This file photo dated 31, 2021 shows the statues on the square of Hong Kong Exchanges and Clearing Limited (HKEX) in south China's Hong Kong. (PHOTO / XINHUA)

Only 7.5 percent of surveyed listed companies in Hong Kong have adopted ESG (environmental, social and governance) external assurance, indicating much room for improvement if Hong Kong is to strive for mandatory ESG assurance, according to a survey by the Hong Kong Institute of Certified Public Accountants released on Tuesday.

The survey interviewed 1,882 listed companies in the city this year whereas the fiscal year for surveyed enterprises ended on December 31, 2022.

Over 15 percent of the interviewed listed companies had set up a board-level ESG committee, while this ratio is 61 percent for HSI companies

One hundred and forty-one of those companies adopted external ESG assurance, accounting for 7.5 percent of the surveyed total companies, up from a 4.5 percent share in the 2021 survey.

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For listed enterprises with a market capitalization of at least HK$38 billion ($4.87 billion), 41.6 percent have adopted ESG auditing, compared to a 20.1 percent share in the 2021 survey.

Most ESG auditors are certified public accountants (CPA). These firms verified 43 percent of all listed companies’ ESG reports, and 56 percent of companies’ ESG reports listed on the main board (Hang Seng Index companies).

But the survey showed that only around 16 percent of listed companies disclosed a goal of achieving carbon neutrality by a specific date while this figure is 51 percent among HSI companies.

Over 15 percent of the interviewed listed companies had set up a board-level ESG committee, while this ratio is 61 percent for HSI companies.

The HKICPA recommends that listed companies without ESG assurance review their ESG status at least annually; seek CPA firms to do the ESG auditing job; establish a board-level ESG committee to facilitate integration of financial reporting and ESG reporting; and set a carbon neutrality date that aligns with or exceeds the goal for achieving carbon neutrality.

HKICPA President Loretta Fong Wan-huen said to achieve mandatory ESG assurance, an ecosystem comprising a unified standard, talents and regulation is needed. Currently, achieving ESG assurance is not mandatory for listed companies in Hong Kong.

“There has been no widely adopted and harmonized set of international standards for ESG reporting. The situation may change with the recent publication by the International Sustainability Standards Board, under the International Financial Reporting Standards framework,” Fong said in the news conference that revealed the survey findings.

She added that the city needs to train adequate talents to undertake the job of ESG verification; and the city’s financial regulators should decide whether an external regulatory body is needed to supervise the standard of ESG assurance, just like the auditing of listed companies’ financial accounts.

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“Small-and-medium sized listed companies can seek the help of external ESG auditors to focus (on) certain areas of ESG assurance, and that can help (in) reducing the cost of ESG auditing for this segment of listed companies,” said Patrick Rozario, review panel chair of the Best Corporate Governance and ESG Awards 2023.