Hong Kong has made significant strides in developing a robust sustainable investing ecosystem, with industry stakeholders such as the Securities and Futures Commission, Hong Kong Monetary Authority, Mandatory Provident Fund Schemes Authority and the Hong Kong Stock Exchange introducing a number of welcome initiatives and guidance in recent months. In its recent white paper,1 the Financial Services Development Council (FSDC) cited a number of policy recommendations for Hong Kong to focus on in order to strengthen the city’s status as a preferred ESG investment hub. These include the creation of an ESG policy roadmap, insurers’ disclosures of ESG policies, strengthening oversight of non-financial reporting, ESG training subsidies for companies, and the exchange of best practices through an information-sharing platform.
While all of these recommendations are key, we believe that ESG intellectual capacity building is the most pressing issue to help drive the continued development of sustainable finance and investment in Hong Kong. Indeed, a well-functioning ESG ecosystem means that financial institutions and corporates need to be equipped with adequate resources, knowledge and skills to integrate ESG into their business, and asset and wealth managers need to have the right capabilities to perform meaningful analysis, make informed decisions and deliver on their ESG-related goals.
While training workshops and courses are available in Hong Kong to assist corporates with regards to ESG, a common grievance has been that these tend to follow a one-size-fits-all approach, which could lead to the adoption of generic ESG practices that may not be best suited to the sector or the organisation. While there is a limited supply of more tailored training available, this can also be quite costly, especially for the smaller and medium-sized companies.
Furthermore, in the financial services industry, there is a notable shortage of skills and understanding in the area where finance and ESG intersect. A recent KPMG report that canvassed opinions from senior asset management industry executives in Hong Kong found that the greatest skill shortage in the local labour market is expected to be for ESG specialists.2 It is evident that finding the right professionals who are well-equipped and knowledgeable about the application of ESG in the financial realm should be a key focus for the industry in Hong Kong.
The lack of a combined understanding of finance and ESG may explain why some companies continue to view ESG as a standalone area, and therefore often have a fragmented strategy to managing sustainability across their organisation. Instead, our view is that financial institutions should view ESG from an integrated rather than a standalone perspective, and should seek out effective ways to incorporate an ESG lens into existing systems and frameworks. The industry needs to ‘de-jargonise’ and translate ESG concepts and thinking into a language that finance professionals can better understand, which should then make it easier to view existing frameworks through an ESG lens.
Financial institutions should view ESG from an integrated rather than a standalone perspective, and should seek out effective ways to incorporate an ESG lens into existing systems and frameworks.
Importantly, incorporating ESG thinking into existing systems and frameworks does not necessarily translate to a large amount of investment in terms of new hires. Instead, financial institutions should seek to make use of their existing workforce that manages risk management, governance, strategy, stress testing and scenario analysis, and focus on upskilling these teams.
This is where the government can also play a key role in facilitating the process of capacity building for corporates and financial institutions. As recommended in the FSDC paper, this could be in the form of subsidies to companies for eligible ESG training courses, and to assist with the reskilling and upskilling of the existing workforce.
Bridging the ESG talent gap will not happen overnight. From an organisational point of view, integrating ESG throughout the business involves a cultural shift over a period of time. Each and every stakeholder in the ecosystem is crucial to driving Hong Kong forward along its ESG journey. A joint and concerted effort and approach is needed not just by asset owners, asset managers, banks and the government, but industry regulators and relevant industry associations also need to be part of the equation to elevate the capacity of financial institutions and corporates, and to strengthen Hong Kong’s position as a preferred ESG investment hub.
1 ‘Hong Kong – Developing into the Global ESG Investment Hub of Asia’, Financial Services Development Council, July 2020, https://www.fsdc.org.hk/sites/default/files/FSDC_Paper_No_44_Hong_Kong-Developing_into_the_Global_ESG_Investment_Hub_of_Asia_Eng.pdf
2 ‘Vision 2025: The future of Hong Kong’s fund management industry’, KPMG China, June 2020, https://home.kpmg/cn/en/home/insights/2020/06/vision-2025.html