Overview of the ESG Survey and the requirements mandated by the SFC and the MAS in relation to the establishment of ESG funds in Hong Kong and Singapore.
The Securities and Futures Commission of Hong Kong (SFC) first broached the topic of environmental, social and governance (ESG) issues in September 2018 when it published its Strategic Framework for Green Finance (Framework). In the Framework, the SFC mentioned that it had been monitoring developments since the 2015 Paris Agreement. The Framework identified two key areas of interest: (i) listed companies' disclosure of environmental information and climate-related risks and (ii) asset managers' integration of ESG factors into their investment process, enabling investors generally to make informed investment decisions. The Framework identified as a challenge the lack of regulatory clarity with regard to the duty of asset managers to consider sustainability factors and risks in the investment decision process. In terms of action, the Framework indicated that the SFC would first conduct a survey of Hong Kong-based asset managers to assess the market for ESG investing in Hong Kong. It can then formulate its regulatory policy with regard to ESG.
The Framework was followed by a circular in March 2019 which heralded the Survey on Integrating Environmental, Social and Governance Factors and Climate Risks in Asset Management (ESG Survey). The results of the ESG Survey were published in December 2019. Prior to this the SFC published, on 11 April 2019, its Circular to management companies of SFC-authorised unit trusts and mutual funds – Green or ESG funds (ESG Fund Circular).
This Oversight sets out a brief overview of the ESG Survey and the requirements mandated by the SFC and the Monetary Authority of Singapore (MAS) in relation to the establishment of ESG funds in Hong Kong under the ESG Fund Circular and the situation in Singapore. It first provides a general market overview of the ESG asset management landscape, and then turns to discuss the initial application and ongoing compliance requirements for ESG funds in Hong Kong as well as the consultations by the MAS regarding proposed Guidelines on Environmental Risk Management (Singapore Guidelines) for fund management companies and real estate investment trust managers. For the purposes of this Oversight, the focus is on requirements relating to SFC-authorised retail funds.
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