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One of many extra acute challenges that Hong Kong has confronted is the shortage of constant, accessible, and dependable data accessible for buyers to include climate-related issues into their choices. Subsequently, as a precedence, Hong Kong regulators are implementing globally constant sustainability reporting requirements for listed corporations and throughout the monetary business.
At its core, greenwashing is basically misrepresentation, and there are avenues that monetary regulators can utilise to handle greenwashing behaviour, regardless of the shortage of particular laws, codes and tips.
For instance, a number of provisions below the Securities and Futures Ordinance (SFO) impose a statutory obligation on these liable for issuing public communications to take cheap care in respect of the accuracy of knowledge concerned.
These embody:
- Part 107 SFO creates a prison offence for making fraudulent or reckless misrepresentations inducing one other to enter into an settlement for structured merchandise, collective funding schemes, or securities.
- Part 298 SFO creates prison legal responsibility in opposition to an individual disclosing data that, inter alia, is fake or deceptive as to a fabric truth which is more likely to induce funding choices or have a fabric impact on the inventory value. Part 277 is the civil counterpart of part 298.
- Part 384 SFO makes it an offence for an individual, in purported compliance with a requirement, to offer data to a “specified recipient” which they know to be materially false or deceptive, or who’s reckless in offering the knowledge. A “specified recipient” consists of the Securities and Futures Fee (SFC) and the Hong Kong Inventory Trade, therefore the part covers filings with the SFC, inventory trade prospectuses and different itemizing paperwork or public disclosure supplies. An offence below Part 384 carries a most penalty of two years’ imprisonment and a high quality of HK$1 million.
- Part 391 SFO gives that an individual liable for false or deceptive communications that will have an effect on the worth of securities and futures might be liable to pay damages for any pecuniary loss sustained in reliance on these communications.
- Part 213 SFO permits the SFC to deliver authorized motion on behalf of buyers who’ve sustained losses from market misconduct, with out the necessity for a previous ruling by the prison courtroom or the Market Misconduct Tribunal. The part is meant to profit the collective pursuits of buyers by offering civil cures for individuals who could have sustained comparatively small losses and could also be discouraged by the point and prices required to litigate themselves. The sections above additionally embody provisions for compensation the place an investor has suffered pecuniary loss.
Codes and steerage
Greenwashing seems to even be caught below the SFC and HKMA’s codes and steerage on ads and advertising and marketing for monetary merchandise, albeit in very common phrases. While the regulators recognise that ads are by nature promotional materials supposed to arouse buyers’ pursuits in a product, it’s important that ads current a balanced image and will not be false or deceptive nor characteristic exaggerated claims.
In line with the SFC’s Code of Conduct For Individuals Licensed by or Registered with the SFC, as a part of the honesty and equity precept, a licensed or registered individual ought to make sure that any representations made and knowledge offered to a consumer (together with in ads) will not be false, deceptive, or misleading. Comparable provisions could be discovered within the Hong Kong Financial Authority’s Code of Banking Follow, the SFC’s Fund Supervisor Code of Conduct and the SFC’s Handbook for Unit Trusts and Mutual Funds, Funding-Linked Assurance Schemes and Unlisted Structured Funding Merchandise.
These codes and tips should not have the power of legislation, however regulated establishments which breach them should face lengthy drawn out investigations and the specter of disciplinary sanctions.
No enforcement so far
There have been no ESG enforcement instances as but. Whereas the regulators are introducing more and more strong ESG disclosure necessities to be according to their worldwide counterparts, they’re additionally conscious that this should be finished in a proportionate and pragmatic method as smaller corporations could not have the sources to fulfill the evolving commitments.
Having mentioned that, as these new necessities roll in, there might be growing controls round ESG-related disclosures and solicitation for ESG monetary merchandise. As a consequence, the dangers of being accused of greenwashing will grow to be important for monetary establishments and listed firms alike.
Regulation exterior the monetary sector
Not like in different jurisdictions, Hong Kong doesn’t have a regulatory physique or a single piece of complete laws regulating ads. Management of promoting on tv and radio comes below the final remit of the Communications Authority while promoting content material falls below the auspices of the Affiliation of Accredited Promoting Businesses of Hong Kong. The Affiliation publishes codes of observe to which members should adhere.
Outdoors of the monetary and securities realm, the primary laws governing promoting content material is the Commerce Descriptions Ordinance and is enforced by the Hong Kong Customs & Excise Division.
Beneath the Commerce Descriptions Ordinance, it’s an offence to use a commerce description to any items that’s false to a fabric diploma or to make use of false and deceptive commerce descriptions on merchandise in ads to shoppers. The omission or hiding of knowledge, or the availability of ambiguous materials data, could represent a false commerce description if it causes the common shopper to enter right into a transaction they might not have made in any other case.
This leaves the door open for a shopper or environmental activist to file a criticism of greenwashing with the Hong Kong Customs & Excise Division which can in flip examine the criticism and take motion in opposition to the advertiser. The courtroom can also order an individual who has suffered from the false commerce description to be compensated.
There has to this point been no enforcement motion regarding greenwashing by the Hong Kong Customs & Excise Division. Typical enforcement actions have been made in respect of exaggerated performance of merchandise or counterfeit merchandise.
This may very well be partly because of the truth that while most of the people’s consciousness of surroundings / local weather associated dangers is on the rise, the motivation to undertake inexperienced sustainable practices in folks’s every day lives continues to be pretty low. This may have an effect on the probability of greenwashing complaints being made within the close to future.
Litigation as a method of redress
One notable characteristic in Hong Kong’s litigation panorama is that class actions don’t exist and consultant proceedings, the place claims are aggregated with different claims, are used as a case administration mechanism and are themselves uncommon.
An aggrieved member of the general public could provoke proceedings for misrepresentation in opposition to a enterprise which has printed deceptive claims. For a declare of misrepresentation to succeed, it should be demonstrated that one occasion made a false assertion to a different with an intention to induce the opposite to enter into the contract, and that the opposite was so induced to enter into the contract.
For the common shopper, nonetheless, losses suffered by companies that greenwash could solely be minimal and taking motion is probably not proportionate and value efficient. Smaller claims are normally settled between the companies and shoppers, or alternatively, given the low financial worth, might be handled within the Small Claims Tribunal.
As it’s usually laborious for an individual to show that sure statements are actually greenwashing, and that damages have been suffered because of the assertion, shoppers are unlikely to make use of the courts to hunt redress. As a substitute, an organization might even see the worth in taking motion if it suffers reputational harm because of investing in, or utilizing services or products provided by one other firm, which have been falsely claimed as sustainable.
Conclusion
Greenwashing is already a big threat for monetary establishments and listed corporations in Hong Kong, as monetary and securities regulators are actually targeted on positioning Hong Kong because the main ESG finance hub in Asia. This, mixed with the present authorized framework and instruments accessible to fight disclosures and dissemination of false and deceptive data, implies that greenwashing behaviour is unlikely to be tolerated by monetary and securities regulators.
Outdoors of the monetary and securities sector, the danger of regulatory or public motion for greenwashing behaviour seem like much less important as the final sentiment on sustainability is much less robust. Moreover, because of prices and difficulties in proving that greenwashing statements are unfaithful, these kinds of proceedings by the general public are nonetheless at their infancy.
Nonetheless, environmental activists can nonetheless use public strain and the media to advocate in opposition to corporations that greenwash, which might nonetheless trigger substantial reputational harm to corporations caught in its throes.
For a abstract of the Hong Kong regulator’s numerous efforts to handle the problem of dependable disclosures, please see our ESG Guide – Hong Kong.
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