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Response to the consultation on Review of the ESG Reporting Guide

Letter to Hong Kong Exchanges and Clearing Limited

18 September 2015

Norges Bank Investment Management (“NBIM”) commends the Hong Kong Stock Exchange (the “Exchange”) for seeking public comment on proposed changes to the ESG Guide that aim to strengthen ESG disclosure requirements and enable issuers to formulate policies, measure relevant data, monitor progress and report to investors and other stakeholders on their work in these areas.

NBIM is the investment management division of the Norwegian Central Bank and is responsible for investing the Norwegian Government Pension Fund Global (“GPFG”). At 30 June 2015, the fund was invested in assets of 6,896 billion kroner (6,800 billion HKD) of which approximately 165 billion HKD was invested in equity of more than 550 Hong Kong listed companies. We appreciate the opportunity to response to the Exchange’s consultation paper of July 2015 on Review of the Environmental, Social and Governance Reporting Guide (the “consultation paper”).

We support strong corporate governance and sustainability standards and practises at national and market level, as well as adherence to recognised international standards. We consider the UN Global Compact, the OECD Principles of Corporate Governance and the OECD Guidelines for Multinational Enterprises to be important points of reference for best practise for all the markets in which we invest.

With this in mind, NBIM has previously responded to the Exchange’s consultations, such as on weighted voting rights in 2014, the ESG Guide in 2012 and on new listing rules for mineral and exploration companies in 2009.

We share the belief that managing ESG performance and reporting may be material

NBIM is a financial investor and diversifies its investments across a large number of markets and securities. NBIM expects companies to manage its material sustainability challenges and opportunities. How companies manage such risks and capitalise on opportunities, may drive long-term returns for the companies and for us as a shareholder.

The availability and quality of company data, as well as transparency on what companies regard as material sustainability issues and how these are managed, is necessary.  Such information is beneficial for investors such as NBIM in the analysis of the potential ESG implications on companies’ economic performance and prospects. In general, we have found that the availability of non-financial data can be strengthen.

The comply or explain approach

The comply-or-explain model gives companies the option to comply with requirements or explain why they take a different approach. ESG is an area where things are less well defined. The model allows individual companies to report in accordance with their particular situation. We welcome the flexibility the comply-or-explain model allows, boilerplate reporting should be avoided and companies should be encouraged to explain rather than required to strict compliance.

The success of the ESG reporting regime may, in part be determined by transparency and consistency in companies’ disclosure. Such reporting should outline assessments made to establish background and context for priorities, as well as provide a clear rationale for any action taken. It should be outlined what companies deem as material in terms of financial or operational relevance. Deviation from a particular requirement should be explained.

The role of the board

We are supportive of the new guide aligning the board’s overall responsibility of the ESG strategy and reporting with the board’s responsibility concerning the corporate governance code. Boards should seek to understand, and capitalise on opportunities arising from, material ESG issues. The current guide includes wording on ESG opportunities in point 18 and we recommend the Exchange bring similar wording forward to the new guide.

Timing of ESG reporting

Increased transparency and ESG reporting may help investors when assessing company boards and management and their long-term strategies. Such transparency can also be useful for shareholders when casting their votes at general shareholder meetings. We would recommend requiring ESG reporting ahead of the annual general meeting to ensure that recent and valuable information be available to shareholders as they vote on board elections, and, as relevant, other agenda topics.

Download the submission (PDF), which includes our response to the 15 specific questions set out in the consultation paper.


Yours sincerely

William Ambrose                           
Global Head of Ownership Strategies

Runa Urheim
Senior Analyst