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HKQAA CSR Index Series and Sustainability Rating & Research

Summary Report

2014

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HKQAA CSR Index Series and

Sustainability Rating & Research

2014 Summary Report

February 2015


Summary Report

2014

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TABLE OF CONTENTS PAGE

ABOUT HONG KONG QUALITY ASSURANCE AGENCY (HKQAA) ................................................... 3

ABOUT HKQAA CSR INDEX AND SUSTAINABILITY RATING & RESEARCH ................................... 4

ABOUT THIS REPORT ............................................................................................................................ 6

DISTRIBUTION OF THE ORGANIZATIONS BY INDUSTRIAL SECTOR .............................................. 7

HKQAA CSR ADVOCATE INDEX .............................................................................................................. 7

HKQAA CSR INDEX PLUS AND HKQAA SRR ......................................................................................... 8

PARTICIPATING ORGANIZATIONS OF HKQAA CSR ADVOCATE INDEX ......................................... 9

PARTICIPATING ORGANIZATIONS OF HKQAA CSR INDEX PLUS ..................................................12

OVERALL PERFORMANCE IN 2014 ...................................................................................................14

HKQAA CSR ADVOCATE INDEX ............................................................................................................14

HKQAA CSR INDEX PLUS AND HKQAA SRR .......................................................................................15

SECTOR-LEVEL PERFORMANCE IN 2014 .........................................................................................16



SUBJECT PERFORMANCE IN 2014 ....................................................................................................18



CONCLUSION AND WAY FORWARD ..................................................................................................27

APPENDIX A: HKQAA SUSTAINABILITY RATING AND RESEARCH ANNUAL REVIEW 2014 ......28

DISCLAIMER .........................................................................................................................................40


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About Hong Kong Quality Assurance Agency (HKQAA)

Since its establishment by the Hong Kong Government Industry Department in 1989, Hong

Kong Quality Assurance Agency (HKQAA) has been committed to providing professional

conformity services to private and public organizations. Through knowledge sharing and

technology transfer, we help enterprises enhance management performance and

competitiveness so as to benefit the community as a whole.

After 25 years of endeavours, HKQAA has become one of the leading and most trusted

Conformity Assessment Bodies (CABs) in the Asia Pacific region. With over 5,000 certificates

spanning various industries, HKQAA is serving organizations in Hong Kong, mainland China

and other Asian countries. The headquarters of the HKQAA is located in Hong Kong. It also

has offices in Macau, Guangzhou and Shanghai, as well as a representative in Beijing.

At present, HKQAA holds many accreditations for auditing Quality, Environmental,

Occupational Health & Safety, and Information Security management systems, including

accreditations under UNFCCC (United Nations), UKAS (UK), HKAS (Hong Kong) and CNAS

(China). For ethical auditing, we are accredited by SAAS for SA8000, which is recognized by

BSCI and WRAP, and we are approved for social auditing by Tesco (UK).

With the growing concerns of various stakeholders on the environment, workforce and the

community at large, HKQAA introduced the ISO 14001 Environmental Standard and OHSAS

18001 Occupational Health and Safety Standard in the 90’s and, in the last decade, many

other new sustainability initiatives including the Global Reporting Initiative (GRI), SA 8000

Social Accountability Standard, ISO 14064 Standard for carbon emissions verification, the

ISO 26000 based HKQAA-HSBC CSR Index (now evolved and re-named as HKQAA CSR

Advocate Index and HKQAA CSR Index Plus) and the Clean Development Mechanism (CDM)

to aid the business community in Hong Kong and China to address the need for sustainability

of the society locally and globally.

In addition to international management tools, we also launched in recent years many other

local initiatives to cater for the specific needs of the local community such as the HKQAA

Sustainable Building Index (SBI), the HKQAA-HKJC Carbon Disclosure e-Platform (CDeP)

and the Barrier Free Accessibility (BFA) Management System Certification. In the time to

come, we will continue offering many more other management tools to assist organizations to

achieve a balanced development in business results and social responsibility.


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About HKQAA CSR Index and Sustainability Rating & Research

HKQAA launched in 2008 the HKQAA CSR Index (formerly HKQAA-HSBC CSR Index) to

provide quantitative metrics for measuring the maturity of an organization’s social

responsibility practices. HKQAA CSR Advocate Index, an annual voluntary benchmarking

scheme, was derived in the first place. It aims to promote the application of the ISO

26000:2010 Guidance on social responsibility and help the participating organizations

determine their CSR system maturity.

The guidance of ISO 26000 is comprised of CSR practices under seven core subjects,

namely Organizational Governance (OG), Human Rights (HR), Labour Practices (LP), The

Environment (Env), Fair Operating Practices (FOP), Consumer Issues (CI), and Community

Involvement and Development (CID). There are five scoring categories to represent the level

of maturity of respective CSR practices as follows: 1 – Starting Phase; 2 – Forming Phase; 3 –

Implementing Phase; 4 – Confirming Phase; and 5 – Improving Phase.

As the Index entered its sixth year in 2014 and HKQAA started providing Sustainability

Rating and Research (SRR) services to Hang Seng Indexes Company Limited (Hang Seng

Indexes) in the same year, an advanced version of HKQAA CSR Advocate Index, HKQAA

CSR Index Plus scheme, was launched in the HKQAA CSR Index series to provide a more

comprehensive approach to assess the management of social responsibility issues1. With

reference to several international standards, including the GRI G4 Sustainability Reporting

Guidelines in addition to ISO 26000, SRR and CSR Index Plus enable a multi-angle approach

to measure the organizations’ sustainability performance by assessing also accountability,

country and industry risks and media exposure.

During an HKQAA CSR Index assessment, the HKQAA professional conducts on-site

verification to interview the representatives of the participating organization about the system

setting, validate the factual evidence of implementation practices and confirm the scores for

the respective forty CSR practices based on the defined scoring criteria. The detailed scoring

criteria of the CSR practices have been defined in the HKQAA CSR Advocate Index and

HKQAA CSR Index Plus Scoring Handbooks.

For HKQAA SRR, substantial information was obtained from over 600 annual reports about

companies’ regulatory compliance and financial performance including revenues and

1 HKQAA CSR Index Plus is based on the same proprietary sustainability performance assessment

methodology as HKQAA SRR. Participants of CSR Index Plus scheme can therefore benchmark

against more than 600 listed companies in HKSAR and PRC which were assessed in HKQAA SRR on

sustainability performance.


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segmental data. HKQAA’s assessment team also examined 217 sustainability/ CSR reports

and made reference to over 300 company public domain websites so as to assess their

sustainability performance as a whole. All the eligible companies were provided an

opportunity to offer feedback and supporting documents to HKQAA in the form of a

questionnaire to supplement the publicly available information gathered from company

reports and webpages. The responses to the questionnaires offered very useful insight to the

current management approaches to the sustainability opportunities and risks within these

companies. Further information on HKQAA SRR Methodology and Process are available on

our dedicated platform: https://srr.hkqaa.org.

https://srr.hkqaa.org/


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About this Report

In order to drive continuous improvement with regard to CSR and sustainability issues, the

assessment results for HKQAA CSR Advocate Index, HKQAA CSR Index Plus and

HKQAA SRR are enumerated in this report. The general presentation of the Summary Report

2014 has been revamped from the previous ones to cater for the changing needs of various

stakeholders. With the aim to achieve the benchmarking purpose of the HKQAA CSR Index

Plus scheme and HKQAA SRR, the performance analysis of the two, involving a total of 641

companies, are integrated in this report. To increase the comparability of the participating

organizations of HKQAA CSR Index and the eligible listed companies assessed in HKQAA

SRR on sector level, all the organizations are classified using the Hang Seng Industry

Classification System (“HSICS”)2, namely Energy, Materials, Industrials, Consumer Goods,

Consumer Services, Telecommunications, Utilities, Financials, Properties and Construction,

Information Technology, Conglomerates, with inclusion of Educational Institutions and

Government Departments.

The annual review of HKQAA SRR 2014 is also provided at Appendix A for supplementary

information.

2

For details of the Hang Seng Industry Classification System (“HSICS”), please refer to http://www.hsi.com.hk/HSI-Net/HSI-Net.

http://www.hsi.com.hk/HSI-Net/HSI-Net


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Industrials 15%

Consumer Goods 10%

Consumer Services

20%

Properties and Construction

40%

Educational Institution 5%

Government Department

10%

Distribution of the Organizations by Industrial Sector

In 2014, a total of 35 organizations showed their commitment of social responsibilities by

participating in HKQAA CSR Index series (20 took part in HKQAA CSR Advocate Index and

15 took part in HKQAA CSR Index Plus). As compared to last year, the total number of

participants of CSR Index series has shown an increase of 35%. The list of participating

organizations covers a whole range of government department, educational institution, listed

and non-listed sustainability-driven corporations. Among all the participants, 11 of them (3

from CSR Advocate Index and 8 from CSR Index Plus) newly joined the schemes. 47% of the

CSR Index Plus participants were former participants of CSR Advocate Index.

In HKQAA SRR 2014, the sustainability performance of 626 eligible listed companies was

reviewed for inclusion in the Hang Seng Corporate Sustainability Index series – 384 Hong

Kong companies (including dual-listed companies, classified as Hong Kong stocks) and 242

China Share companies.

HKQAA CSR Advocate Index

As shown in the chart below for distribution of CSR Advocate Index participants, 8 companies

are derived from Properties and Construction sector; 4 of them are from Consumer Services

sector; 3 of them are from Industrials sector; 2 of them are from Consumer Goods sector; 2 of

them are Government Departments and 1 of them is Educational Institution.

Chart 1 – Distribution of CSR Advocate Index Participants by Industrial Sector


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Energy 5% Materials

8%

Industrials 11%

Consumer Goods 24%

Consumer Services

8% Telecommuni-

cations 2%

Utilities 6%

Financials 10%

Properties and Construction

17%

Information Technology

7%

Conglomerates 2%

HKQAA CSR Index Plus and HKQAA SRR

With reference to Chart 2 below, almost 80% of the HKQAA CSR Index Plus participants and

assessed listed companies in HKQAA SRR are derived from 6 sectors, including Consumer

Goods (151), Properties and Construction (110), Industrials (73), Financials (62), Consumer

Services (53), and Materials (51).

Chart 2 – Distribution of CSR Index Plus Participants and Assessed Companies in SRR

by Industrial Sector

With the increase of the no. of companies involved in HKQAA CSR Index and sustainability

related research from 26 nos. in 2013 to 661 nos. in 2014 (including 20 HKQAA CSR

Advocate Index participants, 15 HKQAA CSR Index Plus participants and 626 assessed listed

companies in HKQAA SRR), the significance of the Index and research results as well as the

subsequent analysis in understanding the trends of sustainable development has been

enhanced inevitably.


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Participating Organizations of HKQAA CSR Advocate Index

Analogue Group Of Companies

Chun Lee Engineering Company

Limited

Driltech Ground Engineering

Limited

GP Batteries International Limited

Hang Seng Management College

Hanison Construction Company

Limited

Hong Kong Trade Development

Council


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Housing Department

(Development and Construction

Division)

Housing Department

(Estate Management Division)

Hsin Chong Construction Group

Ltd.

Jumbo Orient Contracting Limited

Shinryo (Hong Kong) Limited

Shinryo Technical Services

Limited

Shui On Building Contractors

Limited


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Shun Yuen Construction

Company Limited

Sino Group of Hotels

Synergis Management Services

Limited

Tong Kee Engineering Limited

Tsuen Lee Metals & Plastic

Toys Company Limited

Yau Lee Construction

Company Limited


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Participating Organizations of HKQAA CSR Index Plus

Alliance Construction Materials

Limited

Café de Coral Holdings Limited

China Everbright International

Limited

China Overseas Holdings Limited

China Overseas Land &

Investment Limited

Fuji Xerox (Hong Kong) Limited

Leo Paper Group (Hong Kong)

Limited


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MTR Corporation Limited

(Operations in Hong Kong)

New World Development

Company Limited

NWS Holdings Limited

Sa Sa International Holdings

Limited

Shun Tak Holdings Limited

Sino Group

The Link Management Limited

The Wharf (Holdings) Limited


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Overall Performance in 2014


In summary, the average score of HKQAA CSR Advocate Index was 4.63 out of 5 in 2014 and

recorded a 2.2% increase as compared to the initial year 2009. Despite the fact that the profile

of the participating organizations this year was slightly different from that of the previous years,

the trend demonstrated organizations’ continuous endeavours to encourage a positive impact

on the environment and stakeholders including employees, consumers, investors and

communities. The implementation of CSR within various participating organizations goes

beyond law compliance and engages in activities that are beyond the interests of the

organizations.

Chart 3 – Average Scores of the 7 CSR core subjects in 2014 for HKQAA CSR Advocate Index

Labour Practices remained the highest-scoring subject this year and over the previous years.

This consistently improving trend showed organizations’ commitments to fulfilling the

changing needs of employees and boosting their employability. In general, participants have

to be more aggressive in responding to the expectations and development of community.

As illustrated in the table below, improvements have been observed in six out of the seven

core subjects of CSR. With comparison to the first year of CSR Index in 2009, the average

scores of The Environment, Fair Operating Practices, Labour Practices, Community

Involvement and Development, Organizational Governance and Consumer Issues have

increased by 8.05%, 4.90%, 4.04%, 2.05%, 1.99% and 0.87% respectively.

4.49

4.50

4.58

4.61

4.65

4.70

4.89

4.63

4.20 4.30 4.40 4.50 4.60 4.70 4.80 4.90 5.00

Community Involvement and Development

Fair Operating Practices

Human Rights

Organizational Governance

Consumer Issues

The Environment

Labour Practices

Overall

http://en.wikipedia.org/wiki/Stakeholder_(corporate)


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Table 1 – Average Scores of the 7 CSR core subjects in 2009 and 2014

for HKQAA CSR Advocate Index


In 2014, the average score of HKQAA CSR Index Plus and HKQAA SRR was 44.8 out of 100.

As accountability, country and industry risks and media exposures are taken into account in

this assessment model, the performance variations across and within industries, as well as

between Hong Kong and China markets have been significant. In view of the increasing

number of regulations on employment protection and the sets of compliance controls adopted

especially for the listed companies assessed in HKQAA SRR, stronger overall performance in

Labour Practices, Human Rights and Organizational Governance was observed. In general, a

greater effort should be made in three areas, namely consumer issues, community

involvement and environmental sustainability.

Chart 4 – Average Scores of the 7 CSR core subjects in 2014

for HKQAA CSR Index Plus and HKQAA SRR

Average Score in 2009

Average Score in 2014

Trend and % change


4.52 4.61 1.99%

Human Rights 4.65 4.58 1.51%

Labour Practices 4.70 4.89 4.04%

The Environment 4.35 4.70 8.05%


4.29 4.50 4.90%

Consumer Issues 4.61 4.65 0.87%


4.40 4.49 2.05%

34.0

35.3

46.7

47.2

48.5

49.9

52.2

44.8

0.0 10.0 20.0 30.0 40.0 50.0 60.0

The Environment


Consumer Issues



Human Rights

Labour Practices

Overall


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Sector-Level Performance in 2014


As shown in the chart below, public sector including Educational Institution and Government

Department was the best performing sector in 2014 followed by Consumer Goods and

Industrials sectors. The participating public organizations undertake many innovative

initiatives on capacity building of their employees, environment protection, promotion of green

and energy efficient technologies, and uplifting the under-privileged groups of the society, etc.

Their crucial roles in promoting CSR were realized in the mature management systems

created for various CSR practices.

The overall performance of participants in Properties and Construction and Consumer

Services sectors has reached maturity level in spite of the relatively lower scores obtained.

Chart 5 – Average Scores by Sectors 2014 for HKQAA CSR Advocate Index


The chart 6 below gives the overview of the maximum, minimum and average scores by

industrial sectors for HKQAA CSR Index Plus and HKQAA SRR 2014. Looking at the average

scores of all industries, Telecommunications, Conglomerates and Financials sectors

demonstrated the strongest sustainability performance. As the assessment of HKQAA SRR

includes also a number of companies in China, Chart 7 was prepared to show the average

overall scores by sector in the Hong Kong and China markets.

5.00

4.82

4.61 4.59

4.36

4.00

4.50

5.00

Educational Institution and Government Department

Consumer Goods

Industrials Properties and

Construction

Consumer Services


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Chart 6 – Maximum, Minimum and Average Scores by Sectors 2014


Comparing the sustainability performance of the Hong Kong companies to that of the

companies in China, we observed that the Hong Kong companies outperformed the China

ones in all sectors. The gaps are especially large in Conglomerates and Utilities with much

better performance in the subjects of The Environment and Community Involvement and

Development within companies in Hong Kong.

Chart 7 – Average Overall Scores by Sectors and Markets 2014


-

20

40

60

80

100

Max

Min

Average

75.9

57.4 56.3

77.0 80.8

49.9

76.0

47.9

76.0

44.9

76.3

44.6

74.5 69.8

41.5

68.4

43.2

80.1

43.9

82.8

44.0 40.7

61.0 57.5

54.2 49.5 49.3 48.8 47.2 45.8 45.0 43.1

42.3 38.9

57.1

43.5 42.7

35.2 40.3

38.2 38.9 42.3 40.2 39.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Average Overall Score (HK) Average Overall Score (CN)


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Subject Performance in 2014


Regarding the general subject performance of CSR Advocate Index participants as shown in

Chart 3, Labour Practices and The Environment scored the highest across industries. Subject

performance of various sectors are provided in Chart 8 below and shows minimal deviation

between sectors . Looking at the outstanding CSR core subjects performance as a whole, key

successful factors were identified and consolidated as Leadership, People, Policies and

Strategies, Partnership and Resources, as well as Processes Management.

Chart 8 – Subject Scores of Various Sectors 2014 for HKQAA CSR Advocate Index

1. Leadership

The senior management of the participating organizations has made the pioneering efforts

to improve their CSR performance. Aiming to build their organizational image as

transparent, open and law-complying in the rapidly changing environment, the senior

management teams plan, monitor and motivate the on-going CSR activities with regard to

the stakeholders’ needs and expectations.

2. People

Participating organizations are socially responsible towards their employees and work to

ensure that the respective legal and social principles are adopted. Majority of them focus

on investing in employee benefits and performance, such as occupational health and

safety, labour relations, staff training and development, etc, as they believe that employees

are the key success of business. They view their employees as the major representatives

of the organization who can inspire consumers and counterparts and in turn create

OG HR LP Env FOP CI CID Overall

Educational Institution and Government Department

5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00

Consumer Goods 4.85 4.90 5.00 4.86 4.75 4.76 4.60 4.82

Industrials 4.57 4.60 4.89 4.63 4.58 4.69 4.33 4.61

Properties and Construction 4.57 4.50 4.98 4.65 4.47 4.64 4.32 4.59

Consumer Services 4.32 4.25 4.58 4.53 4.02 4.31 4.50 4.36

0.00

1.00

2.00

3.00

4.00

5.00


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pleasant experiences with the organization. The belief that investing in employees will gain

sustainable long-term advantage has resulted in the most satisfactory performance of

Labour Practices. Comprehensive staff development and engagement programmes,

health and safety management system and structured legal compliance mechanism were

commonly found in the participating organizations.

3. Policy and Strategy

The participating organizations have made social responsibility an integral part of their

organizational policies and strategies. Associated with sustainable development, the

organizational policy and strategy have stipulated what the organization is doing and what

they are planning to do in future. Code of conduct or ethics, as well as staff guidebook or

manual, were commonly adopted within the organizations so as to systematically define

the role, relationships, and organizations’ standard of behaviour. Some of the

organizations’ code of conduct is followed throughout the suppliers and contractors and

inspectors are hired for ensuring compliance. The Environment has currently become a

major topic in organizational policies and handled with continuously improving strategies.

Environmental guidelines for producing, processing and purchasing are in place to

implement climate-smart solutions.

4. Partnerships and Resources

The experiences on dealing with social and environmental issues are shared with partners,

consumers and communities within participating organizations. More participating

organizations actively promote the concept of resources efficiency and

environmental-friendly culture. They were actively enhancing consumers’ awareness of

sustainable consumption by providing instructions and education to consumers. Cash and

product donations are provided to charities and, going beyond philanthropy, their

employees are involved as volunteers. Participating organizations developed

well-established systems to prevent engagement of child labour or forced labour. Similar to

previous year, participating organizations were found well-aware of the discrimination

issues. They have established various effective communication channels with respective

stakeholders, in which the stakeholders were allowed to express their views, including their

disagreement with organizations’ decisions. More participating organizations sourced fair

trade products and raw materials and engaged accredited fair trade companies and social

enterprises. They are getting themselves ready for compliance with the upcoming

Competition Ordinance.

5. Processes Management

Participating organizations worked with a wide range of partners in order to develop

business practices which help produce social, environmental and economic advantages in


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areas where the organizations operate. Consumer and environmental friendliness are

considered when products and services are produced. Most organizations possess guiding

principles which focus on providing a satisfactory working environment for employees in

the course of manufacturing and service delivery and making a positive contribution to

communities to obtain long-term benefits and minimize environmental impacts.


In order to offer benchmarking data for all the core subjects and industries, the average

subject scores across sectors are provided by Hong Kong and China markets in addition to

the overall subject performance as illustrated in Chart 4 above.

Due to the stakeholders’ expectations identified and the consolidated sets of compliance

controls and regulations adopted in Hong Kong and China, exploration of voluntary and

non-regulatory CSR and sustainability initiatives has resulted in stronger overall performance

in Labour Practices, Human Rights and Organizational Governance. The resources put into

the non-regulatory subjects, The Environment and Community Involvement and Development,

were relatively inadequate and have resulted in weaker performance in these areas.

In view of the sustainability performance variation between and within industries, good

practices observed from the top performers are consolidated under each subject for reference

to help elevate the future sustainability performance.

1. Organizational Governance (OG)

Chart 9 – Average Scores of Organizational Governance by Sectors and Markets


62.2 59.8 54.8 52.1 51.8 51.6 51.1 50.9 49.0 48.0 47.3

42.3

56.6

41.9 43.6 41.3 45.4 47.7

42.0 43.8 44.9 44.3

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Average OG Scores (HK) Average OG Scores (CN)


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Good Practices Observed

Companies implemented systematic risk management models to ensure that ESG-related

risks were under proper control. New strategies were developed to extend their coverage

for stakeholder engagement. Programmes were implemented to meet stakeholders’

expectation and identify areas of improvement. Top-management level personnel chaired

regular meetings to monitor and review their company sustainability performance progress.

Good stakeholder relations and the emphasis on sustainability reporting and transparency

formed the solid foundation of companies’ reputation and sustainable development.

2. Human Rights (HR)

Chart 10 – Average Scores of Human Rights by Sectors and Markets



The initiatives and principles, including ILO Conventions and Declarations and SA 8000

standards, helped companies increase their sensitivity towards the infringement of human

rights. Well-established systems and guidelines were constantly observed to tackle with

the human right issues. Potential human rights risks are detected with assessment of the

impact of these activities on the human rights of its employees and the wider community in

which it operates. Guidelines are also in place to regulate decisions made in the supply

chain and the behaviour of suppliers and contractors. Employees’ complaint handling was

considered a major issue for human rights. Corporate policies and related committees

were formed, such as “Whistle-blowing policy” and “Grievance Handling Committee”, in

response to employees’ dissatisfaction.

62.5 57.5 57.1 55.5 54.2 53.5 52.1

48.8 48.6 46.5 45.9 45.5

57.0 53.9 51.1 47.5 48.7 47.4 41.4 42.4 44.7 43.1

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Average HR Scores (HK) Average HR Scores (CN)


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3. Labour Practices (LP)

Chart 10 – Average Scores of Labour Practices by Sectors and Markets



In the forms of employee survey and contractor forum, two-way communications are

made possible to identify the needs of employees. Periodic directorate visits and

company-wide activities demonstrated strong management commitment and provided

opportunities to show care and empathy and build closer relationship with frontline staff

members. Many companies have gone beyond the strict minimum requirement of the

Law to sustain just and favourable work conditions, including recruitment,

remuneration and compensation, human development, standards of living, health and

safety and secure employment. A number of them have implemented OHSAS 18001 to

help control occupational health and safety risks. They promote appropriate labour

practices not only in their companies but also downstream in their supply chain.

65.8 64.0

56.9 56.7 56.1 55.6 54.7 54.2 53.9 53.3 48.5 48.0

65.3

51.8 54.1 48.6

41.9 49.2 46.6 51.7 50.1

45.0

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Average LP Scores (HK) Average LP Scores (CN)


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4. The Environment (Env)

Chart 11 – Average Scores of The Environment by Sectors and Markets



The Environment was the weakest part among 7 core subjects. Top performer measured

their product carbon footprint and import latest technologies from overseas in order to

quantify and minimize emissions during production or service delivery.

Referencing ISO 14001 and formal standards, such as Eco-Management and Audit

Scheme (EMAS), internal policies and environmental management system (EMS) were

developed to manage the companies’ direct environmental and social impacts. Companies

set targets to reduce these impacts, which are reviewed and published annually with

details of the programmes listed. Some companies worked jointly with various local NGOs

on environmental and conservation campaigns. The prevailing trend of life cycle concept is

observed with focus on the benefits for users in long term and the end of life of the

products and service deliverables. Urban farming has been introduced to promote

biodiversity.

57.8

50.0 46.8

39.8 39.6 39.4 39.1 33.6 32.9 31.5 29.4

24.0

49.5

17.7

27.6 21.6

32.8 35.9

26.2 30.9

24.5 28.8

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Average Env Scores (HK) Average Env Scores (CN)


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5. Fair Operating Practices (FOP)

Chart 12 – Average Scores of Fair Operating Practices by Sectors and Markets



Policies and structures for anti-corruption and property right protection have continuously

been observed in majority of the companies. A whistle blowing and dispute resolution

mechanisms for employees and business partners were put in place to resolve conflicts

regarding alleged business mis-conduct. Companies that operate in countries and regions

which do not possess robust legal systems have worked to improve the ethical

consciousness of employees in adhering to the anti-competitive behavior and preventing

corruption.

61.3 54.8 53.0 50.7 50.7 48.5 48.3 47.9 46.7 46.3 46.0

42.0

54.0 41.9 47.2

43.7 45.1 42.4 43.2 44.3 42.6 43.7

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Average FOP Scores (HK) Average FOP Scores (CN)


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6. Consumer Issues (CI)

Chart 13 – Average Scores of Consumer Issues by Sectors and Markets



Companies provided customers with various online and offline communication channels,

including customer service hotlines, email contacts, and websites, etc. Customers’

feedbacks and complaints were gathered and analyzed to further improve quality of

products and services. Management mechanisms were implemented to ensure fair,

accurate, transparent and prudent marketing information were being spread. Customers

were educated and influenced by the introduction of sustainability elements into the

products and services. In order to demonstrate commitment of quality information security,

some of the participating organizations implemented the ISO 27001 Information Security

Management. With reference to ISO 27001, they could identify and control the information

risk with preventive action in a high confidence level.

59.9 55.9 54.1 50.7 49.8 48.4 47.3 46.8

45.6 43.8 41.6

62.0

44.0 50.4

47.0 48.3 40.3

46.3 44.8 46.2

40.8 41.8

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Average CI Scores (HK) Average CI Scores (CN)


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7. Community Involvement and Development (CID)

Chart 14 – Average Scores of Community Involvement and Development by Sectors and Markets



Despite the financial support for community development by majority of companies, some

of them took a huge step to go beyond money contribution and offered invaluable

opportunities to the underprivileged groups in the community. For better equipping the

young generation, organizations took initiatives to cooperate with different local parties and

set up industry-specified pilot training programmes for teenagers. Work experience and

job-related knowledge were enhanced for participating youth upon completion of these

courses. Many successful projects demonstrated a commitment to the community for the

medium to long term. Employees’ commitment to ongoing supports and resources has

ensured the project relevance and effectiveness in a long run.

61.6 56.4

43.0 42.8 40.2 40.0 39.0 37.0 33.8 32.3 31.2

26.7

55.5

35.8 32.8

17.8

25.3 26.5 32.9

30.4 29.5 28.0

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Average CID Scores (HK) Average CID Scores (CN)


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Conclusion and Way Forward

The overall performance of CSR Index series participants has improved continually and

encouragingly over the years. The concept of CSR and sustainability has been strengthened

by the fact that organizations can no longer act as isolated economic entities operating in

detachment from the broader community. Traditional views about competitiveness, business

survival and profitability are being given broader meanings of business accountability. The

wellbeing of employees, environmental protection and the community has become the key

areas of concern of the stakeholders.

While observing the current trends of sustainable development, the followings are the driving

forces of the initiatives:

- Policies and initiatives by Governments and stock exchange

- Demands for greater disclosure from stakeholders

- Increasing customers’ interest

- Growing pressure from investors

- Competitive labour markets

- Supplier relationship management

CSR and sustainability programmes often aim to create a long term impact on communities

which will ultimately translate into customer loyalty and profitability. Positive outcomes are

arisen from the investment in CSR in long term rather than short term. These benefits include

lower operating costs, enhanced brand image and reputation, increased sales, reduced risk of

regulatory oversight, ability to attract and retain employees, workforce diversity, better product

durability and functionality, and product safety and reduced liability, etc. In view of the

increased level of commitment in CSR resulted from the above-mentioned driving forces and

benefits foreseen in long term, we expect to see the joint effort of various organizations in

different sectors towards embracing CSR despite the fact that CSR has formerly been termed

as “waste of resources” and “burden of company”.

Appendix A: HKQAA Sustainability Rating and Research

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Annual Review 2014

TABLE OF CONTENTS PAGE

FOREWORD – CREATING VALUE FOR RESPONSIBLE INVESTMENT .............................................. 29

EXECUTIVE SUMMARY – HKQAA SUSTAINABILITY RATING AND RESEARCH ............................ 30

ASSESSMENT PROCESS AND METHODOLOGY ....................................................................................... 31

ASSESSMENT 2014 – UNIVERSE STATISTICS ............................................................................................ 32

NUMBER OF UNIVERSE COMPANIES ................................................................................................................... 32

THE RESEARCH PROJECT AND COMPANY ENGAGEMENT .................................................................................... 33

RESEARCH FINDINGS IN 2014 ....................................................................................................................... 34

OVERALL PERFORMANCE BY MARKET ............................................................................................................... 34

SECTOR-LEVEL PERFORMANCE .......................................................................................................................... 36

SUBJECT PERFORMANCE .................................................................................................................................... 37

WAY FORWARD: THE INVESTORS’ FINANCIAL INTEREST AND THE BROADER PUBLIC

INTEREST ........................................................................................................................................................... 39


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Foreword – Creating Value for Responsible Investment

Responsible investment emphasizes on how stable, well-functioning and well governed social,

environmental and economic systems of companies could help generate long-term sustainable

returns in the interest of investors. No longer confined by their profitability, companies are

expected to show their commitment and implementation of various principles of social

responsibility, such as transparency, accountability, ethical behaviour, respect for stakeholders’

interests, the rule of law and human rights. In the last decade, more and more studies have

shown that companies which incorporate sustainability factors into their core business values,

outperform their counterparts over the long-term financial performance. Their ability to

innovate, attract and retain talent, and anticipate regulatory changes, as well as the long-term

stability of the market as a whole are becoming the more prominent factors for investors’

consideration. As a matter of fact, the performances of the Hang Seng Corporate

Sustainability Index were better than those of the Hang Seng Index with better return and

lower volatility.

The HKQAA sustainability rating and research (“HKQAA SRR”) is designed to rate a

company’s system maturity and risks with regard to sustainability performance, based on and

with reference to ISO260003 and GRI

4. A fact-based scoring approach, grounded in the

implementation evidence, is applied when rating companies’ ability to manage its

sustainability performance and risk. These issues are increasingly seen to be key drivers of

economic and sectoral changes. Growing number of companies are keen to ensure their most

effective response to these challenges.

3 ISO26000:2010 Guidance on social responsibility

4 Global Reporting Initiative


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Executive Summary – HKQAA Sustainability Rating and Research

HKQAA has reviewed the sustainability performance of 626 eligible listed companies in Hong

Kong (HK) and mainland China (CN) and measured the extent to which these companies

respond to the stakeholders’ expectations and other sustainability challenges they face. The

assessment data were provided to Hang Seng Indexes Company for its annual review of the Hang

Seng Corporate Sustainability Index Series.

The sustainability performance of HK companies was generally stronger than that of CN

companies. The highest score among HK companies was AA+ (1 company) on a scale of AAA

(highest) to D (lowest), while the highest score among CN companies was A+ (1 company). In

summary, 182 HK companies (47%) achieved a rating of BBB- (Moderate/ Satisfactory) or

above, and 92 out of 242 mainland China companies (38%) achieved the same level.

Despite the fact that many top performers are making progress in addressing sustainability issues,

majority of the eligible companies are taking a compliance-based approach to sustainability

initiatives.

Telecommunications was the top-rated sector across the universe, followed by Conglomerates

and Financials sectors. Materials and Consumer Goods are the worst performing sectors by

average score.

The stronger general performance in Organizational Governance, Human Rights and Labour

Practices was resulted from the consolidated sets of compliance controls adopted corresponding

to stakeholders’ expectations and the standing regulations governing listed companies.


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Assessment Process and Methodology5

As demonstrated in Diagram 1 below, at the beginning of each year Hang Seng Indexes Co. Ltd (Hang

Seng Indexes) notifies HKQAA of the eligible listed companies for carrying out the annual research

and rating exercise. HKQAA’s Assessment Team (AT) then conducts preliminary web-based research

and sends out the pre-filled questionnaires to individual companies for review, comments and/or

confirmation. The Annual Sustainability Rating Report containing the final ratings as reviewed by the

HKQAA Scoring and Rating Committee is submitted every year to Hang Seng Indexes to consider the

selection of constituent companies for the "Hang Seng Corporate Sustainability Index Series".

Diagram 1 - Process flow of the assessment

The assessment model designed by HKQAA is consolidated into the practices under seven core

subjects, i.e. Organizational Governance, Human Rights, Labour Practices, The Environment, Fair

Operating Practices, Consumer Issues, and Community Involvement and Development dimensions. A

company’s level of maturity in managing the respective practices under these subjects is measured

against a Plan-Do-Check-Act management approach. Accountability principles apply to reflect the

company’s inclusivity, materiality and responsiveness in achieving sustainability, as well as their

governing accountability and completeness demonstrated in the reported data. Country and Industry

risks in consideration of the operating location(s) and industry operation of a company are also

assessed to give a more comprehensive rating on the sustainability performance. The final scores and

ratings are compiled in association with the Media Watch (MW) on-going monitoring.

5 Further information on HKQAA Sustainability Performance Assessment Methodology and Process are

available on our dedicated platform: https://srr.hkqaa.org/index.php?s=/Index/methodology.html

https://srr.hkqaa.org/index.php?s=/Index/methodology.html


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Assessment 2014 – Universe Statistics

Number of Universe Companies

In 2014, HKQAA reviewed the sustainability performance of 626 eligible listed companies6 for

inclusion in the Index series – 384 Hong Kong companies (dual-listed companies are classified as

Hong Kong stocks) and 242 China A-Share companies. The majority of stocks are derived from the

Consumer Goods (150 companies), Properties & Construction (103 companies) and Industrial (72

companies) sectors7. The research process on the shortlisted companies was undertaken by HKQAA

from 2014. All companies were provided an opportunity to offer feedback and supporting documents

to HKQAA in the form of a questionnaire to supplement the publicly available information gathered

from company reports and webpages.

Chart 1 - Universe by Sector 2014

6 Information on Hang Seng Indexes Company’s liquidity criteria for the Index series is available on the Hang

Sang Indexes Company website: http://www.hsi.com.hk/CorporateSustainability. 7 For details of the Hang Seng Industry Classification System (“HSICS”), please refer to

http://www.hsi.com.hk/HSI-Net/HSI-Net.

Energy (34) 5%

Materials (51) 8%

Industrials (72) 12%

Consumer Goods (150) 24%

Consumer Services (50)

8%

Telecommunica-tions (10)

2%

Utilities (38) 6%

Financials (62) 10%

Properties & Construction (103) 16%

Information Technology (44)

7%

Conglomerates (12) 2%

http://www.hsi.com.hk/CorporateSustainability

http://www.hsi.com.hk/HSI-Net/HSI-Net


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The Research Project and Company Engagement

HKQAA’s AT examined 217 sustainability/ CSR reports and made reference to over 300 company

public domain websites so as to assess their sustainability performance as a whole. We also reviewed

more than 600 annual reports to understand the companies’ regulatory compliance and financial

performance including revenues and segmental data. Companies’ responses to the questionnaires

distributed offered very useful insight to the current management approaches to the sustainability

opportunities and risks within these companies.

HKQAA Sustainability Rating and Research platform (https://srr.hkqaa.org) was launched in 2014 to

facilitate the information exchange with the eligible companies, investment community as well as the

general public. Utilizing the platform, over 25% of the respondents uploaded their completed

questionnaires and relevant documents via the dedicated company accounts. In February and April

2014, 93 representatives from a total of 52 companies also attended the seminars which gave

participants an overview of the rating process and methodology and rendered support to responding

companies as necessary.

Diagram 2 – Home Page of HKQAA Sustainability Rating and Research Platform

https://srr.hkqaa.org/


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Research Findings in 2014

Overall Performance by Market

According to the assessment results, Sustainability Ratings ranging from AAA (reliable) to D (at risk)

as below are assigned to each eligible company. A plus (+) or minus (-) sign may be assigned to show

relative standing within the rating categories.

Ratings Descriptions

AAA Reliable

AA Stable

A Satisfactory

BBB Moderate

BB

B Unstable

CCC Vulnerable

CC

At Risk C

D

With the overall sustainability performance achieving a moderate level (BBB-), Hong Kong

companies were revealed with slightly stronger performance than China companies. Among the 626

assessed companies, around 44% of them (274 companies) as shown in Chart 2 below received a

moderate/satisfactory rating of BBB- or above. This trend tallies with the historical results of the

previous assessments since 2010 and reveals the minimal disclosure of corporate governance

information and limited sustainability related data by most companies as regulatory compliance.

Chart 2 – Overall Performance by Market

0 1

15 10

15

43

5

16

33

44

67

128

1 6

0 0 0 0 1 12 3 4

33

39

2

143

5 0

0

20

40

60

80

100

120

140

160

HK

China


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As HKEx, SZSE and SHSE adopted tools like ESG guidelines for publication of CSR/ sustainability

reports (either voluntary or mandatory) in promoting CSR among their listed companies, we observed

an encouraging overall trend, as demonstrated in the table below, that the number of companies

achieving a BB+ rating or above has increased significantly from 271 companies in 2013 to 343

companies in 2014 (i.e. a 27% increase).

The companies with improving sustainability performance were found making a great effort in

enhancing the reliability and comparability of their disclosures. HKEx is also stepping up disclosure of

non-financial information with new ESG disclosure requirements and KPIs and plans to raise the level

of obligation to “comply or explain” by 2015. We anticipate further improvement of the materiality of

the reported data in future.

No. of HK Companies No. of CN Companies

2013 2014 Trend 2013 2014 Trend

AA+ 3 1

AA 12 15

AA- 1 10

A+ 3 15 1 1

A 38 43 13 12

A- 10 5 3 3

BBB+ 9 16 0 4

BBB 29 33 25 33

BBB- 47 44 37 39

BB+ 23 67 17 2

BB 158 128 151 143

BB- 6 1 19 5

B 4 6 6 0

C 1 0

Total 344 384 272 242

Table 1 - Rating Distribution in 2013 and 2014


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Sector-level Performance

By analyzing the average scores of all industry sectors, Telecommunications, Conglomerates

and Financials sectors displayed the strongest sustainability performance, while Materials and

Consumer Goods sectors obtained the poorest results. Due to the wide range of services in the

Consumer Services sector from department stores and hotels operations to media and

transportation services, the range of scores and ratings is also seen to be the widest among all

sectors.

Industry Code 00 05 10 20 30 35 40 50 60 70 80

Maximum

(Rating)

68.4

(A-)

69.8

(A-)

73.2

(A+)

74.5

(AA)

76.7

(AA)

75.9

(AA)

76.3

(AA)

80.8

(AA+)

76.0

(AA)

76.0

(AA)

77.0

(AA)

Minimum

(Rating)

35.6

(BB)

35.6

(BB)

35.6

(BB)

34.0

(BB-)

22.5

(B)

39.6

(BB+)

33.8

(BB-)

36.6

(BB)

35.2

(BB)

36.6

(BB)

36.6

(BB)

Average

(Rating)

43.2

(BBB-)

41.5

(BBB-)

43.7

(BBB-)

40.7

(BBB-)

42.1

(BBB-)

57.4

(A)

44.0

(BBB-)

49.9

(BBB)

46.5

(BBB)

44.9

(BBB-)

53.8

(A-)

Chart 3 – Average Scores by Sectors 2014

-

20

40

60

80

100

Max

Min

Average


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Subject Performance

In the current assessment model of HKQAA SRR, all companies are rated against 7 core subjects, i.e.

Organizational Governance (OG), Human Rights (HR), Labour Practices (LP), The Environment

(ENV), Fair Operating Practices (FOP), Consumer Issues (CI), and Community Involvement and

Development (CID).

Chart 4 – Subject Performance of Hang Seng Corporate Sustainability Indexes

Constituent versus Non-Constituents

By comparing the performance of Indexes Constituents to that of Non-Constituents, the Constituents

outperformed the rest of the universe companies in all subjects as shown in the chart above. The gaps

are especially large in the Environment and Community Involvement and Development reflecting the

relatively sufficient resources put by the top performers into these areas. Due to the urging needs for

operational transparency expected by various stakeholders and increasing number of regulations on

employment protection, stronger overall performance in Organizational Governance, Human Rights

and Labour Practices are resulted from the consolidated sets of compliance controls adopted.

-

20

40

60

80

100

OG HR LAB ENV FOP CON CID

Constituents Non-Constituents


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HKQAA further analyzed the subject performance of universe and 4 indexes, namely:

Hang Seng Corporate Sustainability Index ("HSSUS")

Hang Seng (China A) Corporate Sustainability Index ("HSCASUS")

Hang Seng Corporate Sustainability Benchmark Index ("HSSUSB")

Hang Seng (China A) Corporate Sustainability Benchmark Index ("HSCASUSB")

Chart 5 – Subject Performance of Universe and 4 Indexes

As shown in the chart above, HSSUS shows the best performance in almost all subjects. Most of the

companies in Hong Kong have commenced their preparations for the Competition Ordinance.

Ensuring that they are able to tailor internal compliance programmes accordingly, companies were

generally aware of the Fair Operating Practices and getting ready to extend the concept of supply

chain management to the effective management of value chains.

0

20

40

60

80

100

OG HR LAB ENV FOP CON CID

Universe HSSUS HSSUSB HSCASUS HSCASUSB


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Way Forward: The Investors’ Financial Interest and the Broader Public

Interest

In positioning their business for sustainable long-term growth, many responding companies have

made a solid contribution to addressing the sustainability challenges. They have ensured the stability

of economic and environmental systems and the values and expectations of the society. Their

progress in pursuing sustainability is creating competitive advantages, such as reduced cost, increased

productivity, strengthened brand and reduced risk.

However, as seen from the overall sustainability performance, it seems that the majority of the

corporate decision makers have prioritised the short-term investment returns rather than the creation

of long-term returns. Some may find it difficult to recognize the financial value of intangible assets,

such as a talented and motivated workforce, and ignored the systemic risks presented by, or created

by companies.

We hope that HKQAA’s annual research will chart improved performance in sustainable management

and increasingly higher levels of company engagement. This will then recognize the efforts of the

listed companies in Hong Kong and mainland China in taking step towards the better alignment of

societal and investment values.


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Disclaimer

All information contained herein is provided to the respective participating companies for

reference only. Hong Kong Quality Assurance Agency takes no responsibility for the contents

of any information contained herein, makes no warranty or representation as to its accuracy,

completeness or reliability and expressly disclaim any liability whatsoever for any loss

howsoever arising from or in reliance upon the whole or any part of the contents of the

information contained herein.

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