Abby Schultz's Blog

Abby Schultz is a writer and consultant who looks at how companies grapple with climate change and dwindling natural resources in a global culture that expects, even demands, constant growth. Abby has written about the intersection of business and the environment from the U.S., and is fascinated to learn how companies in Asia’s fast-growing economies are confronting – or not confronting – environmental issues fundamental to their operations. She’s also interested in how innovative businesses come up with creative solutions for operating in a resource-constrained world. Abby has written about corporate social responsibility, clean tech investing and socially responsible investing, among other environmental topics. She’s also written about markets and personal finance, for major news organizations including CNBC.com, Dow Jones and The New York Times.

Corporate Concerns

Hong Kong Listed Companies Earn Poor Marks on Environmental Risks
December 10, 2012

 
Hong Kong's publicly listed companies rank last in Asia when it comes to taking care of the environment, according to a new report by the investment research firm that helped Hang Sang Indexes develop the Hang Sang Corporate Sustainability Index Series.
 
This is not necessarily because Hong Kong-listed companies are spewing noxious fumes in the air, it’s that a number of them are falling short in taking the environment into account in the course of doing business.
 
The main reason Hong Kong’s listed companies score worse than companies in other Asian nations on the environment is that many of these public companies are actually based in China, and are only beginning to consider environmental, social and governance (ESG) issues, according to RepuTex, which provides ESG research to investors. 
 
While they may not be based here, Hong Kong until now has provided an environment that makes it practical for these Chinese companies not to provide details on their environmental practices.
 
As Martha Grossman, RepuTex's director, ESG research, notes in an email: "Generally there is a strong correlation between a company’s ESG performance and the regional exchange regulation rules where it is listed, especially in the case of Corporate Governance."
 
The Hong Kong Exchanges and Clearing Limited recently developed recommended guidelines for ESG reporting for its publicly listed companies, and may in three years require companies to comply with ESG reporting requirements or explain why they can't.
 
According to RepuTex, Hong Kong-listed companies have the highest average number of what the firm calls “environmental impact rating flags” among more than 1,000 companies in Asia ex-Japan that they studied.  
 
A rating flag is given to a company when it doesn’t score well in one of nine environmental criteria identified by RepuTex.
 
The criteria are: environmental policy, environmental accountability, environmental management systems, reduction of ecological footprint, voluntary codes, product stewardship, sustainability investing, commitment to ecologically sustainable development, and environmental compliance.
 
Hong Kong-listed companies didn’t do well in three of these areas: commitment to ecologically sustainable development, voluntary codes, and sustainability investing, RepuTex’s research showed.
 
“Commitment to ecologically sustainable development” is determined by a corporation’s focus on environmental research and development, the firm says. Hong Kong companies received nearly 75 percent of the 31 rating flags in this category. China received the rest.
 
The reason, according to RepuTex, is the “traditional culture of concealment in China,” which thwarts companies from sharing research and technology with their peers. Companies that do well in this category tend to partner with universities, governments and others to research environmentally friendly technologies, the firm says.
 
Hong Kong companies got all 25 flags awarded in the voluntary codes category for failing to sign any voluntary agreements, like the United Nations Global Compact or the Equator Principles on an international level, or the Carbon Reduction Charter in Hong Kong. While these codes aren’t mandatory, companies that sign them tend to be more aware of environmental risks to their business, RepuTex says.
 
Companies that fared the worst under RepuTex’s criteria are all listed in Hong Kong: Zhejiang Expressway Co. Ltd, which received four flags; Kowloon Development Co., 361 Degrees International Ltd., Yuexiu Property Co. Ltd., and Yue Yuen Industrial (Holdings) Ltd., each received three.
 
Overall, Hong Kong had the highest number of flags per company, 0.23, while Taiwan was second with 0.11 and China was third with 0.06.
 
RepuTex is drawing investor attention to how companies handle environmental issues because, as the report says, an environmental disaster could have “key consequences for a company’s share price,” as well as it’s ability to operate.
 
This so-called reputational risk is understandably a key motivating factor for companies not to pollute or misuse natural resources.
 
But, investors don’t care about reputation alone when they consider a company’s value. Having foresight on environmental issues, like reducing pollution or managing natural resources responsibly is a sign of forward-thinking management. Companies that manage natural resources well now have a better chance of having those resources available to them in the future.
 
As Grossman notes, "best practice companies overall demonstrate outstanding environmental stewardship and a commitment to environmental sustainability through the highest standards of accountability, responsibility, risk assessment and management, at all levels."
 
Consider Coca-Cola. Clean water is essential to Coca-Cola’s business, of course. But the beverage giant doesn’t appear to take it for granted, and for more than a decade has invested in water stewardship programs, partnering with World Wildlife Fund and USAID, among others. As Coke’s latest sustainability report says, clean water is “essential to our business.”
 
Environmental laggards would do well to look at examples of how companies like Coca-Cola understand the risks of lax environmental practices to their ability to operate now and in the future.

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