Introduction to corporate sustainability and its trend in Hong Kong Prof. Stephen Cheung School of Business Hong Kong Baptist University

Contents corporate sustainability covers the environmental and social performance, employee management and corporate governance of a company Corporate social responsibilities (CSR) and corporate governance (CG) CG in Hong Kong CSR in Hong Kong Drivers for Organizations Role of Government Obstacles in running socially responsible businesses

Why should we care? Old ideas of doing business –Profit maximization –Concern on shareholders interest Today’s new standard –NOT only pay tax and comply with national regulations –Sustainable development –Consider interest of all stakeholders and are expected to take greater responsibilities in running a business –Corporate social responsibilities (CSR)

International trends Major trends in international business in recent years Business’s contribution to sustainable development Related to basic business activities Impacts on stakeholders: –Social; –Economic; and –Environmental Create additional value and strategic advantage

CG and CSR in Hong Kong Corporate Governance Scorecard Project Survey results based on publicly available information HSI, HSHKCI, HSCCI, and HSCEI constituent stocks 2002: 168 companies are covered 2005: 174 companies are covered

Objectives of Corporate Scorecard for Hong Kong Listed Companies Encourage adoption of best practice of corporate governance in Hong Kong through a systematic evaluation of current practices Define a methodology/ framework to assess corporate governance practices in Hong Kong Develop specific criteria and a measurement tool to evaluate individual companies Set up processes to evaluate corporate governance of Hong Kong companies on an annual basis Our objective

Research Methodologies Avoids subjectivity bias Not dependent on companies’ willingness Written request was sent to individual companies. Only a few companies supplied us with full information

Consistency Each company was rated by two different research assistants The overall results were cross- checked by the research team

Scorecard Followed The Five OECD Corporate Governance Principle OECD principle Number of questions & sub-questions A.Rights of shareholders 22 B.Equity of shareholders 13 C.CSR9 D.Disclosure and transparency 32 E.Board responsibilities OECD is internationally recognized HKEx guidelines comprehensively covered 174 public companies surveyed

Positive Correlation between Corporate Governance Index and Company Valuation Correlation=0.05, Significant at 1% level Market to Book Ratio

Improvement of CGI by Sections Section/ Year2005 Mean2002 Mean A B C D E CGI CGI increase by percentage16.14%

Criteria for CSR Employee pension benefits Staff development Environmental policy Customer and supplier relationships Philanthropy

Drivers for Organizations Enhance image and reputation Increase shareholders value Reduce business risk Legislative requirements Customer loyalty Employee loyalty Improve business operation Control of legal risks

Obstacles in Running Responsible Businesses Management practice Increasing cost? Monitoring and enforcement Sustainable development

Role of Government Tax initiatives Contribution to compliance expertise Moral suasion

Incentives CG, CSR index –Brand name CG, CSR investment fund –Investment communities Education → 發財立品

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