ESG funds will have to disclose how they attain their ESG focus, referencing criteria, measurement methodologies, and benchmarks used.
Hong Kong’s Securities and Futures Commission (SFC) has issued a circular providing guidance to asset managers on enhanced disclosures for funds which incorporate ESG factors as a key investment focus.
The circular supersedes a previous version issued in 2019 which set out SFC’s disclosure expectations for fund managers claiming an ESG focus in their investment products.
Since 2019, awareness of ESG investing has grown and the number of ESG funds offered to the public in Hong Kong has more than doubled, the SFC said.
“In view of the rapid development of a diverse range of ESG investment strategies, the SFC is mindful of the need for asset managers to clearly disclose how funds attain their ESG focus in order to help investors understand these products and assess whether they meet their investment needs.”
The circular sets out expectations for ESG funds to disclose a description of their ESG focus, and a list of ESG criteria (e.g. ratings, third party labels, etc.) used to measure the attainment of the fund’s ESG focus.
The ESG investment strategy should also be disclosed, along with how it is implemented in the investment process on a continuous basis, and the methodologies used to measure ESG criteria.
In addition, ESG funds should disclose their expected or minimum allocation of assets that is commensurate with the fund’s ESG focus, the reference benchmarks used, and a description of risks or limitations associated with the fund’s ESG focus and investment strategies
The circular includes a new requirement for ESG funds to conduct and disclose periodic assessments of how they have attained their ESG focus, such as through shareholder engagement and proxy voting. It also provides additional guidance for ESG funds with a climate-related focus.
“Making sustainability-related disclosures more transparent, comparable and consistent will help investors identify suitable ESG funds and reduce opportunities for greenwashing,” said SFC chief Ashley Alder.
“Hong Kong’s financial market is where global capital connects with Mainland enterprises, so what we do here can have an outsized influence on global developments in green and sustainable finance.”
Currently, there are about 60 SFC-authorised funds with an investment focus on climate change, green, ESG or sustainable development. A database of SFC-authorised ESG funds is available here.
To enhance transparency for these funds, their key features will also be listed in the database after the new circular takes effect on 1 January 2022.
The circular, available here, applies to SFC-authorised funds which incorporate ESG factors as their key investment focus and reflect such in the investment objective and/or strategy.
The SFC said it will monitor market developments and may provide further guidance or impose additional requirements for ESG funds where appropriate.