In her Guest of Honour speech at the Institute’s Online Annual Celebration 2021, Laura Cha GBM GBS JP, Chairman, Hong Kong Exchanges and Clearing Ltd (HKEX), argued that governance professionals are playing a pivotal role in redefining how businesses are run in the post-Covid world.
The public health crisis, rapid climate change, economic recessions and the rapidly evolving geopolitical landscape have all impacted our lives and businesses over the past year. Many of our audience have seen the pandemic test their business continuity planning and risk management capabilities. It has challenged the way we operate and forced us to rethink what is needed for a resilient future for our businesses.
The pandemic has also served as a wake-up call – it has elevated the importance of integrating environmental, social and governance (ESG) into our long-term business strategy, placing sustainability at the heart of our organisations. 2021 offers us an opportunity to reset and refocus.
Corporate governance, as the backbone of company purpose, strategy and risk management, plays a pivotal role in redefining how business are run in the post-Covid world. As the world gradually recovers, let’s look at some of the lessons Covid has taught us to help us better govern our corporations, spearhead our ESG and sustainability journey, and future-proof our businesses.
Learning the lessons of Covid
1. Creating shared value
The pandemic has forced business leaders to put a greater emphasis on creating value for all stakeholders, not just shareholders. While the concept of creating shared value has been discussed for a number of years, 2020 was a watershed year where this talk was translated into action. The Covid experience showed us that businesses that look beyond profits to longer term sustainability – in terms of operation, people and culture – have remained more relevant and competitive through the crisis. The pandemic has also raised the importance of business ethics. It means doing more than simply complying with regulations and rather aiming to do what is right for everyone. A strong corporate governance structure and culture will enable businesses to focus on long-term success that balances profits with the interests of all stakeholders.
2. Focus on the right risks
Covid elevated the importance of long-term strategies and contingency planning, which enables business leaders to focus on the right risks. The pandemic has offered businesses, large and small, an opportunity to understand their areas of risk and vulnerability. Having good governance oversight, and building robust business and operational models that can mitigate damages in acute scenarios, will certainly help transform these risks into opportunities. Crisis plans matter, and companies must build resilience and governance in the good times in order to be in a better position to face challenging times.
3. ESG integration and reporting
ESG integration has now become a critical part of the post-Covid recovery. It has also become a critical part of good corporate governance for any business. Investors are demanding that companies be more proactive in their ESG risk management and reporting. This is not just about setting targets – investors also want to know what actions are being taken to meet those targets. The consideration of ESG materiality and the management of those risks has become a core performance factor. Companies that effectively communicate their ESG priorities and performance gain the trust of investors, and that trust is what drives our business and our markets forward.
4. The role of the board
Perhaps the most important lesson of the Covid crisis is the role of the board in driving sustainable businesses in the post-Covid world. Strong ESG risk management, transparency and communication starts with leadership at the board level. All boards must put their businesses on an accelerated path towards sustainability and change their businesses to facilitate the journey. Companies should also make sure the board composition and combined skill sets of directors is fit for the renewed purpose of the business.
As Asia’s largest listed exchange operator and market regulator, we at HKEX regard ourselves as an important catalyst, facilitator and enabler in supporting listed companies through this journey of recovery. As a frontline regulator of more than 2,500 companies, we have a platform to promote corporate governance and ESG standards.
Last year, we introduced a set of Listing Rule enhancements to solicit and reinforce board commitment on overall ESG strategy, as well as disclosures around all environmental and social key performance indicators (KPIs). As an exchange operator, we provide the tools, guidance and financial access that enable market participants to transition into a sustainable businesses. Last year we launched STAGE, the Sustainable and Green Exchange. This platform helps companies tell the story of their sustainable finance journey, and promotes voluntary reporting on green and sustainable finance.
As a listed company ourselves, we lead by example with corporate governance and sustainability front and central in all that we do. We are committed to effecting change to enable an open, vibrant and resilient environment for the sustainable growth of both our business and our markets.
As the corporate secretaries and governance professionals of our business community, you too are critical to effect change in this journey of post-Covid recovery. The advisory role of governance professionals and corporate secretaries is growing. Increasingly, you are expected to guide and advise boards on business ethics and help them go beyond meeting regulations to leading companies in a positive direction. As boards of directors become more involved in stakeholder engagement, you also play a key role in assisting them in that process.
The pandemic is not yet over, and we expect the road to recovery will be long and bumpy, but this is also an exciting time as we see the positive momentum and enthusiasm in the development of sustainability as a driving force of business and society in Asia. Corporate governance is going to be one of the major drivers of a sustainable economy in the post-Covid world. Building a truly vibrant financial system with resilience and governance, as well as international best practices, will not only reinforce Hong Kong’s role as an international financial centre, but also position us as a regional hub for sustainability leadership. You, as governance professionals, are playing a critical part in this journey. We are at the beginning of this journey and we are on the right track – let’s keep working together and set ambitious goals to achieve even more.
This article has been adapted from the Guest of Honour speech delivered by Laura Cha GBM GBS JP at the Institute’s Online Annual Celebration 2021 on 25 January 2021. More information on the newly launched Sustainable and Green Exchange is available on the HKEX website: www.hkex.com.hk.