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
HKQAA CSR Index Series and Sustainability Rating & Research
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
HKQAA CSR ADVOCATE INDEX ............................................................................................................16
HKQAA CSR INDEX PLUS AND HKQAA SRR .......................................................................................16
SUBJECT PERFORMANCE IN 2014 ....................................................................................................18
HKQAA CSR ADVOCATE INDEX ............................................................................................................18
HKQAA CSR INDEX PLUS AND HKQAA SRR .......................................................................................20
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.
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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.
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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
HKQAA CSR Advocate Index
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
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Table 1 – Average Scores of the 7 CSR core subjects in 2009 and 2014
for HKQAA CSR Advocate Index
HKQAA CSR Index Plus and HKQAA SRR
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
Organizational Governance
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%
Fair Operating Practices
4.29 4.50 4.90%
Consumer Issues 4.61 4.65 0.87%
Community Involvement and Development
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
Community Involvement and Development
Consumer Issues
Fair Operating Practices
Organizational Governance
Human Rights
Labour Practices
Overall
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Sector-Level Performance in 2014
HKQAA CSR Advocate Index
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
HKQAA CSR Index Plus and HKQAA SRR
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
for HKQAA CSR Index Plus and HKQAA SRR
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
for HKQAA CSR Index Plus and HKQAA SRR
-
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
HKQAA CSR Advocate Index
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.
HKQAA CSR Index Plus and HKQAA SRR
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
for HKQAA CSR Index Plus and HKQAA SRR
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
for HKQAA CSR Index Plus and HKQAA SRR
Good Practices Observed
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
for HKQAA CSR Index Plus and HKQAA SRR
Good Practices Observed
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
for HKQAA CSR Index Plus and HKQAA SRR
Good Practices Observed
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
for HKQAA CSR Index Plus and HKQAA SRR
Good Practices Observed
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
for HKQAA CSR Index Plus and HKQAA SRR
Good Practices Observed
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
for HKQAA CSR Index Plus and HKQAA SRR
Good Practices Observed
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”.
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Appendix A: HKQAA Sustainability Rating and Research
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
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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%
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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
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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.