: Arup, 2050 Scenarios: four plausible futures
Credit: Arup, 2050 Scenarios: four plausible futures

Edmond Lau
Project Officer of The Green Earth
17 January 2020 SCMP