As sustainability becomes a critical focus across industries, Environmental, Social, and Governance (ESG) reporting has emerged as a key regulatory requirement for companies, including those listed on the Hong Kong Stock Exchange (HKEX).
In March 2024, the Hong Kong government’s Financial Services and the Treasury Bureau (‘FSTB’) published a statement setting out the vision and approach of the government and financial regulators towards developing a comprehensive ecosystem for sustainability disclosure in Hong Kong. In particular, the Hong Kong Institute of Certified Public Accountants (HKICPA) will assume the role of the sustainability reporting standard setter in Hong Kong to develop local sustainability reporting standards aligned with the ISSB Standards as well as complementary application and implementation guidance.
In parallel, carbon trading platforms like Core Climate are taking centre stage in helping businesses offset emissions. However, recent controversies around carbon offsetting have raised questions about the integrity of the carbon trading mechanism. For the hospitality sector, these dynamics present both challenges and opportunities. Let’s delve into the current landscape and its implications for the industry.
ESG Reporting Requirements for HKEX-listed Companies
The HKEX is mandating stricter ESG reporting requirements, which will come into effect on 1 January 2025, making it imperative for listed companies to integrate sustainability into their core operations. These requirements include:
Reporting Principles: The ESG report must follow principles of materiality, quantitative data, balance, and consistency.
Governance Structure: Issuers must disclose their board's oversight of ESG matters, ESG management approach and strategy, and how it reviews progress made against ESG goals.
Reporting Boundary: A narrative explaining the reporting boundaries of the ESG report, which describes the process used to identify which entities or operations are included in the ESG report.
‘Comply or Explain’ Provisions: An issuer must report on the ‘comply or explain’ provisions, which encompass different subject areas and KPIs such as environmental and social impact, operating practices, community investment etc.
These requirements reflect the growing recognition that sustainability is central to long-term value creation and that responsible corporate behaviour is no longer optional, but a critical aspect of a company's reputation, resilience, and competitive edge.
Core Climate: HKEX’s Carbon Trading Platform
To support businesses in meeting their carbon neutrality goals, HKEX launched Core Climate, a carbon marketplace enabling the trading of high-quality carbon credits. This platform aims to provide:
Transparency: All credits traded on Core Climate adhere to international standards, ensuring alignment with global carbon reduction efforts.
Accessibility: Core Climate facilitates the two-way capital flows between East and West, to support stakeholders.
Scepticism of Carbon Offset
Recent scandals involving prominent verification entities like Verra and project developers such as C Quest Capital have highlighted issues in carbon credit markets, including overestimated carbon savings and lack of tangible impact. These controversies have created scepticism around the reliability of carbon offset as a tool for emissions reduction.
Overestimated Carbon Savings: Investigations into entities like Verra have revealed that some carbon offset projects significantly overstate their emission reduction or carbon sequestration claims. These discrepancies raise doubts about the effectiveness of offsets in mitigating climate change.
Lack of Tangible Impact: Critics have highlighted cases where carbon offset projects fail to deliver measurable benefits or provide long-term environmental improvements. For example, some forestry-based credits have been accused of not adequately protecting against deforestation or degradation.
Verification Failures: Verification processes in the carbon market have been called into question, with accusations that standards are inconsistently applied or inadequately enforced. This has undermined trust in credits issued by both project developers like C Quest Capital and widely used certification systems like Verra .
Market Manipulation Concerns: Some investigations and lawsuits suggest that carbon crediting projects may sometimes serve as a means for ‘greenwashing’ rather than achieving genuine sustainability, with some cases involving human rights violations, further fueling distrust of the mechanism as a tool to offset carbon footprint.
These issues have cast doubt on the reliability of carbon offset as a tool for achieving climate goals and emphasised the need for greater transparency, accountability, and verification in carbon trading markets.
How Industries Are Coping with the ESG Push
Several survey results have found that industries in Hong Kong are aligning with ESG requirements and climate goals. For instance:
HKTDC ESG Survey: According to HKTDC Research’s year‑round survey of more than 2,361 procurement‑oriented companies in July 2022, respondents recognised Hong Kong as a ready platform for ESG businesses, with an average readiness rating of 7.0. Non-local respondents rated the city’s ESG readiness higher than locals and they see the availability and diversity of Hong Kong’s ESG product as the most desirable factors.
The Sandpiper Global Reputation Capital Index: The Index, which is based on data from a survey of over 2,700 C-Suite leaders across 27 markets, found that less than half of respondent organisations have a sustainability and/or ESG strategy or targets, and only 43% in Hong Kong are regularly producing any form of sustainability and/or ESG reporting at least annually.
Hong Kong Institute of Certified Public Accountants’s ESG Assurance Report 2023: Research covering 1,882 companies with 31 December 2022 as their financial year end found that approximately 52% of the 50 largest listed companies (or 26 companies) had obtained an ESG assurance in Hong Kong.
While there is clear progress, significant challenges persist. Many companies face difficulties in adopting comprehensive ESG strategies due to a lack of expertise, high implementation costs, and inconsistent global standards. Increased collaboration among regulators, industry leaders, and stakeholders is needed to address these barriers and enhance ESG adoption in Hong Kong.
Relevance to the Hospitality Industry
Hospitality businesses face unique challenges and opportunities in the ESG reporting and carbon trading landscape:
Carbon Footprint: Hotels, resorts, and restaurants are significant energy users, making emissions reduction a top priority. For context, approximately 42,000 private buildings and more than 8,000 government-owned buildings account for over 90% of electricity consumption and 60% of greenhouse gas emissions in Hong Kong. Carbon credits from platforms like Core Climate can help offset unavoidable emissions. Key to helping Hong Kong reach its carbon neutrality goals, however, hinges on setting science-based carbon reduction targets and a rigorous monitoring and assessment approach as well as implementing energy efficiency solutions to achieve absolute carbon reduction.
Guest Expectations: Today’s travellers increasingly favour eco-friendly accommodations. ESG transparency can be a key differentiator in attracting conscious consumers. Education and engagement is crucial to helping your customers understand the imperative sustainability measures. This can be done by communicating your sustainability initiatives and positive impact on your website, in your newsletter, on your social media channels, or in areas in your establishments where your customers tend to gather.
Regulatory Compliance: With ESG reporting becoming mandatory for publicly-listed hospitality groups, there is a pressing need, especially among investors and shareholders, for robust frameworks to track and report sustainability metrics.
Governance and Reputation: Good governance entails a robust organisational structure and ESG reporting framework bolstered by rigorous board oversight and alignment of strategies and vision throughout the organisation. This can be reflected in the timeliness and transparency of ESG reporting as well as clarity on where the organisation fares well or falls short in its ESG performances. Organisations with good governance can expect a reputational boost.
Strategic Partnerships: Collaborating with trustworthy, internationally recognised certifying bodies, sustainability organisations, innovators and entrepreneurs, peers in the industry, and members of the local community enables you to set realistic targets, effectively assess progress, stay informed on the best practices for your sustainability journey and subsequently, amplify positive environmental and social impacts.
Organisational Resilience: Key to success is ensuring an alignment from leadership to employees within your organisation on the why and how of your sustainability endeavours. Provide training to help your employees understand the importance and positive impact of sustainability initiatives, and encourage them to take ownership of the initiatives they are in charge of.
Conclusion
The evolving ESG reporting and carbon trading landscape presents both challenges and opportunities for businesses. For the hospitality sector, embracing these changes can drive operational efficiencies, mitigate current and future climate-related risks, enhance brand reputation, and foster employee and guest loyalty. Platforms like Core Climate, backed by HKEX’s credibility measures, offer an avenue for carbon neutrality, but vigilance is essential to navigate potential pitfalls as a result of malpractices by industry players.
Integrating sustainability into the business model is no longer optional but a necessity for long-term success. Get in touch with us at info@greenhospitality.io to find out how we at GREEN Hospitality can help you reach your ESG goals through bespoke consultation and training.