As the United Nations Climate Change Conference in Warsaw turned into a big disappointment last month, the role of Hong Kong business in this global challenge now comes into the limelight. A survey announced this month reveals that local companies are lacking behind in their preparations for climate change.
The worrying findings came from the ‘Hong Kong Carbon Performance Report’, the first comprehensive survey on carbon disclosure in Hong Kong’s business sector. It found that only one-tenth of the 357 companies listed in the Hang Seng Composite Index (HSCI), produced formal reports on greenhouse gas emission – the first step in preparing themselves for a climate change strategy.
It also found that large companies in Hong Kong flared better in carbon reporting. One out of four companies in the Hang Seng Large Cap Index had formal carbon reporting, while none of the 1,221 listed companies outside HSCI had any form of carbon disclosure. This indicated that smaller firms are largely unaware of their own carbon footprints, which makes it impossible for them to develop a proper strategy to face the uncertain future.
In terms of sectoral performance, utilities companies stand out the best: two thirds of such LargeCap companies produced formal carbon reporting. Intriguingly, the worst performing sectors are also the most important sectors in the local economy: Consumer Goods, Properties & Construction, and Financials. In each of these sectors less than 20% produced formal carbon reports. For instance, among 18 large property companies only three of them disclosed their carbon emissions properly. Their poor showing has dragged down the overall performance of Hong Kong business.
If we take a look at the overall performance of all companies listed on the main board, less than 1% of Hong Kong companies reported their carbon emissions in accordance with international guidelines such as the Global Reporting Initiatives, compared with over 3% in Singapore.
This is no small matter if we look deeper into how Hong Kong performs in its competitiveness ranking on a global scale. In the latest Global Competitiveness Report compiled by the World Economic Forum, Hong Kong ranks 7th whilst Singapore remains the second most competitive economy in the world. Yet in terms of ‘innovation and business sophistication’, Hong Kong ranks 19th which is the main reason dragging down its overall ranking. In fact the report highlights ‘lack of innovation capacity’ as the factor requiring most urgent attention if Hong Kong is to remain competitive.
As innovation can only succeed when it responds promptly and effectively to upcoming challenges, it is widely recognised that the one big driver for business innovation comes from sustainability concerns - with climate change being the single most important issue. For Hong Kong companies which have not even started to measure its own carbon footprint, sustainability innovation is simply out of the question.
There are many inspiring examples of major companies develop successful strategies to reduce risk and increase revenue through sustainability innovation. For instance, the UK group Marks & Spencer has implemented a low carbon strategy called ‘Plan A’ over the years. By cutting costs and developing environmentally friendly products with lower carbon footprint to suit the changing values of its customer groups, it has been rewarded with a net benefit of £135 million as well as becoming carbon neutral. Unfortunately we have not heard a single case of local business approaching this level of success.
Despite the current lacklustre performance among local business, one encouraging news is the decision by Hong Kong Stock Exchange to upgrade its listing guidelines on ‘Environmental, Social and Governance Reporting’ from ’voluntary’ to a ‘comply or explain’ status for company reports issued starting 2015. This will surely encourage companies to report on its carbon emissions, thus enabling more of them to develop successful sustainability strategies.
As carbon reporting is now recognised as a matter of public interest, regulatory controls are becoming an international norm. In the UK, carbon reporting has already become mandatory for listed companies since October 2013, placing responsibility for compliance squarely on company board directors.
Hong Kong needs bold action to tackle the climate change challenge. If the business sector is slow to act, everyone in Hong Kong will suffer. Carbon reporting is not only the first step towards a low-carbon economy, but also a wake-up call for company executives who have more influence and responsibilities than most of them would realize.
A full version of the Hong Kong Carbon Performance Report can be downloaded from Carbon Care Asia website, www.carboncareasia.com .
Albert Kwong-tak Lai is the CEO of Carbon Care Asia.