Clifford Chance
Hong Kong: Assessing Relevance and Materiality of Climate-related risks to Investment Strategies
5 July 2022
The clock is ticking (arguably more loudly now) as the transition periods for implementing the regulatory requirements for climate-related risks are just around the corner, following the issuance of the Securities and Futures Commission's ("SFC") Consultation Conclusions on the Management and Disclosure of Climate-related Risks by Fund Managers in August 2021 ("Conclusions Paper").
Large Fund Managers (i.e. those with assets under management in their collective investment schemes (“CIS”) which equal or exceed HK$8 billion) must comply with the base line requirements (focused around Governance, Investment Management, Risk Management and Disclosure) by 20 August 2022; and with enhanced standards (assessing the relevance and utility scenario analysis, and calculating the portfolio footprint of Scope 1 and Scope 2 greenhouse gas emissions associated with the funds’ underlying investments) by 20 November 2022.
Remaining Fund Managers (i.e. those with less than HK$8 billion assets under management in their CIS) must comply with the base line requirements (referred to above) by 20 November 2022.
The above requirements have been introduced via amendments to the Fund Manager Code of Conduct which require fund managers to take climate-related risks into consideration in their investment and risk management processes, and to make appropriate disclosures to fund investors where they have assessed climate-related risks to be relevant and material. The SFC has not sought to provide prescriptive guidance as to how to ascertain relevance and materiality, instead requiring managers to be pragmatic in assessing the relevance and materiality of climate-related risks under a qualitative and/or quantitative approach.
Our latest climate risk paper, co-authored by partner Mark Shipman together with Kher Sheng Lee of The Alternative Investment Management Association (AIMA) and Jeremy Lam of Deacons, aims to put these requirements into perspective and offers practical guidance to managers when undertaking their climate-related risk assessment.
