Pandemic financial impact disclosure lacking

The coronavirus pandemic disrupted the daily business and operations of companies and public sector organizations around the world, putting corporate governance and sustainability practices to the test.

The Hong Kong Institute of Certified Public Accountants says that good ESG policies, strategies and practices have a positive impact on a company's reputation and ability to attract long-term investment.

Meanwhile, HKICPA says that there is room for local listed companies to improve in terms of providing specific information and detailed analyses of the impact of the pandemic on operations, liquidity, and overall financial position as well as on their strategies for dealing with the pandemic in the short- and long-term.

Earlier in March, HKICPA undertook research to investigate how local listed companies disclose the impact of coronavirus in annual reports for the financial year ended March 31, 2020.

Hong Kong Exchanges and Clearing (0388) issued guidance on such disclosures in April 2020.

Celebrating their 20th anniversary, the HKICPA's Best Corporate Governance Awards, BCGA, continue to set a benchmark for current corporate governance, CG, and sustainability standards and best practices in Hong Kong, said Johnson Kong, chairman of the Judging Panel of the Best Corporate Governance Awards 2020.

CLP Holdings (0002) has received a special Outstanding Achievement Award, the Corporate Governance Platinum Award and a Sustainability and Social responsibility Award in the Hang Seng Index category, marking the company with the most awards this year.

The judges have highlighted that as a family company, CLP Holdings has excellent corporate governance, setting a good example for listed companies.

Hong Kong Exchanges and Clearing has won the Corporate Governance Gold Awards in the category while the top Diamond Award has not been given in three consecutive years.

"This year has been a year of disruption, due to the ongoing US-China trade dispute and the global COVID-19 pandemic, and it is interesting to note that the Awards were launched in 2000, the year that the dot.com bubble began to burst," says Johnson.

Companies and public sector organizations with good CG deeply ingrained are more resilient and are also more likely to be able to weather the storm and recover more quickly once it has passed.

The senior management of well-run companies and financiers often observe that companies with good governance can get easier access to funds and, potentially, a lower cost of capital, said HKICPA.

Loren Tang, chair, organizing committee of BCGA 2020, highlights that it is important for investors to be provided with timely and specific information about the impact of the virus on businesses, and how companies have been addressing the risks and uncertainties, to make informed investment decisions.

About 500 annual reports and around 500 sustainability reports were considered initially. The judges saw some positive signs and decided to present a record 30 awards as seven new awardees emerged, adds Tang.

There is increasing awareness of climate change as the environmental, social, and governance issue that could have major implications, and more companies are aligning with international standards on disclosure, including the Global Reporting Initiative and the recommendations of the Task Force on Climate-related Financial Disclosure, in addition to the HKEX ESG Reporting Guide.

"Most awardees in the Sustainability and Social Responsibility Reporting section, from all different sectors, highlighted climate resilience as an issue. This issue is also of interest to investors and the Securities and Futures Commission is currently consulting on proposed requirements for fund managers to take climate-related risks into consideration in their investments and to make appropriate disclosures to investors," says Wendy Yung, judge of BCGA 2020.

HKICPA also emphasizes that independent non-executive directors need to bring an impartial mindset to board discussions and strategy oversight, and be prepared to challenge controlling shareholders and their representatives, where necessary.

"Generally, we would urge companies to give more weight to the merits of board refreshment and greater diversity, not only in terms of gender, but also age and other factors", says Yung.