GBA2 | GBAFOCUS Friday, August 28, 2020 HONG KONG EDITION | CHINA DAILY GBA3

Data Journalism Let the facts speak Our Data Journalism reports map the options for the community to resolve its challenges with consensus. We analyze data from Government, Industry, Corporations, Scholars, Think Tanks & NGOs. Will ESG disclosure prevent We integrate the insights and policy prescriptions from domain experts.

Coordinated action is needed to survive the consequences Top 5 coal-based power-generation of climate change. The UN Global Compact, led by then-UN countries in 2018 48.2% To limit global warming to 1.5 degrees C, all coal-fired plants need to secretary-general Kofi Annan in 2004, designed the regulatory be shut down by 2050. Asia accounts for 75% of global coal power. Source: GlobalData framework for corporate disclosure, and integrated ESG factors harm to the planet 11.8% 12.3% into investment analysis. Today, Hong Kong seeks to position 2.8% 2.8% itself as a preferred ESG investment hub, but the COVID-19

economic meltdown may curb climate change resolve, and Japan South India US China corporate ESG disclosures do not undo harm to the planet or What is environment, social and Korea people. Oswald Chan reports from Hong Kong. governance (ESG)? These are non-financial factors integrated into the evaluation ESG reporting requirements for HK-listed companies Source: KPMG of investment by sovereign, pension and retirement funds Environmental Sustainability, climate change, ● Share prices of companies with high ESG scores outperform Companies, investors, biodiversity, non-ESG companies and governments must energy efficiency, High ESG-rated companies enjoy a lower cost of capital prepare for a significant HKEX upgrades HKEX upgrades HKEX publishes HKEX issues Listed companies are ● air and water Quality institutional capital flows to high-ESG-profile reallocation of capital. If general environmental a step-by-step a consultation required to publish ● pollution disclosures to key performance guide to ESG paper on ESG ESG reports companies 10 or 5 percent of funds “comply or indicators (KPIs) reporting Reporting starting July 1, 2020, do so, we will witness Source: HK Financial Services Development Council explain” provisions to “comply Guideline in accordance with massive or explain” revised ESG Governance capital shifts.” disclosures Reporting Guide Accounting standards, chairman and business ethics, Larry Fink, CEO, BlackRock Global timeline to reach net-zero emissions board composition, Limiting global risk management, warming from greenhouse gases to net zero carbon dioxide net zero greenhouse gases succession planning Fuel mix for HK power 1.5 degrees C entails: generation in 2018 Source: HK Environment Bureau 50% 2020 2030 2040 2050 2060 2070 2080 2090 ferred sustainable fi nance and invest- panies to shift to cleaner coal processes, 27% Limiting global warming from greenhouse gases to ment hub. and to renewable energy. So BlackRock Board members, who are required to herds the o ending companies to tran- 2.0 degrees C entails: 11% 7% sition while pocketing profi ts en route. net zero net zero 5% sign o company ESG disclosures, may Source: IPCC Special Report on Global Warming at 1.5C carbon dioxide greenhouse gases not be familiar with the subject. Pat Woo, KPMG China Partner and Hong Kong ‘Do no harm’ head of sustainable fi nance, believes it One month after Fink’s announce- n the 2010s, the compulsive financial information providers, ther comparable, compatible, nor is vital for boards to understand the ESG ment, Chamath Palihapitiya, chairman HK regulators prepare for ESG Pumped Nuclear pathology of business growth and other intermediaries scram- su® cient in preventing harm to Oil and compliance link to improved business of Virgin Galactic and a regular guest on storage renewables energy Natural gas at any cost came under hos- bled to jump on the ESG bandwag- humans or the environment. But FINANCIAL Coal performance. US business-news cable network CNBC, DATE ESG INITIATIVES tile review. Businesses don’t on. An ecosystem of ESG investors that does not distress the regula- REGULATORS “ESG is not just about annual reports. ru£ ed Wall Street in February when he Ipay for the “externalities” infl icted evolved. But like the proverbial tors, rating agencies, or the regu- Boards need to understand how ESG dismissed ESG as a “complete fraud … on people and the planet. Because six blind men who all perceive an lated. All are pleased to display Hong Kong Incorporates ESG criteria into integration can enhance business and with plenty of sizzle but no steak.” Pali- Monetary May 2019 $450 billion Exchange Fund they create jobs and pay taxes, elephant in a different way, the ESG badges to tra® c investment 4.2% financial performance,” said Mary hapitiya said the ESG paper shuffle is Authority portfolios Electricity: major source of HK emissions in 2018 “dirty” businesses like coal power, players cannot agree on what it is, — which is the primary business 4.7% Leung, Asia Pacifi c head of advocacy for nothing more than self-serving fi nance Electricity generation Other end use of fuel fossil fuels, mining, industrial agri- but monetize the confusion any- of the players. Publishes guidance on 7.4% the CFA Institute. Costs will accrue for industry tokenism, which fails to address culture, and tobacco, along with way. As a result, there is no global April 2019 enhanced disclosures for SFC- compliance and training, and to engage the real problems. They game the system, Securities and Transport Others (industrial process es, toxic processed foods and sugary ESG standard, and ESG ratings authorized green or ESG funds ESG specialists for data gathering and he said, adding that funds “paint green” Sobering SFC poll Futures agriculture, etc.) Waste drinks, are allowed to fl ourish, as fl oat untethered to outcomes. A Securities and Futures Com- Commission documentation. to qualify for the European Central Bank’s Fourth Central database of societies absorb their life-threaten- The “social” and “governance” mission survey of 794 Hong Kong (SFC) 18.1% Source: HK Environmental Protection Department Hong Kong Institute of Chartered negative-interest loans. ing damage. (S&G) e ects of ESG are puny with- asset management companies in quarter SFC-authorized green or ESG Secretaries President Gillian Meller Palihapitiya, a billionaire and an early Global warming and climate in the climate and disease disasters 2019 found 83 percent would con- 2019 funds on SFC website 65.6% said, “Hong Kong should track global senior executive at Facebook, calls out the change were remote concerns, assailing humanity. S&G e ects are sider ESG disclosure. Of those who developments on ESG reporting and fakery of ESG. Environmental degrada- viewed by scientists through the easily fi xed, unlike the E-factor — would consider it, 65 percent had Mandatory Updated circular to standardization, which many stakehold- tion, global warming, and climate change long lens of perhaps another centu- the ratio of mass of waste from a no oversight measures in place, Provident Fund November incorporate ESG factors into ers are calling for.” are real issues that require practical solu- ry. Not anymore; we are now behind product to the mass of a product while 35 percent did have a con- Schemes 2018 trustee approval and tions. “It is simple: Do no harm,” he said. Authority monitoring process the curve. Is it too late already? Can — which wrecks future genera- sistent approach. About 68 percent BlackRock hoists ESG Business activity that pollutes the earth, we undo the damage? Meanwhile, tions and risks our sustainability. of those needing ESG disclosure Larry Fink, CEO of BlackRock, the air and water, and products that harm Launches HKEX Sustain- the economic shocks of COVID-19 Rating agencies diminish E-factor could not produce any process Hong Kong world’s largest private asset manager consumers are obvious targets to shut able and Green Exchange for may displace climate change priori- weighting, granting ESG passes documentation. Exchange and with $6.5 trillion under management, down — but that is not happening at all, Late 2020 sustainability, green and social ties, as countries scramble to reboot to profi teers in mining, oil, coal, The Financial Services Develop- Clearing jolted fi nancial markets in January when he said. bonds plus ESG-related HKEX- Social trade, supply chains, commerce, and cigarettes, deforestation, industrial ment Council, the government’s (HKEX) he fl agged ESG criteria as a BlackRock Instead, the very companies that foul traded products jobs. agriculture, chemicals, processed high-level, cross-sector advisory Customer satisfaction, data protection and priority when it reviews portfolio compa- the atmosphere, degrade nature, and poi- GRAPHIC BY CHINA DAILY foods, sugary drinks, etc., which, platform to promote the city’s privacy, human rights, labor standards, nies over the next fi ve years. Fink plans to son humans are “greenwashed” by ESG Reshape investment by defi nition, should fail. fi nancial services industry, said a double BlackRock’s global ESG exchange- rating agencies to attract more invest- In January 2004, then-UN sec- Moody’s, Fitch and MSCI are road map for ESG integration is employee attraction and retention traded funds to 150. ment to carry on, regardless. The failure retary-general Kofi Annan invited leading credit-rating agencies needed. The ultimate objective is Barron’s reported that BlackRock will of ESG disclosures to cut o funding to 50 major fi nancial institutions to a o ering ESG scores that are nei- to develop Hong Kong into a pre- anchor climate-risk analysis in its evalu- dirty businesses is the credibility gap joint initiative under the UN Global ation process, forcing its portfolio compa- Palihapitiya rails against. Compact, with the International nies to report sustainability metrics. Man- Finance Corporation and the Swiss agements that stall will be voted down. McKibben’s 350.org government. The goal was to inte- ESG is a complete fraud ... a joke. Any CEOs will fall in line. Nothing energizes Bill McKibben, environmentalist, grate ESG (environmental, social CEOs faster than stock price risk; their author, and educationist, wrote the fi rst and governance) criteria into asset serious company can just stop doing Kofi Annan: A mixed legacy compensation depends on that. non-academic book for ordinary folk management, securities brokerage harm. By painting ‘green’ in Europe, Kofi Annan was the only staffer promoted to secretary- Srebrenica. He fumbled authorization for UN commanders But was it just great marketing, or gen- about global warming and its conse- services, and fi nancial research. uine commitment to shut down damage quences for humanity. The End of Nature, Applying non-fi nancial ESG fac- funds can borrow money from the general of the United Nations. All others were former on the spot to confront hostile forces. They stood down, while to the environment? Jeremy Grantham, published in 1989, was the climate change tors to investment analysis was European Central Bank at negative diplomats. In 1997 he succeeded Boutros Boutros-Ghali the people they were supposed to protect were massacred. co-founder of Grantham, Mayo and van bible for a generation of youth concerned the major breakthrough to hold rates.” of Egypt — denied a second term after angering the US. His son was involved in the “food-for-oil” scandal in Otterloo, asks why BlackRock does not about the appalling disasters awaiting corporations to stewardship of the Boutros-Ghali noted that “The Roman Empire had no need of Iraq; UN peacekeepers sexually abused refugees in African exit thermal-coal in its index funds, and them. McKibben formed 350.org in 2008 Chamath Palihapitiya, chairman, Virgin Galactic environment, and to encourage diplomacy. Neither does the United States.” conflicts; the Secretariat itself faced a sexual harassment get out of fossil fuels altogether. “After as a global grassroots network of academ- practices to protect all stakehold- all, oil is the mother and father of all ics, researchers, social activists, and com- Annan joined the WHO as a budget officer from Ghana charge. None of that was firmly handled. A culture of denial ers a ected by business activities. vested interests,” said Grantham, who munity organizers, to support renewable The UN Principles for Respon- in 1962. Thirty years of insider knowledge enabled him as and cover-ups exposed the weak discipline and ethics of the has pledged 98 percent of his $1 billion energy, and oppose coal plants, fossil-fuel sible Investment charter of April the seventh secretary-general to navigate the UN labyrinth UN under Annan’s watch. in personal wealth to combat climate projects, and mega pipeline infrastruc- 2006 saw a surge of signatories 10 key solutions to reduce greenhouse gas emissions Source: WRL effectively, and soothe relationships with key member states. When he retired as secretary-general in 2006, Annan change through grants and endowments ture. It established the International Day after the global fi nancial crisis of His accounting skills trimmed the UN’s wayward finances. completed 44 years of UN service. In August 2018, he died in to university institutions. of Climate Action in 2009. 2008. Charter membership stands In 2001, Annan and the UN were jointly awarded the Nobel Switzerland at age 80. Leslie Samuelrich of Green Century To cut o funding to fossil fuel com- at 2,300 financial institutions, Capital Management (GCCM), which panies, 350.org lobbied more than 1,000 pledging $80 trillion in assets as Peace Prize. offers fossil-fuel-free funds, said that universities, churches, foundations, and of May 2020. He initiated the Millennial Development Goals (MDG) BlackRock is still the largest investor in municipalities to withdraw more than Management consultancies track- tied to country scorecards, which achieved remarkable fossil fuels, and wonders how serious it $12 trillion in investment. Among 350. ing investment returns of ESG- 1. PHASE OUT 2. INVEST in clean 3. RETROFIT 4. DECAR BONIZE 5. SHIFT to electric gains for health, education, and poverty alleviation. The can be about climate change. GCCM is org’s more notable engagements were the compliant companies confi rm their coal plants energy and efficiency buildings cement, steel and vehicles MDG momentum was leveraged by his successor into the the only US mutual fund wholly owned Keystone XL Dakota Access Pipeline, and performances are on a par with or plastics by public health and environmental non- the halting of fracking across hundreds of Sustainable Development Goals (SDG). His visionary ESG higher than those without an ESG profi t entities. Samuelrich, also a board cities in Argentina and Brazil. focus. That trickled institutional initiative is covered in the main report. member of US-SIF, the trade alliance on It allies with grassroots activists like capital away from non-ESG-com- Annan was aloof, soft-spoken, a shrewd negotiator, and sustainable investing, said BlackRock the People’s Climate March and Global pliant companies, thus making no one’s stooge. He saved the credibility of the UN when he cannot have it both ways. Climate Strike. It is a bottom-up ener- ESG the new ethos for pension and called out the invasion of Iraq by the UK and the US, done But critics say Fink is having it both gization of communities that su er the retirement funds. without Security Council approval, as “illegal”. The US claim of ways. The investment returns on hydro- consequences of corporate malfeasance INCREASE public REDUCE food EAT more plants carbons remain positive even as the dirty and government neglect. 6. 7. DECARBONIZE 8. HALT deforestation 9. 10. “weapons of mass destruction” proved false. On the bandwagon transport aviation and shipping and RESTORE loss and waste and less meat industry waddles to clean energy over Responding to that trend, credit degraded lands But Annan’s tenure was marred by failure to protect another half-century. Fink asserts ESG Contact the writer at rating agencies, index compilers, civilians under UN Peacekeeping guardianship in Rwanda and disclosures will pressure fossil-fuel com- [email protected]