ESG Insights (Oct 2022) : Global Warming – Hong Kong Warming

Global Warming – Hong Kong Warming

WARMER DAYS AND NIGHTS IN HONG KONG

Hong Kong recently recorded its hottest day in September since 1884 [1], with the temperature getting as high as 37.3 °C in certain districts.

While average temperatures fluctuate on a short-term basis, the longer term trend since the 1880s is clear. According to data from Hong Kong Observatory, the 30-year average mean temperature has risen 1.38°C from 22.19°C (1892 -1921) to 23.57°C (1992 - 2021). The 30-year average maximum temperature has risen from 24.76 °C (1892 - 1921) to 26.02°C (1992 - 2021), an increase of 1.26°C.

And it’s not just our daytime temperatures that are rising – our nights are also getting warmer. Between 1961 and 1990, there were 8.73 hot nights [2] per year on average. In the 30 years from 1991 to 2020, this figure has risen to 23.60, representing a 2.7 times increase. Indeed, 2021 was a record-breaking year for Hong Kong with 61 hot nights, making it the warmest year on record in terms of number of hot nights.

GREENHOUSE GASES ACCUMULATE AND DRIVE GLOBAL WARMING

In simple terms, global warming is caused by the increasing and excess concentration of greenhouse gases (‘GHG’), including carbon dioxide, methane, nitrous oxide and other air pollutants. These GHG trap heat in the Earth’s atmosphere, acting like the glass wall of a greenhouse. The excess amount of these gases is the result of activities by humans, for example, burning fossil fuels for power generation and using gasoline to drive vehicles. The resulting temperature rise is affecting global weather patterns, particularly the more frequent occurrence of intense or extreme weather events such as heatwaves, heavy rain, hurricanes and typhoons experienced in recent decades. These developments pose significant risks to economies and societies around the world.?

HONG KONG LISTED FIRMS’ EMISSIONS AND DISCLOSURES

While listed companies are not the sole source of GHG emissions, their disclosure requirements and relatively higher level of transparency makes it easier to review their GHG emission levels.

According to data from ESG data provider ISS ESG, disclosure rates for Hong Kong listed firms have improved significantly in recent years – increasing year-on-year from 2013 to 2020 and even doubled in 2020 from 2019. This improvement in large part reflects the Hong Kong Stock Exchange’s (‘HKEX’) actions to enhance and expand the standards of ESG reporting it requires from companies listed in Hong Kong, for instance upgrading GHG emissions KPI disclosure requirements as ‘comply or explain’ provisions.?

But is enhanced ESG disclosure among listed issuers being accompanied by enhanced ESG performance? Based on both reported data and estimates by ISS ESG, average GHG emissions of Hong Kong listed companies actually increased from 2013 to 2017. However, between 2017 and 2020, average GHG emissions recorded a decline. Of particular note is the large drop in average emissions from 2019 to 2020, the same period of time in which disclosure rates increased significantly. This probably implies that companies are more likely to reduce emissions if they are required to report their carbon emissions. It is therefore reasonable to expect the downward trend in average emissions to continue, given the concerted efforts of regulators and increasing investor pressure on corporates to reduce emissions, as well as an acceleration in proactive climate initiatives by companies themselves.?

CLIMATE-ALIGNED INVESTING – NO ‘ONE-SIZE-FITS-ALL’ STRATEGY

For investors interested in climate-themed investment, we provide different solutions to meet a diverse range of sustainability investing philosophies. Decarbonisation-focused indexes aim to reduce the carbon footprint of the index. Sustainability-themed indexes aim to capture opportunities among firms that facilitate the low-carbon transition via technologies such as clean energy and electric vehicles.?

Find out more from "ESG Insights" with publication date 12 Oct 2022

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[1] The Standards (13 September 2022): HK records the hottest day in September since 1884

[2] Hot nights are defined as greater than or equal to 28°C.