HK’s funds industry needs to assess climate-related risks ahead of new deadlines:PwC

New SFC guidelines will enter into force on 20 August.

Hong Kong’s funds industry will need to assess and determine the relevance and materiality of their climate-related risk for their portfolio before a new set of guidelines takes effect, the PwC said.

The Securities and Futures Commission (SFC) will be implementing new disclosure requirements on 20 August, which will be applicable to fund managers with at least HK$8b in assets under management.

Fund managers will need to see if the climate-related risks for their portfolio investments are “irrelevant,” “relevant but immaterial,” or “relevant and material.”

“The categorisation of investment funds will depend on a number of factors, such as investment strategy and time horizon,” Jessica Broomhall, Associate Director, Asset & Wealth Management, PwC Hong Kong, said.

“The geographical location of investments, the industry, the level of emissions, and the quality of management are just some of the issues that may determine if there is a material climate-related risk. Funds may need to develop a road map to ensure that they are on top of all these factors so that they can make the appropriate disclosures.”

Moreover, PwC expects this to pose challenges for fund managers, particularly larger ones that will need to meet the enhanced standards of the SFC.

“Investment funds are exposed to climate-related risks just as they are exposed to market risk, liquidity risk and counterparty risk,” Gaven Cheong, Partner and Head of Investment Funds at Tiang & Partners, said.

“Consequently, the SFC now requires funds to take these risks into consideration when making investments. Climate-related risks should be reflected in the fund’s overall risk management processes and in its disclosures to investors.”

The new guidelines seek to ensure board and management-level oversight of climate-related issues; and identify climate-related risks relevant to their investment strategies.

It also consider climate-related risks in risk management procedures; as well as publicly disclose how they manage climate-related risks.

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