Our series ‘ESG and the Communications Imperative’ interviews leaders across a range of industries, exploring how ESG strategies are reshaping communications, and what companies can do to maximise the impact. In our fourth interview, Brian Ho, Partner, Climate Change and Sustainability Services at EY shares his insights on the heightened investor and regulator expectations for ESG communications and how corporations are responding.

Please tell us a bit about EY’s Climate Change and Sustainability Services (CCaSS) teams and your role.

Over the last six years our Greater China team has grown from a team of nine to 120 people. I believe our growth highlights the increasingly fundamental role of ESG on the corporate agenda.

I lead the Hong Kong and Southern China team, which comprises around 60 employees. Our clients represent large multinational corporations and mainland Chinese SOEs spanning the property, manufacturing, TMT, financial services and pharmaceutical industries.

We provide advisory and assurance services with a focus on a client’s sustainability agenda. Working together with our clients, we help them embed sustainability practices into their core business activities so they can manage risks and achieve a long-term market advantage.

How are EY’s CCaSS teams helping companies tackle the challenges of ESG reporting?

I have been in the industry for 18 years and the landscape has changed dramatically. This transformation has really accelerated in the last three years, driven by the increased frequency of extreme climate events. Institutional investors have been forced to raise their game when it comes to assessing company performance using ESG factors.

Our 2020 EY Climate Change and Sustainability Services (CCaSS) Institutional Investor survey revealed that 98% of investors have adopted a more disciplined and rigorous approach to evaluating companies’ non-financial performance.

We are increasingly seeing ESG being linked with management procedures, such as performance reviews and employee compensation. ESG is no longer just a report; it is now driving the business agenda.

With stakeholders becoming increasingly concerned about ESG, how has the narrative for climate risk evolved over the past year?

In September, a group of 120 of the largest businesses in the world, along with the Big Four accounting firms, presented a whitepaper, ‘Measuring Stakeholder Capitalism—Towards Common Metrics and Consistent Reporting of Sustainable Value Creation.’

The paper highlights the crucial role the private sector can play, given the current environment. Together, we have come up with a way companies can measure and demonstrate their contributions towards creating more prosperous, fulfilled societies and a more sustainable relationship with our planet. This approach provides a common set of metrics that companies can sign up to, which is incredibly important to investors.

Institutional investors are influencing the corporate agenda when it comes to ESG reporting and climate risk, requesting a more disciplined and rigorous approach to evaluating companies’ non-financial performance. We are working with our clients to build a stronger connection between financial and non-financial performance and a robust approach to analysing climate change risks and opportunities, in turn increasing investor trust and confidence.

Looking ahead, we can expect more stringent corporate laws on climate change in China, and the implementation of a carbon emissions trading scheme, which will put climate change further into the spotlight.

In addition, China’s expanding green bond market, which has rapidly grown to become the second largest globally, is expected to continue this trajectory.

In Hong Kong, green finance continues to be a critical focus for the government and considerable efforts have been made to develop the city into a green finance hub.

Developments in mainland China and Hong Kong also tie into the initiatives to promote green financing standards and investment projects across the Guangdong-Hong Kong-Macau Greater Bay Area.

Are any other factors contributing to the increased awareness of ESG?

While a lot of the motivation is coming from the investor side, governments, regulators and other industry bodies are also stepping up.

In December last year, the Stock Exchange of Hong Kong announced improvements to the ESG governance and disclosure framework for Hong Kong-listed companies. The new rules are a lot stricter, placing more demands and technical requirements on listed companies in terms of reporting deadlines, board responsibilities and data management.

The regulators have also made several changes. For example, the Securities and Futures Commission (SFC) has released the findings of a survey looking at the extent to which asset managers and institutional asset owners consider ESG risks. While a significant proportion of them considered at least one ESG factor, there was a surprising lack of discussion around climate risk by asset owners when they engage with clients and make suitability assessments. In response, the SFC has taken measures, such as establishing industry working groups, to address this issue.

In addition, the Hong Kong Monetary Authority has released a white paper on Green and Sustainable Banking, which outlines its views on the supervisory expectations for institutions.

Hong Kong is certainly making strides to develop a more robust sustainable investing ecosystem. However, there is a notable shortage of ESG specialists. As companies continue to incorporate ESG into their systems and frameworks, this issue is only going to become more pressing.

Which areas of focus for corporate ESG communications do you see as having the most potential for improvement?

I mentioned earlier that investors are really driving the corporate agenda when it comes to ESG. Corporates are responding by playing to their audiences, such as including elements of ESG in roadshows, or as part of the ratings they communicate to their shareholders.

The companies who communicate ESG most effectively are the ones that continually make their stakeholders aware of what they are doing. This extends to selecting the right case studies to package and share across a variety of communications channels in a creative and unique way.

Finally, companies have traditionally focused on the corporate governance side, but now the ‘E’ part is getting more attention. Businesses are realising the stakeholder value of having a strong environmental proposition and so there is a growing need to discuss and raise awareness of their actions – for example, the energy and resources a company takes in, the emissions and waste it discharges, and the consequences a company’s actions have for all living beings.