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
EC Delegated Regulation on Specialized Lending Exposures Under CRR
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI Consults on Minimum Qualifying Rate for Uninsured Mortgages
OSFI is proposing new minimum qualifying rate for uninsured mortgages under the Guideline B-20.
ECB Updates List of Supervised Entities in EU in April 2021
ECB updated the list of supervised entities in EU, with the number of significant supervised entities amounting to 115 as of the March 01, 2021 cut-off date.
OSFI Issues Letter on ICAAP Submission and Internal Audit of BCAR
OSFI issued a letter to confirm that a formal Internal Capital Adequacy Assessment Process (ICAAP) submission is not required in 2021.
EC Agrees to Prolong Scheme to Support NPL Reduction at Greek Banks
EC has approved the prolongation of an existing Greek scheme aiming to support the reduction of nonperforming loans, or NPLs, of Greek banks on the basis that it remains free of any State aid.
EIOPA Study Examines Internal Model Market and Credit Risks Under SII
EIOPA published a report presenting the results of its yearly study on the internal modeling of market and credit risks under the Solvency II Directive, also known as SII.
ESMA Issues Notification Templates for STS Synthetic Securitizations
ESMA published the interim simple, transparent, and standardized (STS) notification templates for synthetic securitizations, post the recent amendments to the Securitization Regulation.
EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
EBA Updates Lists of Entities for Use in Capital Calculations under SA
EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.
FED Proposes to Automate Bank Stock Adjustment Using Call Report Data
FED published a proposal to automate non-merger-related adjustments to member banks' subscriptions to Federal Reserve Bank capital stock.
