The Quality of Environmental KPI Disclosure in ESG Reporting for SMEs in Hong Kong

Abstract

Since 2016, the Hong Kong Stock Exchange (“HKEx”) has required listed companies to issue Environment, Social and Governance (“ESG”) reports annually. The purpose of ESG reports is to inform stakeholders and the general public of listed companies’ performance in ESG aspects. For big corporations, issuing ESG reports and reporting their key performance indicators (“KPIs”) are not a problem because they have been doing so voluntarily for years. Rather, it is a challenge for small and medium-sized listed companies (“SMEs”) to report properly because they may be lacking in knowledge, skills and motivation, etc. In particular, the quality of quantitative measurements on ESG data disclosure remains variable. This research effort adopted a scoring methodology to assess the relevance and completeness of the environmental KPIs, which are semi-mandatory to disclose. A total of 138 SMEs were proportionately selected by a stratified sampling method based on the 11 categories of industries set by the Hang Seng Industry Classification System. The disclosure quality of these selected sample companies’ environmental KPIs was assessed by scoring. We found that the average disclosure quality score was a low 1.98. “Energy Use Efficiency” was the highest-performing KPI, while “The Environment and Natural Resources” was the lowest-performing KPI. Across the different industries, Industrial Goods achieved the highest disclosure quality score, while the Telecommunication industry had the worst score. This research also explored some of the common problems faced whilst reporting environmental KPIs.