Hong Kong Listed Companies Increasingly Seek External Auditors for ESG Reporting Assurance

Hong Kong-listed companies are increasingly turning to external auditors to assess their environmental, social, and governance (ESG) reporting, responding to a growing demand for more reliable and verifiable data from investors and stakeholders. While ESG reporting assurance is not mandatory for listed companies in most jurisdictions, including Hong Kong, the Hong Kong Institute of Certified Public Accountants (HKICPA) highlights the rising expectations for stringent disclosures in its recent report, "ESG assurance in Hong Kong 2023: An evolving landscape."

All of Hong Kong's approximately 2,600 listed companies are obligated to publish annual sustainability reports on their ESG performance alongside mandatory periodic financial reports. Seeking independent verification of their ESG performance allows companies to establish trust and credibility with stakeholders, who are increasingly factoring such considerations into their investment decisions, notes the HKICPA.

According to the study covering 1,882 companies listed in Hong Kong, approximately 7.5% or 141 firms opted for external assurance services in 2023, up from 85 companies or 4.5% in 2021. Among the 137 large companies with a market capitalization of HK$38 billion (US$4.86 billion) or more, this adoption rate doubled over the past two years to reach 41% in 2023.

Loretta Fong, President of the HKICPA, observes that larger companies are responding more rapidly to the evolving ESG landscape due to their international investor base and greater resources. However, smaller companies may be more hesitant, potentially due to concerns about the costs versus the benefits of assurance, given its non-mandatory status. Fong suggests, "At this stage, they may not have the full confidence in their own ESG data analysis and collection processes to have the information assured."

The report highlights examples of companies such as Swire Pacific and CLP Holdings, which employed auditing firms Deloitte and PwC, respectively, for limited assurance engagements on certain sustainable development data. The banking sector leads in ESG assurance adoption, constituting a fifth of the 141 companies seeking assurance. This trend is attributed to the ongoing efforts of Hong Kong's financial services regulators to promote green and sustainable finance alongside ESG reporting.

By fLEXI tEAM