HKMA Presents Findings of Textual Analysis of ESG Disclosures of Firms
HKMA published a report presenting observations from the textual analysis of the environmental, social, and governance (ESG) reports of listed firms in Hong Kong. This study applies a wide range of computer-based textual analysis techniques to analyze the annual ESG-related textual disclosure of listed firms since the introduction, in 2016, of the mandatory disclosure requirement by the Stock Exchange of Hong Kong. The findings show that exposure of firms to ESG risks is one important source of uncertainty in their stock valuations and this uncertainty can be reduced effectively by their ESG disclosure. The fact that firms can benefit from being more transparent in ESG issues gives strong support to the continuing efforts of regulators to improve the ESG disclosure of firms.
The report provides a brief overview on the development of the ESG disclosure practice and requirements worldwide. It lays out the textual analysis of ESG reports, presents key observations, and discusses the empirical models and results of the effect of ESG disclosures on the stock valuation of listed firms. ESG funds have been found to be relatively resilient to the market turbulence during the COVID-19 crisis, suggesting that ESG factors significantly differentiate between stock valuations among firms. The key observations to the analysis include the following:
- Length of ESG disclosures have broadly increased since 2016, with firms in sectors more exposed to environmental issues, such as utility and energy, tending to disclose more information.
- Importance of environmental issues increased in ESG disclosures, while social and governance-related disclosures continue to dominate.
- Forward-looking information accounted for an important part of the ESG disclosures.
- Comparability of ESG reports among firms increased over time, while there was little improvement in the readability of reports.
Keywords: Asia Pacific, Hong Kong, Banking, Securities, ESG, Disclosures, Governance, HKMA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Dieter Van der Stock
IFRS subject matter expert; LDTI subject matter expert; accounting authority; risk management specialist
Previous Article
HKMA Consults on Supervisory Policy for Systemically Important BanksRelated Articles
EBA Publishes Standards on Disclosure of Investment Policy Under IFR
The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).
EBA Updates Filing Rules for Supervisory Reporting
The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.
ECB Amends Guideline on Procedures for Collection of AnaCredit Data
The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.
APRA Finalizes Guidance for New Prudential Standard on Remuneration
The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.
OCC Updated LIBOR Self-Assessment Tool for Banks
The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR).
TCFD Updates Guidance for Financial Disclosures on Climate Risk
The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
BCBS Report Examines Progress on Adoption of Basel III Framework
The Basel Committee on Banking Supervision (BCBS) published the progress report on adoption of the Basel III regulatory framework in member jurisdictions.
ACPR Implements Updates Related to DPM Version 3.1
The French Prudential Supervisory Authority (ACPR) has implemented, in its information system, updates linked to the Data Point Model (DPM) version 3.1.
EBA Note Examines Transition Risks of Benchmark Rates
The European Banking Authority (EBA) published a thematic note that aims to identify and raise awareness of the transition risks of benchmark rates, as the London Interbank Offered Rate (LIBOR) and the Euro Overnight Index Average (EONIA) are close to being phased out.
OSFI to Communicate Next Steps on Climate Risk Policy in Early 2022
In a letter to the federally regulated financial institutions and pension plans, the Office of the Superintendent of Financial Institutions (OSFI) published a summary of the feedback received to the January 2021 discussion paper on ways to address climate risks.
