Investing from an ESG perspective

As the global market attaches higher importance to sustainability, investors should take the environmental, social and governance (ESG) factors into consideration in addition to the financial returns while making investment decisions.

ESG, rather than an asset class, has emerged as an important indicator integral to investment decisions in recent years. Traditionally, investors mainly focus on financial metrics such as returns and debt-to-equity ratio. However, the worsening climate change has diverted capital to low carbon and sustainable investment schemes, products, and companies that are more resilient to climate change. Instead of considering the financial returns only, investors should also consider major ESG factors to fully evaluate long-term value and associated risks.

Climate change and sustainability present both opportunities and risks. It is essential for investors to examine the financial information and ESG disclosures of the products and companies they invest in. At present, SFC-authorised ESG funds are required to outline their ESG features, measurement criteria, and investment strategies in the offering documents. They also need to regularly assess their progress in achieving the stated ESG objectives and make disclosure at least annually, allowing investors to check whether the funds’ ESG performance meets their expectations. Meanwhile, listed companies in Hong Kong are required to publish an annual ESG report. In April 2024, the Stock Exchange of Hong Kong Limited (HKEX) announced the phased implementation of enhanced climate disclosure requirements in January 2025, marking the first step towards aligning local sustainability disclosure requirements with the International Sustainability Standards Board (ISSB) requirements.

Many investors believe that ESG investing means a lower return. However, more studies indicate that sustainable investments integrating ESG factors tend to be less volatile and can mitigate certain long-term risks. Today, climate-related risks are widely recognised as financial risks that may affect investment returns. Therefore, ESG investments are not detrimental to returns. They can also benefit the environment and society. As revealed in the Hong Kong Government’s Green Bond Report, the funds raised through green bonds, including retail green bonds, will only be applied to qualified green projects, such as GREEN@WAN CHAI, O · PARK1, I．Park1, and various green buildings and hospitals managed by different government departments. This means that investors of retail green bonds are indeed helping the city to combat climate change and protect the environment.