Environmental, social, and governance (ESG) factors are no longer fringe considerations in Hong Kong’s business landscape. They are the critical lens through which investors, consumers, and regulators assess a company’s long-term viability. While strides have been made in promoting ESG adoption, a gap still exists between policy and practical implementation, particularly for small- and medium-sized enterprises (SMEs).

The complexities of various ESG reporting standards can be daunting for SMEs, compounded by common financial constraints that hinder their ability to invest in sustainable practices.

Conversely, while larger corporations generally have more data and financial resources at their disposal, they often lack a robust, strategic ESG framework that transcends mere compliance.

Despite these challenges, companies must recognize the vast opportunities that ESG adoption can offer.

For SMEs, diligently recording greenhouse-gas data throughout the supply chain unlocks collaboration opportunities, especially with listed companies that will soon be required to report Scope 3 (value chain) emissions under the Hong Kong Exchanges and Clearing Ltd’s (HKEX’s) enhanced climate-related disclosure. These larger firms will actively seek suppliers with accurate Scope 1 (direct emissions) and Scope 2 (purchased energy emissions) data, creating a pathway for SMEs to engage in sustainable practices.

Moreover, larger corporations can enhance their brand reputation and attract ESG-conscious investors while positioning themselves as leaders in the green transition.

The adoption of green technology (greentech) presents additional opportunities for all businesses navigating the ESG landscape. SMEs can leverage readily available greentech solutions, such as smart power strips and LED lighting, to reduce their Scope 1 and 2 emissions without incurring significant upfront investments.

Meanwhile, larger companies can utilize greentech to achieve Science Based Targets initiative (SBTi) goals by incorporating green building design principles (e.g., green roofs and daylighting design) and implementing smart waste solutions in their operations.

To fully capitalize on these opportunities, different strategies are required for SMEs, larger corporations, and the Hong Kong Special Administrative Region government.

For SMEs, prioritizing the disclosure of Scope 1 and Scope 2 greenhouse gas data is a critical first step. For further advancement, they can adopt international ESG standards such as the Sustainability Accounting Standards Board standards, which offer sector-specific disclosure guidance.

However, simpler alternatives developed locally, like the ESG Consortium’s benchmark, are also available. These frameworks streamline international standards, lowering the barrier for SMEs to disclose, record, and store their ESG data.

In facing their financial constraints, several government and private sector funding programs can help bridge the gap and make implementing ESG strategies more accessible.

The government’s Technology Voucher Programme, for instance, offers financial assistance for upgrading to energy-efficient equipment or waste management systems.

Additionally, some utility providers offer subsidies to incentivize energy-saving building renovations across residential, commercial, and industrial buildings. These targeted programs empower SMEs to take concrete steps toward sustainability without a significant financial burden.

Larger corporations, on the other hand, should look beyond the HKEX’s ESG reporting guidelines, which provide a foundation for ESG compliance and explore a more structural approach.

The SBTi offers a valuable framework. By adopting SBTi’s framework for setting science-based emissions reduction targets and validating their results, large companies demonstrate a credible commitment to sustainability.

Consider Hong Kong’s first SBTi-pledging real estate developer. Under SBTi’s framework, its Scope 1 and 2 emissions targets are set to reduce by 35 percent per square meter by 2025, and 52 percent by 2030. Such a structural approach can lead to more constructive outcomes.

Furthermore, clear delineation of roles and responsibilities for the board of directors and management in ESG matters is crucial for larger corporations. The board should oversee ESG strategy and performance, ensuring alignment with company goals, and adherence to international standards. Meanwhile, management is responsible for implementation, setting targets, monitoring activities, and continuously improving ESG performance. Establishing a dedicated ESG task force composed of senior management and employees with ESG expertise can strengthen governance.

The full potential of greentech hinges on the establishment of a supportive ecosystem. To cultivate a thriving greentech ecosystem, the HKSAR government can implement a two-pronged strategy.

On the demand side, they can incentivize businesses to adopt greentech by offering financial support, streamlining permitted processes, and prioritizing local greentech solutions in public procurement.

On the supply side, fostering research and development collaborations between universities, research institutions, and private companies will nurture a robust pipeline of innovative solutions.

Attracting leading greentech companies and talent will further strengthen this by creating a vibrant greentech cluster. This cluster will generate a pool of skilled professionals and foster knowledge sharing and accelerate innovation within the sector.

In conclusion, ESG considerations are no longer a niche concern but a defining factor for business success in Hong Kong.

To navigate this evolving landscape, SMEs should prioritize collecting and reporting Scope 1 and 2 emissions data to unlock collaboration opportunities with larger companies. Large companies, meanwhile, should utilize a strategic ESG framework that goes beyond mere compliance.

Meanwhile, the HKSAR government has a critical role to build a local green-technology system to support the green transition of the business sector. Through a collaborative effort, Hong Kong can establish itself as a frontrunner in the global transition toward a sustainable future.

Kenny Shui is vice-president cum co-head of research; Pascal Siu is senior researcher; and Katie Ho is an assistant researcher at Our Hong Kong Foundation.