Toward a greener asset management future

Hong Kong's Securities and Futures Commission ('SFC") is on the brink of introducing mandatory climate risk management and disclosure requirements for fund managers, as the city moves to seed environmental, social, and governance ("ESG") standards in the industry. This dovetails with Beijing's recent pledge to go carbon neutral by 2060, with Hong Kong aiming to reach that milestone a decade earlier in 2050.

On 29 October 2020, the SFC issued the Consultation paper on Management and Disclosure of Climate-related Risks by Fund Manager ("Consultation") that proposes amendments to the Fund Manager Code of Conduct ("FMCC"). These address climate-related risks in four key areas: (i) governance; (ii) risk management; (iii) investment management and (iv) disclosure. They apply recommendations from the international Task Force on Climate-related Financial Disclosures ("TCFD") that seek to align disclosure and compliance framework with leading global standards. 

The Consultation also covers, where investment management and disclosure are concerned, (a) baseline requirements for fund managers generally, and (b) enhanced standards for large fund managers with assets under management of at least HK$4 billion, or roughly US$516 million. When finalised, these criteria will be set out in a separate SFC circular that will not apply to managers of discretionary accounts, unless a client specifies that the manager incorporates climate-related risk matters in the investment mandate.

Our firm generally agrees with these developments in light of our growing worldwide ESG footprint, and we shall be making a submission to the Consultation before it ends 15 January 2021.