HONG KONG: Fewer firms plan to up their spending on sustainable initiatives amid economic downturn, PwC survey finds.

As published on scmp.com, Wednesday 11 January, 2023.

Fewer Hong Kong companies are inclined to raise their spending on initiatives that enhance their environment, social and governance (ESG) performance this year, as economic headwinds draw their attention to other priorities, according to a survey.

About three quarters of the respondents plan to increase their investment in ESG-related programmes this year, the annual survey co-launched by the Hong Kong Trade Development Council and accountancy giant PwC found. Last year, nine out of 10 companies indicated an intention to spend more on such schemes.

Those that intend to spend the same amount or less than in the previous year accounted for 15.1 per cent, up from 11 per cent in 2022.

“One of the reasons for the [attitude change] is the economic slowdown,” Raymund Chao, the Asia-Pacific and China chairman of PwC told the Asian Financial Forum on Wednesday. “Organisations are trying to balance between maintaining profit in the short term and investing in the ESG agenda.”

While understandable, such an approach is not desirable because ESG performance is increasingly taken into account by investors, and this affects market valuation, he cautioned. More investment is needed, especially in climate mitigation, he added.

Although Asia-Pacific achieved a 1.2 per cent reduction in carbon emissions per unit of economic output in 2021, that is well below the 15.2 per cent decarbonisation rate required worldwide to limit global warming to 1.5 degrees Celsius, said Chao, citing research by PwC.

Conducted between December 8 and 28, the latest survey was answered by 125 businesses in Hong Kong. Around 38 per cent of them have over 500 employees, while 28 per cent have less than 50 staff. A quarter are in the financial services business, followed by 15 per cent in the retail and consumers sector.

Although 45 per cent of respondents said their organisations have already committed to achieving net zero emissions, just a third of them have targets that are aligned with the standards and accounting methodologies of the Science Based Targets initiative (SBTi).

Companies’ targets should be in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement – limiting global warming to 1.5 degrees Celsius above pre-industrial levels – according to the initiative’s backers.

The backers include global environmental disclosure system operator CDP, the United Nations Global Compact, the World Resources Institute and the World Wide Fund for Nature.
Companies can claim SBTi alignment if their targets and emission reduction plans are validated by SBTi’s experts.

Meanwhile, the most popular ESG actions being taken by the surveyed companies include adopting cleaner energy to reduce their carbon footprints, providing ESG training to staff, and adjusting supply chains to drive decarbonisation. They were cited by half or more of the respondents.

Linking senior executive pay to ESG performance was the least popular measure, cited by less than 10 per cent of respondents.

On Hong Kong’s sustainable finance development, over 40 per cent of the polled companies said developing a common taxonomy for ESG reporting, growth of sustainability funds and the green bond market would present “significant” opportunities.

Over 60 per cent of them believe Hong Kong should prioritise updating tax policies and subsidy schemes to encourage the issuance of more green finance products.

More than half said developing digital solutions to improve the accuracy and efficiency of ESG reporting and risk analysis is needed to address funding difficulties, up from just over 30 per cent in 2022.

However, higher financing costs this year and a market infrastructure that is still immature were cited the most by respondents as the biggest hindrances to the issuance of green bonds and sustainability-linked instruments.