More Hong Kong organisations are integrating ESG-related risks into long-term strategic development, a KPMG and HKICS joint survey finds
More Hong Kong organisations are integrating ESG...
Against a backdrop of increased regulatory focus on Environmental, Social and Governance (ESG), more Hong Kong organisations are now taking ESG-related risks into consideration, however a majority have still not fully integrated these into their ERM systems or their long-term strategic planning, according to a joint survey by KPMG and The Hong Kong Institute of Chartered Secretaries (HKICS).
The report, titled Risk Management Survey: Empowering Success, focuses on governance of risk management and the risk assessment cycle. It surveyed 129 Hong Kong-based senior managers across a range of industries and types of organisation, assessing the extent to which risk management activities have been embedded within businesses in Hong Kong.
Compared to a previous survey conducted by KPMG and HKICS in 2017, there is an increase in organisations integrating ESG into enterprise risk management (ERM) and business planning. Eighty-five percent of respondents consider ESG-related risks in their long-term strategy, which coincides with an increased focus placed on ESG by regulators in recent years.
Gillian Meller FCIS FCS, President, HKICS, says: “Companies operating in Hong Kong have had to deal with increasing uncertainty. It is therefore important for organisations to become agile in identifying, assessing and managing emerging and disruptive risks as part of implementing their strategy and fulfilling their purpose. Organisations nowadays realise the importance of risk management, which allows businesses to be more prepared for the uncertainties that they need to manage as they seek to be sustainable in the longer term.”
In terms of ERM, 55 percent of survey respondents are taking ESG-related risks into consideration, but only 18 percent have fully integrated ESG-related risks into their ERM systems.
Alva Lee, Partner, Hong Kong Head of Internal Audit, Risk and Compliance Services, KPMG China, says: “Integrated Risk Management solutions, including heavier emphasis on ESG-related risks, should be implemented to provide insights to resolve challenges and facilitating improvements in the process. Also, organisations should become more agile in responding to emerging and disruptive risks, particularly in a dynamic business environment to optimise the benefits of risk management. In addition, ESG-related risks are complicated and new to organisations and by leveraging existing ERM structures, organisations can identify, assess and respond to ESG-related risks.”
The survey also found that many organisations are struggling to incorporate the concept of risk appetite into their strategic planning or decision-making process with 40 percent of respondents saying they have not developed or are still in the process of developing a risk appetite statement. Over 80 percent of respondents believe that their organisations are adequately effective in acting on identified key risks and anticipating and managing emerging risk where 14 percent of respondents said they do not have a risk profile to capture all identified risks.
In addition, the survey reveals that there is a common mismatch between the frequency of risk assessment and risk reporting, organisations are encouraged to improve the risk reporting process. Fifty-six percent of respondents update the risk level of identified risks on the risk profile at least quarterly whilst only 29 percent refresh the risk profile to identify new or emerging risks faced at least quarterly.
The survey also found that there is no significant improvement in the use of technology for risk management. This year only 25 percent of respondents said they use emerging technologies such as big data and analytics, compared to 9 percent in 2017.
Integrating ESG concerns into business strategy allows companies to capture trends upfront and stay alert to ESG risk in both operations and value chains. However, strategy, risk and sustainability teams of many organisations mostly work in silos with minimum or limited collaboration failing to create a shared responsibility for risk ownership and develop innovative solutions to address ESG-related risks.
To fully integrate ESG into ERM and long-term strategy, it is vital for a company’s Board to regularly discuss ESG matters to ensure proper attention. It is also important that the Board and management have an adequate understanding of the values and relevance of ESG-related issues to their business. Having their buy-in and support is fundamental to integrating ESG into discussions on ERM.
Pat Woo, Partner, Head of Sustainable Finance, Hong Kong, KPMG China, concludes: “With heavier emphasis on ESG around the globe, organisations’ ESG performance has been placed under the spotlight over the past years. Stronger ESG performance has been proven to be beneficial in enhancing organisations’ competitive advantages. Integrating ESG into ERM and business long-term strategy would allow organisations to better deal with ESG risks and strengthen their competitiveness.”
About KPMG China
KPMG member firms and its affiliates operating in mainland China, Hong Kong and Macau are collectively referred to as “KPMG China”. KPMG China is based in 27 offices across 25 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Hefei, Jinan, Nanjing, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou, Tianjin, Wuhan, Xiamen, Xi’an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 147 countries and territories and have more than 219,000 people working in member firms around the world. The independent member firms of the KPMG global organisation are affiliated with KPMG International Limited ("KPMG International"), a private English company limited by guarantee. KPMG International and its related entities do not provide services to clients. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG’s appointment for multidisciplinary services (including audit, tax and advisory) by some of China’s most prestigious companies.
About The Hong Kong Institute of Chartered Secretaries
(Incorporated in Hong Kong with limited liability by guarantee)
The Hong Kong Institute of Chartered Secretaries (HKICS) is an independent professional body dedicated to the promotion of its members’ role in the formulation and effective implementation of good governance policies, as well as the development of the profession of Chartered Secretary and Chartered Governance Professional in Hong Kong and throughout the mainland of China (the Mainland).
HKICS was first established in 1949 as an association of Hong Kong members of The Chartered Governance Institute (CGI), formerly known as The Institute of Chartered Secretaries and Administrators (ICSA) of London. It was a branch of CGI in 1990 before gaining local status in 1994 and has also been CGI’s China Division since 2005.
HKICS is a founder member of Corporate Secretaries International Association (CSIA), which was established in March 2010 in Geneva, Switzerland. In 2017, CSIA was relocated to Hong Kong where it operates as a company limited by guarantee. CSIA aims to give a global voice to corporate secretaries and governance professionals.
HKICS has more than 6,000 members and 3,200 students.
For more information, please visit www.hkics.org.hk
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