As the world faces a range of challenges and consumers and citizens become more aware of the social and environmental impact of the companies that dominate their lives, having a strong Economic, Social and Governance (ESG) policy is a must. has become an essential component. For any company looking for an IPO.
Feather Beyond Expo 2022 Tech Conference, held online at BEYOND Metaverse, by Joe Lai, Co-Head of APAC IBCM and Credit Suisse; Alan Lau, Capital Market Services Group – National Leader at Deloitte; And Winnie Han, Senior Vice President of HKEX, discussed whether it is a good time to go public in the current environment and why ESG has become mainstream.
The text below has been condensed and edited for clarity.
Alan Lau, Capital Market Services Group – National Leader at Deloitte
I think ESG is one of the hottest topics in the market. It is not just a local, but a global agenda and ESG has become an important investment area for the global investment community.
The Chinese government has a target of 2060 for decarbonization, which also increases the importance of ESG in the market. So we expect more ESG companies to come and promote more potential listings of ESG companies in the future.
How ESG creates challenges or perhaps helps companies when going public ESG is at the beginning of its popularity in global capital markets, but the professional investment community is now more familiar with the business models of these companies’ investment products and portfolios, And valuations of the company also affect the value of ESG, so these should be factors that we consider during the IPO process.
However, ESGs are relatively new to many retail investors, and in markets such as Hong Kong and the mainland, which are still dominated by retail investors, it may take them longer to understand and become familiar with the business model of these. Companies and influence and related investment risks.
In addition, many of these ESG companies are not yet on the market with their own shares, so it will be challenging to be able to identify comparable shares in the secondary market to conduct a valuation exercise of those potential issues, which also means that There is still some uncertainty about how these companies or ESG elements will be evaluated when they go public.
But on the other hand, for these ESG companies being the first batch of listed ESG companies, there is actually another opportunity to take advantage.
Joe Lai, Co-Head of APAC IBCM and Credit Suisse
With the new ESG rules on all these new disclosure requirements, I don’t think it will affect the type of company that would be eligible to list in Hong Kong or the willingness of people to list in Hong Kong, as the Hong Kong market is very internationalized With enough quality, so I don’t think any kind of incremental ESG requirement will really affect the issuer’s willingness to come to Hong Kong. So in terms of the types of companies, the ESG disclosure rules will not change the type of industry or geographic origin of listing applicants that we see here in Hong Kong.
But one thing is important: all 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 revealing what you did to promote the ESG concept. But what is fundamental is exactly what kind of governance the company has to ensure that the company is compliant and can meet the international ESG standard.
Overall, those who wanted to get into the Hong Kong market are already aware of the importance of meeting certain ESG requirements, so I think we are making a lot of progress. At least from my end as an underwriter, we don’t think it creates any difficulty for us to list our client in Hong Kong vs other markets.
Winnie Han, Head of China Issuer Services, Senior Vice President, HKEX
As a regulator, we are promoting ESG among our over 2,500 listed companies. We also introduced the ESG Reporting Guide in 2013, then revised the guide in 2020 to require disclosure based on ESG commitment and compliance or interpretation for all environments and social PPIs.
We also provide a comprehensive online director training programme, guidance materials and webinars about ESG to help our listed companies make more sustainable business sense and put their ESG principles into practice.
So the above measures continue to upgrade our market quality and our focus on building a sustainable business and investing long term. We have already welcomed some of the major EV brands to be listed here in Hong Kong, for example, Xpeng and Nio. We’re seeing more across the sector and industrial value chain, including upstream players, and we think you’ll see more ESG-related issuers listed in Hong Kong later this year.