In the third of a series commemorating the Best Corporate Governance Awards’ 20th anniversary, Nicky Burridge finds out where sustainability sits in different organizations – winners of the Sustainability and Social Responsibility Reporting Awards – and how they are working to keep initiatives effective and deliver a sustainable future
From top left, clockwise: Tori Cowley, Group Chief Communications Officer, at Hong Kong Exchanges and Clearing Limited; Simeon Cheng, Group Director – Sustainability and Corporate Communications at Vitasoy; Dr Eva Chan, Founding Chairman and Fellow Member of Hong Kong Investor Relations Association and Eddie Pak, Assistant Director, Electrical and Mechanical, at the Drainage Services Department
For sustainability initiatives to have maximum impact they need to be embedded into an organization’s corporate strategy. Sustainability goals should not only be aligned with a business’ purpose, but they should also reflect the needs of stakeholders. At the same time, the scope of sustainability should not just cover environment factors, such as an organization’s emissions, use of resources, and impact on the environment, but also encompass social factors, including how well it looks after its staff, its supply chain management, product responsibility and investment in the communities in which it operates.
The Drainage Services Department (DSD) aims to support the sustainable development of Hong Kong through providing world-class wastewater and stormwater drainage systems. Eddie Pak, Assistant Director, Electrical and Mechanical, at DSD, explains that it achieves this goal through creating what it describes as blue-green infrastructure, with blue referring to rivers and water bodies, and green referring to landscape greening.
The organization’s aim is for Hong Kong to function like a sponge, with rainwater collected, stored, and purified, before being either used as needed or discharged into the sea. “DSD has incorporated sustainable water resources management concepts into our newly constructed facilities, including rainwater harvesting systems, underground stormwater storage systems, rain gardens and porous pavements,” Pak says. These innovations enable more rainwater to be collected and stored for use as needed, relieving pressure on Hong Kong’s other water resources.
At the same time, DSD tries to revitalize rivers and other water bodies, and “green” sewage treatment facilities, to not only promote biodiversity, but also create space that can be enjoyed by the community. “We also strive to promote water-friendly activities so that the public can enjoy the river facilities and experience the value of multi-functionality of the water bodies so as to treasure the water bodies and jointly create a more liveable environment,” he says.
Its sustainability initiatives do not end there, with the organization also promoting the use of renewable energy, taking steps to reduce its energy consumption, focusing on the wellbeing of its staff and introducing the New Engineering Contract, a more collaborative model that focuses on joint management and risk-sharing with its contractors, to help establish amicable working relationships, while also minimizing the risk of project delays.
DSD drew up its current sustainability vision in 2007, when it adopted a more proactive approach to supporting Hong Kong’s sustainable development due to the increased challenges created by climate change. “In the face of the challenges brought by climate change and diminishing natural resources, sustainable infrastructure is crucial for Hong Kong to achieve sustainable development,” Pak says. “More than just boosting economic growth, creating more jobs and improving productivity, sustainable infrastructure also enhances people’s quality of life by reducing carbon emission and pollution, improving resilience to climate change and disaster, protecting our vital natural resources and environment and promoting financial stability.”
Eddie Pak, Assistant Director, Electrical and Mechanical, at the Drainage Services Department
DSD has established a sustainability management structure to continuously monitor and improve its sustainability performance, including a Green Management Committee and Energy and Emission Management Team which set objectives and targets to benchmark its environmental performance. It is also focused on improving its sustainability reporting. It has published sustainability reports since 2012/13, and ensures they meet the most up-to-date Sustainability Reporting Standards issued by the Global Reporting Initiative.
It also commissions an independent consultant to conduct annual stakeholder engagement exercises to make sure its reports address their concerns, while its reports are verified by an independent assurance agency to ensure their accuracy, reliability and credibility.
Pak credits DSD’s sustainability practices for boosting staff morale and increasing employee loyalty and productivity by making them proud to work for the organization. The policies have also increased the organization’s financial performance and productivity. For example, he says using a new engineering contract for the Happy Valley Underground Stormwater Storage Scheme led to the project being completed 14-months early saving around HK$110 million.
DSD is delighted to have received a special mention in the Best Corporate Governance Awards (BCGA), notes Pak. “It is an important recognition of DSD’s effort in raising governance standards and encouraging continuous improvement in our governance and sustainability reporting.”
Engaging with consumers
Beverage company Vitasoy sees sustainability as being integral to its purpose as a company. The organization was founded 80 years ago with the aim of helping to combat malnutrition through providing nutrient-rich plant-based drinks.
Simeon Cheng, Group Director – Sustainability and Corporate Communications at Vitasoy, says: “We started with a very socially responsible act, and we have carried this purpose forward to today. We believe that having a firm commitment to deliver on this purpose is key to being successful.”
The group formalized its sustainability framework in 2015, taking a two-pronged approach of making the right product, and making the product in the right way.
The first part of this strategy has seen it rollout healthier drinks that are lower in sugar and fat, and contain more nutrients. The second part sees it strive to make its products in an environmentally-friendly way.
Getting buy-in from consumers is particularly important to Vitasoy. To this end, the company has put a lot of effort into encouraging consumers and other stakeholders to recycle its cartons, actively engaging with schools, and placing recycling bins in housing estates, shopping malls and convenience stores.
Cheng credits the group’s sustainability initiatives, including its push to make its products healthier, for driving innovation and helping it to expand into new markets. It has also enabled Vitasoy to gain the trust of both consumers and investors, who Cheng says are increasingly putting more weight on environmental, social and governance (ESG) factors when making investment decisions. “When investors come to see us, they ask to spend time with our chief executive officer and financial people, and then they request an equal amount of time with me. I end up answering an equal amount of questions, if not more,” he says.
The group uses external ESG ratings, such as the Hang Seng Sustainability Index and Dow Jones Sustainability Index, to benchmark itself against international best practices and identify any gaps it needs to address.
It is also working to improve the quality of its ESG reporting. To make its sustainability report more focused, it has moved information that is important but does not change year-on-year to its sustainability website, with the report covering the performance of its sustainability programmes during the past year.
In addition, the group not only publishes positive results, but also reports on areas where it has missed its sustainability targets. “To issue a completely clean report card is unbelievable, and could easily be perceived as ‘green washing.’ Investors understand that we are setting ambitious targets not just ones we know we can meet,” Cheng says. Explaining why Vitasoy has missed a target and what steps the company is taking to ensure it meets it in future also helps to build trust, he adds.
To companies looking to introduce sustainability practices, Cheng recommends getting a materiality assessment done to understand which areas are most relevant to their business. He also suggests starting as soon as possible, pointing out that it is much easier to introduce sustainability initiatives when a company is smaller than when it has expanded.
Cheng describes Vitasoy as being absolutely thrilled to have won a BCGA award. “To get an award from a reputable professional organization like Hong Kong Institute of CPAs is a very strong endorsement that we are on the right track,” he says.
“To issue a completely clean report card is unbelievable, and could easily be perceived as ‘green washing.’”
Stock exchanges are natural advocates of sustainability because of the role they play in promoting market stability, according to Tori Cowley, Group Chief Communications Officer, at Hong Kong Exchanges and Clearing Limited (HKEX). “Sustainability and sustainable practices are richly embedded in stock exchanges because they cannot put their own performance ahead of the sustainability and functioning of the markets and the people who rely on them,” she says.
HKEX is no different. Cowley points out it wears the “tri hat” of being a market regulator in Hong Kong, an operator of the market, and a public company. “As a market regulator and operator, we have a mandate to ensure the sustainable development of fair and orderly financial markets, and as a listed entity, there is an obligation for us to lead by example. Our sustainability practices are the DNA of our business. They are part of who we are.”
HKEX has been promoting best practice in corporate governance in Hong Kong for more than 20 years. It produced its first corporate social reporting (CSR) filing as a public company in 2004 and its first CSR report in 2008. “We were quite pioneering in Asia,” Cowley says. Its sustainability practices focus on the areas of markets, people and operations, with the underlying aims of building resilience, driving innovation, attracting talent and connecting stakeholders.
As an organization, it recently launched its own foundation to support community projects that address various social and environmental challenges. It also has a volunteer scheme for staff, promotes recycling and recently set up a COVID-19 relief programme.
On the markets side, it focuses on promoting good corporate governance, ESG, sustainable finance and innovation. To encourage best practice among listed companies, HKEX has adopted a “comply or explain” approach to corporate governance. “You don’t just tick boxes. If you don’t fulfil something you have to explain why. It makes businesses think about all elements of sustainability,” Cowley explains.
HKEX has seen a number of benefits to having good sustainability practices. Internally, Cowley says it helps with risk management and better decision making, as well as employee engagement and retention. Externally, its practices promote a better understanding among investors and other stakeholders about what HKEX does, which is reflected in its brand value and corporate valuation.
The organization reviews its sustainability programme each year as part of its annual review cycle to ensure it is putting its resources to the best use and staying ahead of trends. To this end, it recently announced the creation of a new Sustainable and Green Exchange (STAGE), which will act as a platform for data and information on sustainable and green finance investments in the region – the first of its kind in Asia. Through the platform, HKEX aims to help issuers raise awareness of their sustainable and green financial products, and encourage investors, asset managers and advisors to play an active role in enhancing Hong Kong’s green finance ecosystem, to further reinforce the sustainability of its financial markets.
Cowley advises companies wanting to introduce sustainability practices to talk to their stakeholders to help identify which issues are most important to their business. She also urges them to be brave and start straightaway, setting ambitious goals and seeing sustainability as a journey. Finally, she says they should commit to producing informative annual reports to give stakeholders enough information to form a proper opinion on what they are doing in the sustainability arena.
Cowley is delighted that HKEX’s efforts in sustainability have been recognized with a BCGA award. “It is always nice to receive awards, but particularly so in this area. We want Hong Kong to be a global champion of sustainability,” she says.
“You don’t just tick boxes. If you don’t fulfil something you have to explain why. It makes businesses think about all elements of sustainability.”
As a judge of the awards, one of the key factors Dr Eva Chan, Founding Chairman and Fellow Member of Hong Kong Investor Relations Association, looks for when evaluating companies’ sustainability initiatives is whether the initiatives are fully integrated into the organization’s corporate strategy.
She explains that if sustainability is not fully integrated in this way, there is a danger that it is just something the company is doing outside of its main business and not something that is central to its operations.
She adds that it is also important that sustainability initiatives have the full support of board of directors and the management. “If the management is committed and really sees sustainability as an important issue for the long-term growth of the company, they will allocate more resources to it.”
Chan says she has seen a significant change in companies’ attitude towards sustainability in recent years, which she attributes in part to the stock exchange’s requirement for listed companies to produce an ESG report. She explains that this requirement has helped to highlight the importance of sustainability to senior management, with many companies going beyond the minimum requirements set out by HKEX. “We are seeing lots of improvements in the quality of reports. Many companies are not just following the guidelines of the HKEX but are also making voluntary disclosures,” she says.
Chan expects the quality of ESG reporting to further increase when new “comply or explain” disclosure rules on climate change and social issues become mandatory for listed companies from 2021. “It will make companies really have to think about why they may not be complying and what they could do in future in order to comply,” she says.
Over the longer term, Chan thinks having the commitment of the board of directors and senior management is also an important factor in improving sustainability reporting. She suggests that training should be provided for senior management to help them understand the importance of sustainability, so that they genuinely incorporate it into their business, rather than just producing an ESG report for compliance reasons.
One area is which Chan would like to see an improvement in sustainability reporting is for companies to not only highlighting the positive aspects of their performance, but also the negative ones, such as where they have missed targets. “Most listed companies only want to present good things and not things that are unfavourable. I think the new “comply or explain” regulations will go some way to addressing this issue,” she says. Chan adds that the new rules should also help to focus the attention of board directors on ESG issues. “They need to understand why ESG is so important and not just do a report for compliance reasons,” she says.
Chan points out that investors are also increasingly focusing on sustainability issues, which is helping to drive positive change. “Before they make an investment, investors ask a lot of questions about how the company is integrating ESG into its business model. There are also a lot of new funds that only invest in companies with good ESG ratings. It gives an incentive to listed companies to do better in this area,” she says.
With investors, consumers and other stakeholders placing increased emphasis on sustainability, organizations should ensure ESG is at the heart of their operations.
Look out for the fourth part of the BCGA at 20 series in the December 2020 issue of A Plus.
The Institute’s Best Corporate Governance Awards launched in 2000, when there were only three categories, in which diamond, platinum and gold awards, could be given out, with overall one grand award. In 2019, the awards had grown to include six main categories, Sustainability and Social Responsibility Reporting Awards, Self-Nomination Awards, and website corporate governance information commendations, amounting to over 40 possible awards.