As the world faces an array of challenges and consumers and citizens become ever more conscious of the social and environmental impact of the companies that dominate their lives, having a robust economic, social, and governance (ESG) policy in place has become an essential component for any company looking to IPO.
At the BEYOND Expo 2022 tech conference, held online in the BEYOND Metaverse, Joe Lai, co-head of APAC IBCM and Credit Suisse; Allen Lau, Capital Market Services Group – National Leader at Deloitte; and Winnie Han, Senior Vice President of HKEX, discussed whether it’s a good time to go public in the current climate and why ESG has become mainstream.
The text below has been condensed and edited for clarity.
Allen Lau, Capital Market Services Group – National Leader at Deloitte
I think ESG is one of the hot topics in the market. It’s not just a local, but a global agenda and ESG has become an increasingly important investment area for the global investment community.
The Chinese government has a 2060 target for decarbonization, which also drives the importance of ESG in the market as well. That’s why we expect more ESG companies are coming up and drive more potential listing of ESG companies in the future.
Regarding how ESG creates challenges or perhaps helps companies when it comes to going public, ESG is at the beginning of its popularity in the global capital markets, but the professional investment community is now more familiar with the business models of these companies’ investment products and portfolios, and also impact the value of ESG on the company’s valuation, so these should be the factors that we consider during the IPO process.
However, ESG is relatively new to a number of retail investors, and in markets like Hong Kong and the mainland, which are still quite dominated by retail investors, it might take more time for them to understand and get familiar with the business models of these companies and the impact and the related investment risk.
Besides, the market doesn’t have many of these ESG companies with their shares yet, so being able to identify comparable stocks in the secondary market to conduct evaluation exercises for those potential issues will also be challenging, which also means that there still remains some uncertainty about how these companies or ESG elements will be valued when they go public.
But on the other hand, there’s actually another opportunity for these ESG companies to take advantage, being the first batch of ESG companies listed.
Joe Lai, co-heads of APAC IBCM and, Credit Suisse
With the new ESG rules on all these new disclosure requirements, I don’t think it will impact the type of company that would be qualified to list in Hong Kong or people’s willingness to list in Hong Kong, because the Hong Kong market is very internationalized with ample quality, so I wouldn’t think any kind of incremental ESG requirement would actually impact the issuer’s willingness to come to Hong Kong. Therefore in terms of the types of companies, ESG disclosure rules won’t create any change to the kind of industry or the geographical origin of the listing applicants that we see here in Hong Kong.
But one thing is important: all the listing applicants will probably need to have a very strong ESG mindset because, at the end of the day, a lot of these disclosures are basically disclosing what you have done to promote the ESG concept, but what’s fundamental is actually what kind of governance the company has in place to ensure the company is compliant and can fulfill the international ESG standard.
Overall, people who wanted to come to the Hong Kong market are already aware of the importance of fulfilling certain ESG requirements, so I think we’re making a lot of progress. At least from my end as an underwriter, we don’t feel it creates any difficulty for us to pitch our client to list in Hong Kong versus other markets.
Winnie Han, Head of China Issuer Services, Senior Vice President, HKEX
As a regulator, we have been promoting ESG among our more than 2,500 listed companies. We also introduced the ESG reporting guide back in 2013, then revised the guide in 2020 to require ESG commitment and disclosures for all environments and social PPI on a comply or explain basis.
We also provide a detailed online director training program, guidance materials, and webinars about ESG to help our listed companies build a more sustainable business sense and put their ESG principles into practice.
So the above measures continue to upgrade our market quality and show our focus on building a sustainable business and investing long-term. We have already welcomed some leading EV brands to list here in Hong Kong, for example, Xpeng and Nio. We are seeing more from the sector and the industrial value chain, including upstream players, and we think you will see more ESG-related issuers listing in Hong Kong as soon as later this year.