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
EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
FSB Sets Out Work Priorities for 2021
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU Publishes Corrigendum to Revised Capital Requirements Regulation
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs Issue Statement on Application of Sustainability Disclosures Rule
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC Consults on Crisis Management and Deposit Insurance Frameworks
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA Proposes Standards for Supervisory Cooperation Under IFD
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE Addresses Banks in Scope of First Resolvability Assessment
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.
