In 2014, the Hong Kong Exchange and Clearing Limited proposed certain changes to the Code Amendments regarding risk management and internal control of listed companies.
Those companies with financial years starting from 1 January 2016 are required to disclose how they implement these changes. Companies must also “comply or explain” on Key Performance Indicators (KPIs) on the environmental area (Aspect A) of Environmental, Social and Governance (ESG) reporting starting from 1 January 2017. Going into the second year after the amendment, our Corporate Governance Review will continue to focus on how the companies have responded to these changes and take a closer look into the trends, the disclosure practice and contents in their annual reports.
In this year’s study, we reviewed 472 Hang Seng Composite Index (HSCI) companies listed on the Hong Kong Stock Exchange. We continue to see a steady increase in the level of disclosure on Code compliance, internal control and especially risk management this year. Amongst the HSCI companies, 74% of them had included a specific statement about the effectiveness and adequacy of their risk management system.
From our survey, however, we found that the level of detail is yet to be improved given the disclosure is mandatory. FinTech is a rising hot topic of discussion in addition to Cyber Security this year. FinTech is revolutionizing the way businesses operate today. To ensure the effectiveness and reliability of FinTech, Cyber Security is fundamentally essential and even of paramount importance in advancing this technology of the future. Data breach, phishing, ransomware and mobile application vulnerability are all affecting how companies conduct their businesses over the Internet. Similar to previous years, we also examined the level of disclosure in the annual reports with respect to the information security awareness of listed companies.
ESG reporting is also required to complement financial reporting for listed companies with financial years starting from 1 January 2016. More emphasis is placed on ESG reporting especially after KPIs are required to be disclosed by companies. With the rising importance and value of ESG reporting, we hope to see more disclosure aligned with the international standards and more innovative ideas in establishing ESG strategies not only to fulfill the companies’ mission and vision but also address environmental and social issues.
We hope that this year’s review is of value in helping you with formulating your corporate governance strategies more effectively. Lastly, we would be delighted to hear your thoughts and comments.
Download2017 Hong Kong Corporate Governance Review
