Oversight: Hong Kong issues Revised Circular on ESG and Climate Funds

Introduction

On 29 June 2021, the Securities and Futures Commission (SFC) issued a circular entitled Circular to management companies of SFC-authorized unit trusts and mutual funds - ESG funds (Revised Circular), which revises and supersedes its previous circular on green or environmental, social and governance (ESG) funds issued in April 2019 (2019 Circular).

The Revised Circular sets out SFC's expectations on disclosure of retail funds' ESG-related product features.  The stated objective of such disclosure is to assist investors' understanding and assessment of whether a fund's features align with their investment needs. In particular the Revised Circular provides that: (i) in addition to the disclosure in the ESG funds' offering documents, certain information be disclosed (as reviewed and updated from time to time) on the manager's website or by other means; and (ii) an ESG fund is expected to conduct periodic assessment and reporting as regards ESG at least annually. It also provides clarifications to some unanswered questions in the 2019 Circular and has been updated in line with the global regulatory developments. For example, the SFC has taken into account the Sustainable Finance Disclosure Regulation (SFDR) enacted recently in the European Union, and clarified Hong Kong's treatment of UCITS funds which have complied with the disclosure and reporting requirements under SFDR. Each of these are further explained below.

A publicly available register of ESG funds (ESG Register) currently authorised by the SFC (and so offered to the public) is maintained by the SFC on its website. As of 15 July 2021, there are 57 unlisted ESG funds and three exchange-traded ESG funds included in the ESG Register.

This Oversight gives an overview of the key features of the Revised Circular and examines their implications.  In the Revised Circular, the SFC has provided additional guidance for funds with climate-related focus (Climate Funds) - the relevant specific disclosure requirements are also discussed below, where appropriate.  At the back of the Revised Circular, there are two Annexes - the first contains illustrative examples of ESG funds whilst the second is a prescribed confirmation required to be provided by managers of ESG funds to the SFC.