As the global shift towards sustainability accelerates, Environmental, Social and Governance (ESG) reporting has become essential for corporate responsibility.
Starting January 2025, the Hong Kong Exchanges and Clearing Limited (HKEX) will require listed companies to disclose their direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions (Scope 2), with plans to eventually include Scope 3 emissions.
A December 2022 survey by DBS Bank revealed that only 67% of SMEs in Hong Kong view ESG as a priority, compared to 83% across Asia. While ESG reporting is not mandatory for non-listed companies, it is a strategic tool for attracting investment and enhancing brand value, fostering trust with investors, customers and the community. However, factors such as resource constraints, lack of expertise and complex regulations can impede progress.
Secretary for Environment and Ecology Chin-Wan Tse emphasized that this transition presents both opportunities and challenges, stating, “Green transition is a global phenomenon. Companies must examine their operations and seize growth opportunities.”
Steve Wong, Chairman of the Chamber's Environment & Sustainability Committee, said SMEs must quickly identify and assess the ESG risks within their value chains. “It is crucial to prioritize these risks based on their magnitude and potential consequences, focusing immediately on ‘High Risk High Consequences’ issues as they significantly impact business sustainability,” explained Wong.
“At a minimum, SMEs should work on their supply chain practices and carbon footprint, particularly Scope 3 emissions. To ease this process, they should concentrate on key ESG areas relevant to their operations, adopt a trial-and-error approach using the 3Ts principles (technology, transparency and traceability), and leverage digital and AI technologies for data collection and reporting.”
Spreading Awareness
The Government is actively involved in various initiatives to encourage a collective move towards sustainability.
The Environmental and Ecology Bureau (EEB) has been an active participant in the Green and Sustainable Finance Cross-Agency Steering Group, co-chaired by the Hong Kong Monetary Authority and the Securities and Futures Commission, which collaborates with the Hong Kong University of Science and Technology to develop tools for calculating GHG emissions.
Wong highlighted the importance of collaboration among businesses with similar products to help achieve economies of scale and harmonize reporting practices. He said trade associations and chambers could help facilitate or set up experience-sharing forums and establish sector-specific knowledge management systems to streamline the process.
In line with these efforts, HKGCC is planning to launch the ESG initiative “Green360” early next year. An all-in-one online solution powered by AI, Green360 will provide businesses with the knowledge, tools and resources needed to integrate ESG principles into their operations and comply with regulatory frameworks.
“The project will be launched in two phases,” said Josephine Leung, Director of Business Development. “Phase one will incorporate self-audited ESG company reporting, as well as online education on sustainability and ESG application, covering topics from ESG101 and ESG2.0 to SDGs, ESG Reporting and Advanced ESG Compliance programs. The second phase will cover supplier matching, industry information and compliance data.”
With Green360, the Chamber aims to create an ESG community that provides a peer-to-peer platform for SMEs to share best practices, access relevant resources and stay informed on the latest developments. The platform will offer expert-led workshops, seminars and online forums, helping companies collaborate on ESG initiatives, access green suppliers and conduct business-matching.
Overcoming the Hurdles
SME owners acknowledge that the path to effective ESG reporting is fraught with challenges. “The costs associated with data collection, analysis, and reporting can be quite high,” said Terence Lau, Business Sustainability Director at Richform Holdings, which specializes in drinking water systems. “Many businesses operate on tight budgets, making it difficult to allocate resources for comprehensive ESG reporting.”
SMEs lacking ESG expertise also find it daunting to navigate the rapidly changing regulatory landscape. “There is a shortage of professionals with the necessary knowledge and skills to help SMEs meet basic ESG reporting requirements,” said Angela Lee, Chairman of the Chamber’s SME Committee. Lau added that many firms struggle with data management, complicating the collection of accurate information on environmental impact and governance practices.
Jacky Lam, Managing Director of Jacksons & Brothers Co Ltd, noted that a lack of understanding about ESG reporting among employees can lead to deprioritized sustainability initiatives.
“Without the relevant knowledge, employees are reluctant to change or take on extra work,” he emphasized, highlighting the need for internal education to maintain competitiveness, particularly in international markets. His company actively sends employees to ESG seminars organized by financial institutions, NGOs, and business chambers like HKGCC.
As investors increasingly favour companies with strong sustainability commitments, embracing the ESG agenda can enhance competitiveness in the global market. Lee called for stronger policy guidance on a cross-border basis, given the “communal” accountability introduced by Scope 3 disclosures. “Many SMEs will struggle to obtain consistent disclosure information from upstream suppliers,” she explained.
Lau believes that addressing these issues is crucial for fostering a sustainable business environment. “By providing targeted support, resources and education, stakeholders like the Government and industry associations can empower SMEs to overcome these challenges,” he said.