Responding to Contemporary Issues
Cultivating International ESG Talents for Chinese Enterprises

In 2023, against the broad context of competition and confrontation, global climate change, biodiversity destruction and other environmental crises are intensifying. It is imperative to address the urgent and important issue of sustainable development. As an emerging CSR concept and risk management framework, the core concept of sustainable development advocated by ESG is receiving more and more attention from the international community.

ESG is the most vivid embodiment of the United Nations Sustainable Development Goals at the corporate level. It first appeared in a report released by the United Nations Global Compact (UNGC) in 2004, aiming to advocate a shift in the emphasis of corporate development from only focusing on short-term interests to focusing on long-term sustainable development of the entire society. The ESG disclosure rate of enterprises in developed countries such as Europe, the United States and Japan is up to 95%. The most powerful driving force behind this is the mandatory requirement imposed by governments on companies to disclose ESG information. The U.S. Securities and Exchange Commission first issued the "Commission Guidance Regarding Disclosure Related to Climate Change " in 2010, requiring listed companies to disclose the impact of environmental issues on their financial performance. The EU launched a semi-mandatory policy and introduced the “Directive on Non-Financial Reporting” in 2014, requiring large companies with more than 500 employees to disclose ESG information.

The HKEX is the major market for global investors, notably those Chinese-funded ones, to invest in Asia. It is also a bridgehead for the globalization of many Mainland Chinese enterprises. As such, the HKEX has been preparing for ESG information disclosure for years. In 2013, the HKEX first introduced the “Environmental, Social and Governance Reporting Guide” to regulate the listed companies for ESG disclosure. In 2015, the HKEX amended the clause of “comply or explain”. In 2023, HKEX published the "Consultation Paper on Enhancement of Climate Information Disclosure under its ESG Framework", which clearly proposed to rename the ESG Reporting Guide to the ESG Reporting Code, and set forth specific requirements for listed companies to disclose climate-related information in their ESG reports. The revised ESG Reporting Code will come into effect on 1 January 2024, with a two-year transition period. Commencing on 1 January 2026, ESG reports released by listed companies need to fully comply with all the new ESG climate disclosure requirements.

With Mainland China's solemn commitment to the ’3060’ goal of reaching emission peak by 2030 and carbon neutrality by 2060, a series of related-industry policies have been introduced. The ESG disclosure rate of domestic enterprises has increased rapidly because the "carbon peak and carbon neutrality " policy is in line with the “E” (Environmental) concept as laid out in the ESG framework. In May 2022, the SASAC issued the “Work Plan for improving the Quality of Listed Central State-Owned Enterprises” to promote the ESG disclosure and practice among State-Owned Enterprise, and strive for “full coverage” by 2023. ESG information disclosure by A-share listed companies is still conducted on a voluntary basis. Fang Xinghai, vice chairman of CSRC, revealed at the Boao Asia Forum Annual Conference on the current state of ESG disclosure of listed companies in April 2023: "Formulating guidelines and making disclosure mandatory is the next step". It has heralded a new era for the mandatory ESG disclosure.

We notice that whether in developed countries such as Europe, America and Japan, or in Mainland China, those enterprises with better performance in ESG tend to have better market performance. The reason being that the market is an amplifier, augmenting the strengths and weaknesses of enterprises in the three areas of environmental, social and governance, and resulting in higher market valuation for the best ESG enterprises and penalty mechanism for the worst ESG ones. Meanwhile, there is still a lot of room for improvement in the ESG performance of Mainland Chinese enterprises. Firstly, the ESG disclosure rate of Mainland Chinese enterprises is much lower than that of developed countries and regions such as Europe, America and Japan; Apart from that, the ESG disclosure rate of Mainland Chinese private enterprises, which are more sensitive to the market, is even lower with less than 20%. Facing the alarm bell in the era of mandatory ESG disclosure, Mainland Chinese entrepreneurs should, firstly, equip themselves with a strategic ESG mindset and take ESG dimensions as an important value basis for strategic decisions on corporate development. Secondly, they should recruit and nurture ESG talents with international mindset according to the requirements of ESG strategic transformation. With reference to the designated ESG indicators, enterprises should optimise corporate governance, reshape product and service workflows, and set up new supply chains to achieve a virtuous cycle of sustainable development among enterprises, society and environment.

To uphold the founding slogan “Establishing for China” of the University of Hong Kong (HKU), the HKU Institute for Chinese Business (ICB) has responded to the contemporary issues by establishing the ESG Centre of the HKU ICB in May 2023 to give full play to Hong Kong’s role as a pioneer in benchmarking with international ESG standards. The ESG Centre draws on the best practices of leading companies in Europe, the United States and Japan and the experiences accumulated by Mainland Chinese companies. It provides ESG courses for Mainland Chinese executives to cultivate aspiring international ESG talents so that enterprises gain a head start in the new competition driven by ESG. It also brings new vitality to themselves as well as greater well-being to society and the environment.