The deadline for the Hong Kong SFC’s climate-related requirements is fast approaching

      The Hong Kong Securities and Futures Commission (SFC) issued Consultation Conclusions on the Management and Disclosure of Climate-related Risks by Fund Managers in August 2021 which will amend the Fund Manager Code of Conduct (FMCC) to require Hong Kong fund managers to take climate-related risks into consideration in their investment and risk management processes, together with making appropriate disclosures.

      Who does the SFC climate risk disclosure apply to?

      The new regulations apply to all discretionary fund managers managing a Collective Investment Scheme.

      How the requirements are applied depends on the relevance and materiality of climate-related risks to the investment strategies. In determining how to comply with the requirements, fund managers should apply the principle of proportionality.

      Where fund managers delegate the investment management function to sub-managers, they retain the overall responsibility for meeting the SFC’s requirements.

      Timeline for SFC compliance

      The requirements are bifurcated between:

      • large entities, those with at least HK$8 billion (approximately US$1 billion) in assets under management (AUM) across any three months in the past reporting year (large fund managers)
      • and the remainder.

      Large fund managers must also comply with enhanced requirements but have until 20 November 2022 to do so (the baseline requirements must be complied with by 20 August 2022 for large fund managers, and those that do not fall into this category have until 20 November 2022 to comply).

      Baseline requirements Enhanced requirements
      Large fund managers 20 August 2022 20 November 2022
      Other fund managers 20 November 2022    –

      Summary of the SFC climate risk disclosure requirements:

      Requirements are broken down into four categories:

      • Governance – defining the board’s role and responsibilities for managing climate related risk, together with establishing appropriate internal controls and procedures to manage climate risk.
      • Investment management – identifying relevant and material physical and transition climate-related risks. Where it is determined that such risks are irrelevant, appropriate records must be obtained explaining why climate-related risks are deemed irrelevant.
      • Risk management – identifying, assessing, managing and monitoring relevant and material climate related risks (for large fund managers complying with the enhanced standards, scenario analysis should also be considered and reasonable steps taken to measure Scope 1 & 2 GHG emissions of the portfolio)
      • Disclosures – entity level and fund level disclosures are required using a proportionate approach (for large fund managers complying with the enhanced standards, entity level disclosures should include engagement policy and at the fund level disclosures of Scope 1 & 2 GHG emissions if available).

      Fund managers are expected to reevaluate the relevance of climate-related risks at least annually and update the disclosures as necessary.

      How can Waystone Compliance Solutions help?

      Waystone Compliance Solutions provides a comprehensive set of solutions to ensure firms can meet all of their ESG investing challenges at both the firm level and fund/product level.

      Waystone offers services that are tailored to the unique requirements of your business. Our highly-experienced ESG advisors have detailed knowledge of ESG standards, regulations and best practice across all major jurisdictions. We offer an unparalleled and comprehensive service that will ensure your business becomes ESG ready and remains at the forefront of developments to allow you to raise capital and continue to be successful.

      Contact Waystone Compliance Solutions today to learn more about our APAC solutions.

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