Deadlines approach for SFC climate disclosure rules

New rules for management and disclosure of climate-related risks by Hong Kong fund managers are due to come into effect in August and November this year depending on the size of the manager. The changes, published in 2021, will ultimately amend the Fund Manager Code of Conduct. With ESG top of the global regulatory agenda, all licensed corporations would be wise to act sooner rather than later in understanding and managing climate-related risks.

In August 2021 the SFC published new regulations and expected standards on the management and disclosure of climate-related risks by fund managers managing collective investment schemes (CISs). These changes were published in a consultation conclusion and circular, and will later amend the Fund Manager Code of Conduct.

The rules require managers of CISs to take climate-related risks into consideration in their risk management processes and to make appropriate disclosures. They cover governance, investment management, risk management and disclosure.

There are baseline requirements applicable to all CIS managers, and enhanced standards for larger ones.

The circular gives practical examples, demonstrating how fund managers could comply with the new requirements.

Who is in scope of the new regulations?

The new regulations apply to discretionary managers of CISs; they do not apply to other types of portfolio managers. Managers with more than HK$8bn in fund assets for any 3 months in the previous reporting year (Large Fund Managers) must also comply with enhanced standards.

The level of compliance depends on the activity of the fund manager , based on the relevance and materiality of climate related risks, and managers of CISs who assess climate-related risks not to be relevant might only need to undertake an annual assessment (this could apply, for example to passive fund managers who run a full replication strategy).

Where fund managers delegate investment management to sub-fund managers, they retain overall responsibility for compliance.

The new rules do not apply to a fund manager who provides investment advice to a separate team of an affiliate, or acts as a distributor of funds with no investment management discretion.

What are the new regulations?

In scope managers must manage and disclose climate-related risks by complying with

  • changes to the Fund Manager Code of Conduct,
  • the Baseline Requirements, and
  • the Enhanced Standards (if a Large Fund Manager),

as set out in the circular.

Who makes the disclosures, and how are they made?

The ROOF (the manager Responsible for Overall Management of Fund) is responsible for the disclosures. These disclosures should be made via

  • websites,
  • newsletters, or
  • reports,

and should provide cross-references to help investors find relevant information.

Disclosures should be proportionate to the degree climate-related risks are considered in the investment and risk management processes, and should be reviewed at least annually, or more frequently if appropriate, and fund investors should be informed of any material changes as soon as practicable.

When do the new regulations come into force?

Large Fund Managers:

  • Baseline Requirements: 20 August 2022
  • Enhanced Standards: 20 November 2022

Others

  • Baseline Requirements: 20 November 2022
  • Enhanced Standards: N/A

Large Fund Managers with funds with a financial year-end date after 20 November 2022 are required to disclose to investors the carbon footprints of those funds calculated based on the positions as of the financial year end. The disclosure of this metric should not be later than the usual due date of the funds’ audited accounts or annual reports.

Large Fund Managers can choose to disclose the carbon footprints of funds more frequently, and supplement with additional metrics as appropriate.

 

Download our summary of the SFC climate disclosure rules

We have mapped out the scope of the regulations, the changes to the Fund Manager Code of Conduct, and the baseline requirements and enhanced standards in an easy-to-use reference guide as an appendix to this article.


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