What is ESG?
ESG (Environmental, Social and Governance) framework is an organisation-wide approach that encourages companies to tweak their environmental, social and governance practices in every decision-making process to achieve sustainability and fulfil social responsibility.
ESG’s three pillars:
E - “Environmental” emphasises the impact that the businesses may bring to the environment such as energy consumption, carbon emissions and natural resource depletion.
S - “Social” focuses on the relationship between companies, the local community and employees, concerning how companies treat people and society in terms of things like employee diversity, involvement in charity and employee working conditions.
G - “Governance” examines how companies govern themselves well such as corporate governance and transparency, prevention of corruption and diversity in the management structure.
The development of ESG in Hong Kong
The Hong Kong Exchanges and Clearing Limited (HKEX) launched the "Corporate Social Responsibility Report" in 2019 and consulted 156 professionals on the relevant amendments to the provisions, which aimed at centralising the ESG market standards for the business community. Meanwhile, the Securities and Futures Commission (SFC) also announced the "ESG Funds" to promote the development of green finance and sustainable development in Hong Kong. With the encouragement from the Government, more and more Hong Kong companies are initiating their ESG development strategies and ESG fund products and releasing ESG sustainability reports to investors every year.
4 Reasons Why ESG is Important for Businesses in Hong Kong
1. Expand and Grown Your Market
In the long run, whether a company is targeting the B2C or B2B market, a well-developed ESG plan can build a positive brand image for the company and effectively expand its business share to the world.
For B2C (Business To Customer), a company's emphasis on ESG reflects the brand's supportive stance on various social and environmental issues, and softly demonstrates its commitment to social responsibility and its implementation. It can often be seen to boost Hong Kong consumers’ affection for the brand. A study by the Hong Kong Consumer Council shows that 87% of respondents are willing to pay an extra 5% or more for sustainable consumption products or services. Nowadays, the majority of consumers consider the impact of products on the environment in addition to price in the purchasing decision process, and are highly conscious of green purchase behaviour. Therefore, in addition to ensuring the quality of products or services, companies can also consider how to integrate ESG into their corporate culture in order to enhance consumer perception of their products and help them to increase the market growth.
For B2B (Business To Business), since the supply chains between business partners are interconnected, companies with similar a ESG prospect will be more likely to reach similar target audience segments and have a greater chance of business collaboration opportunities. According to the "2022 B2B Buying Guide", 76% of B2B decision makers agree that investing more ESG-related resources and delivering on ESG commitments will boost their company's business performance. In addition, a survey conducted by the HKTDC and PwC Hong Kong found that 52% of respondents agreed that neglecting ESG factors would affect a company's success in attracting new business opportunities and retaining existing clients. In view of this, even for B2B companies, companies should integrate ESG concepts into their business development to jump into the mainstream trend of the market.
2. Obtain Global Investment and Government Bond Funds
Practicing an ESG development strategy helps companies to demonstrate a positive brand image, which in turn attracts more investment from different investors, including the Hong Kong Government.
A proactive ESG strategy, is a weapon for companies to strengthen investor confidence and attract investment capital from Hong Kong and the global market. In recent years, led by the Hong Kong Government, more and more investors are choosing different ESG investment funds to provide large amounts of capital to companies with ESG prospects. A report by Bloomberg Intelligence estimates that ESG-related assets will exceed US$50 trillion by 2025. Most of the multinational rating agencies, such as EcoVadis, have already incorporated ESG metrics into their rating considerations for companies. It is undeniable that a strong ESG proposition correlates with higher credit ratings, which can help Hong Kong companies attract investments from the global market and GBA market. These Hong Kong companies that want to obtain more capital to tap into larger markets should a develop a comprehensive ESG proposal.
In addition, under the Hong Kong Government's policy, the promotion of ESG can bring huge green finance opportunities to enterprises. Under the global trend of Green Finance, the Hong Kong Government has spared no effort in promoting green bonds.In 2018 they set up “Green and Sustainable Finance (GSF)”. And in 2022 they announce an increase in total funding from HK$100 billion to HK$200 billion to encourage Hong Kong enterprises to participate in sustainable and environmentally efficient investments and raise more capital.
In 2021, the “Government Green Bond Programme“ raised a total of HK$29,000+ million to provide financial support to a wide range of green projects and environmental industries in Hong Kong, including green buildings, waste management and renewable energy construction, which greatly helped Hong Kong companies to reduce the economic cost of ESG development. In addition, the Government has also launched the ”Green and Sustainable Finance Funding Scheme“ to support green financing for small, medium and large-scale Hong Kong enterprises.
3. Reduce Operating and Construction Costs
Under the ESG approach, in addition to saving daily operational expenses, companies can also minimise the costs of new building construction and existing building renovation.
Decarbonisation is a key component of ESG, it encourages companies to lower their carbon emissions by tracking energy consumption, transport emissions and raw material consumption at source, leading to optimisation in carbon management. McKinsey reports that implementing an ESG approach can effectively reduce operating costs by about 60% for companies. As an example, CLP Power's "2021 Sustainability Report" stated that they had achieved 25.1% of non-carbon generating energy capacity after investing in solar power systems, which resulted in 76% of operating earnings from non-carbon generating assets and transmissions. To some extent, ESG provides a framework for companies to do more advanced green planning in energy management, which in the long run provides vast economic benefits in terms of daily operating expenses.
By incorporating green technologies into building renovation or new construction to meet green building targets, enterprises can easier obtain energy audits from the government department and reduce construction costs. According to the “Hong Kong Energy Efficiency Registration Scheme for Buildings” , the government will conduct mandatory energy audits on new buildings according to a number of standards, focusing on the energy efficiency and consumption of four major types of building services installations, such as air conditioning, lighting, electricity, lifts and escalators, while existing buildings will be subject to energy audits once every ten years. If a business building complies with the above regulations, it can avoid fines and receive additional tax breaks, and more importantly, it can ensure that the building's construction schedule proceeds as scheduled, avoiding unnecessary costs that may be costed on the building.
4. Attract and Retain Talent
In general, a company that performs well in terms of technology, employee care and corporate social responsibility has a stronger competitive edge in the talent market and a higher probability of cultivating loyal employees.
The new generation of job seekers are more likely have a broader international perspective and are more willing to pay attention to social issues. When they considering a job opportunity, they will take the company culture and brand reputation into consideration, instead of simply depending on the amount of salary.
Therefore, companies with a comprehensive ESG practice have a greater advantage in attracting young talents. According to a study by Cone Communications, 64% of millennials will consider a company's social and environmental commitment when looking for a job. As we can see, companies that integrate ESG into their corporate culture, allocate resources to talent development and care for the well-being of employees, will be able to attract more young talents.
When companies demonstrate positive sustainability and care for their employees, employees with similar values will have a greater sense of belonging and cohesiveness and will want to stay with the company. According to Forbes 2021 “100 Best Companies to Work For” report, employees who work in a company with a strong socially responsible culture are 15.6 times more likely to be satisfied with their jobs and less likely to change jobs. Furthermore, the Mojodomo Hong Kong Limited's report of "ASIA’S WORKFORCE AWAKENS TO ESG" also reflects that over 90% of employees surveyed agree that a company's ESG values are relevant to their satisfaction with their current job. The emphasis on ESG development not only helps to build social credibility, but also helps employees build up a sense of belonging and reduce their willingness to resign from the company.
Our Solutions for your ESG Evolution
As a leading ICT operator and corporate citizen in Hong Kong, HKT strives to provide one-stop innovative green technology solutions for companies of all sizes, such as Energy Management (Renewable Energy Solution), PropTech (Smart Lighting) and the advanced Power Optimization Solution, to help companies incorporate different digital technologies into new buildings or building renovation plans. We help companies to adapt different green technologies in new buildings or building renovation plans to optimise energy efficiency and accelerate the development of ESG and digital transformation.