Issue 4 Volume 17 April 2021 DRIVING BUSINESS SUCCESS RESPONDING TO THE PUBLIC PLUS: INVESTING SUSTAINABLY What will the government’s issuance of new green bonds over the next five years mean for sustainable finance in Hong Kong? MEETING THE NEEDS OF SMPS A roundtable discussion featuringmembers of the Institute’s Small andMedium Practices Committee on how it is helping SMPs in the city address pressing issues SECOND OPINIONS What’s the best way to work with fresh recruits? John Chu, Director of Audit at the Audit Commission, on the important role the commission plays in addressing the city’s needs, and what he has learned from over 30 years serving in the public sector
PRESIDENT’S MESSAGE APLUS April 2021 1 The consultation on the proposed framework for the one member one vote election of the President and VicePresidents continues until the end of May. In March we held two briefing sessions on the consultation, and the recordings of these are available via the consultation’s webpage. The webpage also contains the message from the Leadership Team, covering letter from the Council, the consultation paper and details on how to respond, including a link to an online questionnaire designed to easily collect your feedback. On behalf of the Leadership Team, I urge my fellow members to read the paper and accompanying material and share your views with us. This is an important governance activity for our Institute, and we can best serve you by hearing your views. During the month I was asked by media about the proposed changes to access to Companies Registry data. The restrictions may affect our ability to carry out thorough verifications, and lead to an efficiency decline. The Institute is currently gathering the views of practitioners to determine the impact on the profession, and will liaise with the government in due course. It’s exciting to see that the CPA Virtual Run 2021 is so popular with members. The enrolment filled up very quickly, and I hope that if you’re one of the lucky participants, you are also preparing to record a personal or team best time to compete for the trophies, bragging rights as the fastest virtual CPAs, and prizes. If you’ve signed up as a way to improve your fitness we have two articles in this month’s issue that can help you, check out “How to improve your performance for the CPA Virtual Run 2021” on page 37 and this month’s member engagement, “Racing against time,” on page 46 featuring three fellow members discussing why they like to lace up their trainers and hit the track alone and with their families. The Council has approved the formation of the final two groups I promised to set up when inaugurated as President. The Digitalization Committee will provide support to members in identifying and evaluating the latest digital technology in audit and practice management. Supporting our members’ adoption of new technologies is how we can ensure that our practices are futureready. The Long Working Hours Steering Group will assess and evaluate working conditions of accountants in firms and corporate practices and address related issues within the industry. We must work to ensure that the profession remains attractive to future generations. The new Qualification Programme, and the improvements it introduces to the training of future CPAs, is one part of enhancing the attractiveness of the profession. As I am sure many of us know from our own personal experiences, the practical experience gained in the first few years of a career is important for shaping us into effective CPAs. While we must ensure that future CPAs continue to gain this experience, it is important to consider how they gain it, and how they are supported. Another way we support our practising members is through the dedicated work of the Small and Medium Practices (SMP) Committee. Members of the committee held a roundtable this month for A Plus. You can read how they help our practitioners to work effectively in the article “Meeting the needs of SMPs” on page 24. There is also an upcoming Members-Help-Members session scheduled for June, where members of the committee’s Working Group on Technical Issues will answer questions about issues raised by SMPs. The working group is now seeking your questions for discussion at the event, more details are available on the Members-Help-Members webpage. Finally, the expansion of the Return2hk Travel Scheme to all Mainland provinces from 29 April allows our members to begin to consider travelling back to the Mainland for work. Not having to quarantine both ways makes the prospect of travel much easier. The relationships we have with our counterparts in the Mainland are key for many of our businesses, and I’m sure many of us are looking forward to being able to travel to meet them again. Raymond Cheng President Dear members, “ As I am sure many of us know from our own personal experiences, the practical experience gained in the first few years of a career is important for shaping us into effective CPAs.”
CONTENTS Issue 4 Volume 17 April 2021 NEWS 01 President’s message 04 Institute news 06 Business news FEATURES 08 Investing for a sustainable future How will the rise of green finance in Hong Kong elevate the city on the global stage? 14 Second opinions What’s the best way to work with fresh recruits? 16 Leadership: John Chu The Director of Audit at the Audit Commission on the most fulfilling aspects about his long career in the public sector 22 Thought leadership: Jessica Fries The Executive Chairman of Accounting for Sustainability on the need to consider climate change in business valuations 23 Meet the speaker What to expect from an e-learning course on writing annual reports 24 Meeting the needs of SMPs How the Institute’s Small and Medium Practices Committee addresses the concerns of SMPs 30 Accountant Plus: Joseph Ho The ex-group head of tax, Asia, the Middle East, Europe and Africa at BT, on what it takes to be a future-ready tax professional 37 How to John Yu, USA Track & Field (Level 1) Certified Coach on, how you can prepare your mind and body for the CPA Virtual Run SOURCE 38 Speak now or forever hold your peace The proposed new accounting model for business combinations under common control 08Investing for a sustainble future 24Meeting the needs of SMPs Members of the Institute’s Small and Medium Practices Committee discuss at a roundtable the many pressing challenges SMPs face in the city and how the Institute can help
DRIVING BUSINESS SUCCESS About our name A Plus stands for Accounting Plus. It represents a profession that is rich in career options, stays relevant amid rapid changes, and adds value to business. This magazine strives to present the global mindset and varied expertise of Institute members – Accountants Plus. Editor Gerry Ho Email: gerry.ho@mandl.asia Copy Editor Jemelyn Yadao Junior Copy Editor Jeremy Chan Contributors Nicky Burridge, Erin Hale Art Director Ann Lee Registered Office 2/F, Wang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong Advertising enquiries Advertising Director Derek Tsang Email: derektsang@mandl.asia ISSN 1815-3380 President Raymond Cheng Vice Presidents Rosalind Lee Ken Li Chief Executive and Registrar Margaret W. S. Chan Director of Corporate Communications Dr Wendy Lam Head of Corporate Communications and Member Services Rachel So Editorial Manager Paul Smith Editorial Coordinator Maggie Tam Office Address 37/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Tel: (852) 2287-7228 Fax: (852) 2865-6603 Member and Student Services Counter 27/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Website: www.hkicpa.org.hk Email: hkicpa@hkicpa.org.hk A Plus is the official magazine of the Hong Kong Institute of Certified Public Accountants. The Institute retains copyright in all material published in the magazine. No part of this magazine may be reproduced without the permission of the Institute. The views expressed in the magazine are not necessarily shared by the Institute or the publisher. The Institute, the publisher and authors accept no responsibilities for loss resulting from any person acting, or refraining from acting, because of views expressed or advertisements appearing in the magazine. ©Hong Kong Institute of Certified Public Accountants April 2021. Print run: 7,200 copies The digital version is distributed to all 46,109 members, 18,644 students of the Institute and 2,358 business stakeholders every month. 42 The role and mindset expected of professional accountants How the revisions to the Code of Ethics for Professional Accountants better promote the role and mindset expected of all professional accountants 43 Technical news WORK-LIFE BALANCE 46 Racing against time CPAs share how they are training for the CPA Virtual Run 52 Young member of the month Louis Lin, Associate VP, Finance Manager at Christie’s Asia 54 Leisure Plus Spotlight on weekend activities; what members are currently reading and listening to 56 Let’s get fiscal Accountants act a little differently on the big screen, says Nury Vittachi 54 46 Racing against time Leisure Plus 30 Adding value with tax Joseph Ho, ex-group head of tax, Asia, the Middle East, Europe and Africa at British Telecommunications PLC, on what he enjoyed most about helping one of the world’s oldest telecommunications companies with their tax
NEWS The Institute’s Quality Assurance Report 2020 is now available. The report summarizes the work of the Quality Assurance Department in practice reviews (including antimoney laundering/counter-terrorist financing compliance monitoring review) and professional standards monitoring over the past year, and highlights common review findings that members should be aware of. Strategic Plan 2020-2022 progress update Visit the two webpages on the Institute’s progress on implementing and updates to the Strategic Plan 2020-2022 Building Trust in Our Profession. The pages highlight updates and new strategic objectives and initiatives and key action items, and links to relevant publications and other material. New thought leadership website section The new thought leadership website section brings together the Institute’s advocacy, research, and other thought leadership initiatives. Read the articles, guidance, responses to consultations by government, regulators and international standard setters to learn how the Institute makes a difference to society through thought leadership. New training by competencies webpage Visit the new “Training by competencies” webpage to explore highlights of training topics that are important and relevant to your training and development. New bite-size videos for selected training programmes are also available for quick learning. Explore now, refine your training plan, and enhance your development. More topics will be introduced, stay tuned. Digitalization Committee and Long Working Hours Steering Group The Institute has set up the Digitalization Committee to provide support to members in identifying and evaluating the latest digital technology in audit and practice management; and the Long Working Hours Steering Group to assess and evaluate working conditions of accountants in firms and corporate practices and address related issues within the industry. Minutes of Council meeting The abridged minutes from the March Council meeting are now available for members to read on the Institute’s website. Institute news Business news Quality Assurance Report 2020 now available 4 April 2021
APLUS Resolution by agreement Ho Chi Pui, CPA (practising) and ANDERSON LI & HO CPA Limited Complaint: Failure or neglect to observe, maintain or otherwise apply the fundamental principle of professional competence and due care in R113.1 and R113.2 under Chapter A of the Code of Ethics for Professional Accountants. The respondents issued an accountant’s report for a solicitors’ firmunder the Accountant’s Report Rules (Cap. 159A). In conducting the reporting engagement, they failed to comply with the Accountant’s Report Rules and the Institute’s Practice Note 840 (Revised) Reporting on Solicitors’ Accounts under the Solicitors’ Accounts Rules and the Accountant’s Report Rules. The deficient procedures related to checking of proper authorization for withdrawals of money fromclient accounts; inquiring into the outstanding items of bank reconciliations; circularizing client ledger accounts; checking the firm’s recording of all bills of costs; and confirming the firm’s computerized accounting systemhad complied with the relevant requirement. The respondents also failed to obtain a signed engagement letter for the reporting engagement. Regulatory action: In lieu of further proceedings, the Council concluded the following should resolve the complaint: 1. The respondents acknowledge the facts of the case and areas of non-compliance with professional standards; 2. The respondents be reprimanded; and 3. The respondents jointly pay an administrative penalty of HK$50,000 and costs of the Institute of HK$15,000. Disciplinary findings Chiang Sin Mei, Cindy, CPA (practising) Complaint: Guilty of professional misconduct and dishonourable conduct. Chiang was a CPA practising full-time in her own name. In September 2017, Chiang was selected for practice review. The review could not be carried out as a result of Chiang’s continuous non-cooperation. She failed to submit documents required for the practice review and respond to correspondence from the Quality Assurance Department of the Institute, despite the department’s repeated reminders and numerous attempts to establish contact by email and by phone. In July 2019, the Practice Review Committee issued a direction to Chiang requiring her to provide the necessary information and to cooperate with the Institute with respect to the practice review. The written direction was mailed to Chiang’s registered addresses, but the letters were returned unclaimed. Decisions and reasons: The Disciplinary Committee reprimanded Chiang and ordered cancellation of her practising certificate, and her name be removed from the register of CPAs for three years with effect from 27 April 2021. In addition, Chiang was ordered to pay costs of the disciplinary proceedings of HK$66,051.50. When making its decision, the committee took into consideration the particulars in support of the complaint, the complainant’s submission, and Chiang’s refusal to participate in the proceedings. The committee found that Chiang deliberately avoided communications from the Institute in relation to the practice review. Her non-cooperation, which prevented the Institute from carrying out its statutory duty of conducting a practice review on her practice, amounted to professional misconduct. In addition, the committee found that Chiang, as a CPA (practising), was guilty of dishonourable conduct as her failure to maintain a valid registered office address as required under section 31(1) of the Professional Accountants Ordinance would amount to a criminal offence. Chui Yiu Hang, CPA Complaint: Guilty of dishonourable conduct. Chui was convicted in theMagistrates’ Court in June 2019 of the offence of committing an act outraging public decency, and the court sentenced him to imprisonment. Chui’s appeal against the conviction was dismissed by the Court of Appeal in January 2020. Decisions and reasons: The name of Chui be removed from the register of CPAs for 12 months. In addition, Chui was ordered to pay costs of the disciplinary proceedings of HK$29,178. When making its decision, the Disciplinary Committee took into consideration to the circumstances of this case. The committee noted that this was a second offence committed by Chui, and accordingly the matter was more serious and warranted a tougher sentence. Details of the resolution by agreement and disciplinary findings are available at the Institute’s website. April 2021 5
NEWS Hong Kong Exchanges and Clearing (HKEX) announced its best quarterly earnings on record, fueled by an increase in initial public offerings (IPOs) and a thriving stock market. Net income rose 70 percent to HK$3.84 billion in the three months to 31 March, falling short of the HK$4.11 billion predicted by Bloomberg analysts. Revenue for the first quarter grew by almost 50 percent to HK$5.96 billion, surpassing the market forecast of HK$5.93 billion. HKEX hosted 32 listings during the first three months of the year, raising HK$132.8 billion of proceeds, or eight times more compared to a year earlier. Peter Meehan, a partner who led KPMG’s audit of collapsed government contractor Carillion, has left the firm as the United Kingdom Financial Reporting Council’s (FRC) probe into the scandal reaches an advanced stage. Meehan, who was suspended by KPMG in January 2019 along with three others employees after an internal investigation raised concerns over information provided to the watchdog for its annual review of audit quality, left the firm on 31 January this year, according to a corporate filing published on 31 March. KPMG signed off Carillion’s accounts just nine months before it collapsed in January 2018, owing more than £1.3 billion to its banks, with a pension deficit of about £800 million and just £29 million in cash on its balance sheet. Business TRIP.COM RAISES HK$8.4 BILLION IN HONG KONG LISTING Trip.commade its debut on the Hong Kong Stock Exchange on 19 April, with its shares reaching a high of 4.9 percent before ending at 4.55 percent from their issue price. The listing puts the Mainland China-based online travel agency, which is also listed on the Nasdaq, alongside Alibaba, JD.com and Baidu, tech giants that also have secondary listings in Hong Kong. The listing saw the company price its offering at HK$268 per share, raising HK$8.4 billion. Employees at one of the United Kingdom’s largest accounting firms have indicated that they would prefer working from home even after the COVID-19 pandemic. This is according to a survey conducted by Grant Thornton LLP, which found that 88 percent of staff want to work remotely at least half the time compared to before COVID-19 lockdowns, with 94 percent saying having a mix of remote and office working would positively benefit them. The survey signals that flexible working patterns that quickly came into place during the COVID-19 pandemic last year will lead to lasting changes even as restrictions ease. The firmwill look at the findings within the next fewweeks alongside feedback from clients before setting out its plans on working patterns. GRANT THORNTON U.K. STAFF WANT TO WORK FROM HOME POST-PANDEMIC HKEX POSTS HIGHEST QUARTERLY EARNINGS PARTNER WHO LED CARILLION AUDIT LEAVES KPMG BIG FOUR PLEAD FOR LENIENCY FROM U.K. REGULATOR FOR HIGH-RISK AUDITS The Big Four in the U.K. have asked the FRC to delay quality inspections of their work by a year if they agree to audit high-risk companies listed on the London Stock Exchange. The firms noted that factors such as first-time audit difficulties and fears of being fined for mistakes should exempt their work from scrutiny. They added that increased public scrutiny and penalties for audit failures would lead to high-risk companies struggling to find experienced auditors to sign off on their accounts. Critics have disapproved of the idea. “These would seem to be precisely the type of clients that need oversight. What is going on that they don’t want discovered, is my first question?” said Tim Bush, Head of Corporate Governance at shareholder advisory group Pirc. 6 April 2021
The Ever Given container ship that blocked the Suez Canal for almost a week is still held by the Egyptian authorities, who seek more than US$900 million in compensation from the ship’s owners. The vessel’s Japanese owner and its insurers have been discussing with the Suez Canal Authority (SCA) about who will pay for the losses resulting from the blockage. On 7 April, the SCAmade a claim for US$916 million, which the ship’s owners are trying to reduce by 90 percent, according to head of the SCA, Osama Rabie, who claims the compensation covered the rescue, delay costs and damage to equipment and the canal. A former Deloitte partner in the Netherlands is facing disciplinary action for the improper audit of South African retailer Steinhoff International Holdings NV, which led to its collapse in 2017. The Dutch Authority for the Financial Markets accuses Patrick Seinstra of failing “to obtain sufficient and appropriate audit evidence from the annual accounts,” according to papers from a hearing. An investigation that followed the hearing uncovered €6.5 billion in irregular transactions between Steinhoff and eight firms between 2009 and 2017. Steinhoff’s accounts in Europe were audited by German firm Commerzial Treuhand GmbH. The watchdog says Seinstra, who worked at Deloitte at the time, failed to check whether the firm’s submission was correct. Deloitte first audited Steinhoff in South Africa and then from Europe after the company moved its primary listing to Germany. FORMER DELOITTE PARTNER TO FACE DISCIPLINARY ACTION OVER STEINHOFF AUDIT EGYPTIAN AUTHORITIES SEEK US$900 MILLION COMPENSATION FOR EVER GIVEN BLOCKAGE JOE BIDEN PUSHING FOR CAPITAL GAINS TAX RATE INCREASE TO 43.4 PERCENT United States President Joe Biden is looking to almost double the capital gains tax for wealthy individuals to 39.6 percent, from the current base rate of 20 percent, as part of his economic reforms. The plan, which would be the highest tax rate on investment gains since the 1920s, is part of the White House’s push for a sweeping overhaul of the U.S. tax system to end preferential tax treatment for wealthy individuals and large companies. Individuals earning US$1 million or more could see federal tax rates, which if existing surtax on investment income is counted, as high as 43.4 percent. News of the proposal on 23 April triggered declines on Wall Street, with the benchmark S&P 500 index down 1 percent the same day, its sharpest drop in more than a month. Bernard Madoff, an investment manager who choreographed the largest Ponzi scheme in history, died on 14 April at the age of 82. Madoff, who pleaded guilty in 2009, had swindled upwards of US$65 billion from tens of thousands of families over four decades. He died of natural causes while serving a 150-year sentence for his crimes. In 1960, Madoff founded a penny stock brokerage, which eventually grew into Bernard L. Madoff Investment Securities. He was also a former non-executive chairman of the Nasdaq stock market in the 1990s. He served as the chairman of his company until his arrest in 2008, the same year he confessed to his sons that the firm had become a massive Ponzi scheme concealing years of losses. PONZI MASTERMIND BERNARD MADOFF PASSES AWAY AT 82 Cathay Pacific is offering voluntary redundancy to its pilots, cabin crew and ground staff as part of further cost-cutting measures to cope with the COVID-19 pandemic, which for more than a year, has greatly affected the carrier’s business. Pilots who opt to leave will be offered between three and six months’ wages, depending on the duration of time they have worked for the airline, and a one-time payment equal to twice their monthly housing allowance. The announcement came days after news of an air travel bubble between Hong Kong and Singapore broke, which sent the airline’s shares up by 4.8 percent. CATHAY PACIFIC OFFERS STAFF VOLUNTARY REDUNDANCY APLUS April 2021 7
BUSINESS Green finance Financial secretary Paul Chan used his latest budget to announce plans for the government to issue HK$175.5 billion of green bonds in the next five years. The move also doubles to HK$200 billion the borrowing ceiling of the government’s green bond programme, which was first launched in 2018 to finance public work projects with environmental benefits. For Edward Au, Southern Region Managing Partner, Deloitte China, and a member of the Hong Kong Institute of CPAs, the latest announcement highlights the government’s commitment to move Hong Kong towards a lowcarbon, climate-resilient and sustainable economy. “It enhances Hong Kong’s position as a green and sustainable finance hub in the region, and creates a citywide green finance ecosystem,” he says. Mervyn Tang, Senior Director, Global Head of ESG Research, Sustainable Finance, Fitch (Hong Kong) Limited, agrees that the bond issuance is significant in terms of developing Hong Kong’s green finance market, pointing out that sovereign bonds increase liquidity and act as a benchmark for prices. “Sovereign bond issues are typically used as an anchor in the market,” he says. He adds that the 30-year green bond issued by the government in January – the first green bond of this duration from an Asian government – was also significant, as long-dated green bonds open up the market to different types of investors, such as insurers. “It also helps to expand the green yield curve, which, in turn, helps to expand the issuance of green bonds from other issuers in the Hong Kong market,” he says. A growing ecosystem The government has launched a number of initiatives to promote the development of Hong Kong as a green finance centre. Au points out that alongside its own issuance of green bonds, it has also launched the Green Bond Grant Scheme to subsidize eligible green bond issuers in obtaining relevant certification. The government has also worked with regulators to set up the Green and Sustainable Finance Cross-Agency Steering Group to accelerate the growth of green finance in Hong Kong and support climate-related strategies. In addition, the Hong Kong Quality Assurance Agency (HKQAA) has set up a Green Finance Certification Scheme to provide third-party conformity assessments for issuers. Alongside these developments, the Hong Kong Green Finance Association was launched in 2018 to bring together industry experts and stakeholders to make policy suggestions to the government and promote INVESTING FOR A SUSTAINABLE FUTURE The rise of green finance in the city is poised to put Hong Kong on the sustainable investing map. Nicky Burridge speaks to professionals in the field about the increasing demand for sustainable financial products from investors, the initiatives driving this vital change, the need for better standards and transparency, and the role accountants can play in spearheading the city’s transition to a leader in green finance Illustrations by Ester Zirilli 8 April 2021
APLUS April 2021 9
BUSINESS Green finance Hong Kong as a green finance hub. The initiatives have been welcomed by industry stakeholders. Melissa Fung, Hong Kong Sustainability Leader, Deloitte China, an Institute member, and a member of the Institute’s Sustainability Committee, points out that the Green Finance Certification Scheme increases the transparency of how the proceeds from green bond issuances are used, which enhances investor confidence. “On the issuer side, it sets out clear requirements with reference to international standards that helps issuers better govern the funds raised and formalizes the monitoring and reporting processes,” she says. Eric Nietsch, Head of ESG, Asia, Manulife Investment Management, says: “We sometimes hear from companies that a challenge to issuing a green bond can be increased costs with the transaction. The Green Bond Grant Scheme can be used to reimburse the expense of the HKQAA certification, which provides an incentive, especially for first-time issuers.” He adds that this is particularly important because companies often find that issuing a green bond helps them to enhance their sustainability strategy. Despite these initiatives, Au thinks more could still be done to promote Hong Kong as a green finance centre, such as requiring climate-related disclosures from public companies to be aligned with recommendations set out by the Financial Stability Board’s Task Force on Climaterelated Financial Disclosures. Increasing transparency Another significant development in the green finance ecosystem is Hong Kong Exchanges and Clearing’s (HKEX) Sustainable and Green Exchange (STAGE). Launched in December 2020, it is the first multi-asset sustainable finance online platform in Asia that connects issuers, investors and other stakeholders. The platform lists more than 45 sustainability-themed products from leading Asian corporates, as well as providing a repository of information on sustainability, green and social bonds, and environmental, social and governance (ESG)-related exchange traded products listed on the HKEX. Grace Hui, Head of Green and Sustainable Finance at HKEX, and a member of the Institute’s Sustainability Committee, says: “To address investors’ concerns on greenwashing, issuers included on STAGE are required to designate the sustainability, green or social classification of the instruments to be displayed and state the international standards or principles that they adhere to.” Issuers must also provide additional voluntary disclosures on their sustainable investment products, such as the 10 April 2021
APLUS use of proceeds and annual postissuance reports. Over time, HKEX plans to increase the scope of the product repository to include other asset classes and product types in Hong Kong and beyond. Hui adds that while it is still exploring what it might add, equities and derivative products that connect to climaterelated metrics would be useful to help Hong Kong reach its carbon neutral coal. STAGE also provides green and sustainable finance resources promoting market education, knowledge sharing and stakeholder engagement. Dr Nadira Lamrad, Director – Sustainability and ESG Advisory at the Business Environment Council, says STAGE is an important initiative as it shows the stock exchange is supportive of green issuances. She adds that it also addresses the concerns of those wanting to invest in green financial products, particularly those who may be doing so for the first time, such as family offices, by making it easier for them to access information. Growing demand There is already significant investor demand for green bonds in Hong Kong. The five-year and 10-year tranches of the government’s US$2.5 billion issuance of US dollar bonds in January were fivetimes oversubscribed, while the 30-year tranche was seven-times oversubscribed. The deal attracted interest from both conventional and green investors, with Asian institutional investors accounting for 65 percent of the overall allocation, and investors in Europe and United States receiving an allocation of 20 percent and 15 percent respectively. Both European and U.S. investors showed a strong preference for the 30-year tranche. Hui points out that demand for green financial products is increasing rapidly in Asia, with US$5 billion invested in sustainable funds in the region in the last four months of 2020 alone. “This reflects a strong pick-up in investor appetite for green financial products and demonstrates the significant opportunities and growth potential of green finance in the region,” she says. She points out that Hong Kong has played a significant role in this region-wide development in the past few years, with the cumulative amount of green and other sustainability-related bonds arranged and issued in the local market reaching almost HK$214 billion by the end of 2020. In 2020, the market raised HK$66.6 billion, up from just HK$2.4 billion in 2015. “In the first quarter of this year alone, 19 green and sustainability-related bonds were listed, surpassing the record number of 18 in 2020, raising a total of HK$51.5 billion,” Hui adds. Lamrad has also observed an increase in investor demand. “There is a lot of capital moving in this direction. We are seeing a lot of oversubscriptions every time,” she says. Nietsch points out that Hong Kong is also seeing continued innovation in sustainable debt issuance, with emerging structures such blue bonds, under which the proceeds are used to finance ocean conservation, transition bonds, which finance the transition of companies to having a reduced environmental impact or lower carbon emissions, and sustainability key performance indicator-linked bonds, under which issuers commit to meeting certain ESG-related targets and make additional payments to bondholders if they fail to meet these targets. “A variety of potential financing options is important because it can encourage a wider variety of companies and projects. These emerging and innovative structures can provide additional ways for investors and companies to work towards achieving sustainability objectives,” he says. Despite these developments, Fung points out that the green finance market in Hong Kong is still not as mature as those in Europe and the U.S. on both the supply side and the demand side and in terms of the number and variety of green financial products. She suggests regulators have a key role to play in this area, adding that they should reference international practices and set up a green finance framework under current regulations and guidelines. “In addition, regulators should also review their own enforcement roles to ensure implementation and compliance,” she says. A lack of standardization One of the biggest challenges investors who want to put money into green financial products face is a lack of standardization in the industry. Fung explains: “As the standards of what could be classified as ‘green’ remain fragmented and the governance and reporting requirements of green bonds are voluntary, investors may find it difficult to justify the actual environmental and social impact, and understand the risk behind such investments.” She adds that more policies need to be put in place to regulate the market, and issuers should be “ This reflects a strong pick-up in investor appetite for green financial products and demonstrates the significant opportunities and growth potential of green finance in the region.” April 2021 11
Green finance BUSINESS asked to disclose a comprehensive set of information to justify the environmental and social benefits of their products, with third party assurance and regular inspection by authorized organizations. Hui agrees: “Currently, the risks of greenwashing and the lack of comparable data create barriers to investing in green bonds and other ESG products.” Nietsch points out that the time and resources needed to develop green bond assessment capabilities can be a challenge for some investors. “This is where professional asset managers with a strong ESG framework and extensive credit research footprint across Asia can add value,” he says. Lamrad explains that the frameworks and taxonomies that will define whether a product is actually sustainable are still being established. Hong Kong aims to adopt the Common Ground Taxonomy – which is being developed by the International Platform on Sustainable Finance (IPSF) Working Group on Taxonomies and co-led by Mainland China and the European Union – when it is finalized later this year. She adds that there is also a skill set shortage in the market when it comes to really understanding the data. “You need to understand what is behind the numbers. Is it part of a strategy or a one-off project? You need to take your time and develop that expertise and knowledge.” She points out that this lack of understanding not only increases the chances of greenwashing but also means that companies that are doing well but are not presenting their data in an investor-focused way, may face inaccurate outcomes such as lower ratings or under or overvaluations. She suggests one way to address this issue is for the finance industry to hire sustainability professionals, even if they are not from a finance background, as they have a wealth of expertise for understanding what is going on behind the data. Secondly, she suggests engagement needs to be part of investors’ approach, and they should not rely solely on quantitativebased strategies to understand a company’s performance and inform decision-making. Tang points out that the development of a taxonomy is also important to distinguish why there are differences between green bonds in different regions. He gives the example of transition bonds, saying there are clear differences between the attitudes of European investors and investors in AsiaPacific towards natural gas and whether it forms part of a low carbon transition. “APAC is a set of economies that have a much more carbon intensive starting point, so the substitution from coal to natural gas may make more sense than in Europe. Standards need to establish the rules without running the risk of greenwashing.” A regional centre With its deep capital markets, existing financial services infrastructure and strong government support, Hong Kong is well-positioned to act as a green finance centre for the region, creating significant opportunities. Hui points out that Hong Kong has been designated as the green financial hub for the Greater Bay Area (GBA) as part of the Guangdong-Hong Kong-Macau Greater Bay Area Green Finance Alliance. “In this region alone, the green business potential is expected to jump fivefold from US$90 billion in 2018 to US$450 billion in 2030, with investment concentrated in renewable energy and clean transportation projects.” She adds that if Mainland China is to reach its goal of being carbon neutral by 2060, it will require large amounts of capital. “We think much of the international investment in facilitating that transition is likely to come through Hong Kong. By leveraging its international expertise and best practices, existing infrastructure, and community of financial professionals who already speak the language of sustainable finance, Hong Kong is ready to drive sustainable finance in the GBA and beyond,” she says. Au says that Hong Kong’s position as an international finance hub with a deep pool of liquidity not only enables it to meet the large appetite of enterprises in the GBA for green financing, but also those in Belt and Road Initiative countries. “Moreover, the Hong Kong government could work closely with the authorities within the GBA, as a catalyst for the development of a low-carbon market in the region,” he says, adding that initiatives in Hong Kong, such as the decision to adopt the Common Ground Taxonomy by mid-2021, also help to steer the development of green finance in Hong Kong has been designated as the green financial hub for the Greater Bay Area as part of the GuangdongHong KongMacau Greater Bay Area Green Finance Alliance. “ Accountants could also support the proper disclosure and presentation of the financial and ESG information of financial products.” 12 April 2021
APLUS the region. Nietsch agrees: “The latest developments in Hong Kong continue to fuel the momentum across Asia-Pacific green finance markets.” He adds that Singapore has committed to issuing green bonds to support more than US$14 billion of green infrastructure projects. The role of accountants Accountants have a significant role to play in helping Hong Kong develop as a green finance centre. Lamrad points out that the profession has well-established frameworks, rules and guidelines on how to present information. “There is an opportunity for accountants to come in and share that knowledge and expertise with multiple stakeholders around the sustainable finance ecosystem,” she says. The International Financial Reporting Standards Foundation is currently working to set up a board to create global sustainability reporting standards. Nietsch says: “This is intended to build on existing initiatives to provide consistency that will support investors, companies, and green finance markets overall.” Fung adds that they can also quantify the benefits of green finance for companies, the environment and society to help substantiate its value. “Monitoring and performance tracking are important aspects that accountants could play a role in enhancing the governance of financing and investment process. “Accountants could also support the proper disclosure and presentation of the financial and ESG information of financial products, and look at third party opinions issued by independent auditors on such information to enhance their credibility,” she says. Fung adds that they can also play a role in the assurance of data. “The main objective is to increase the creditability of the data disclosed. During the assurance process, besides checking the accuracy and completeness of the data, accountants also review the internal control procedures of the data collection process. This may also help the companies to identify opportunities for improvement,” Fung says. Hui suggests accountants to develop their knowledge in this area in anticipation of future demand for related services, advice and expertise. “It is crucial for accountants to raise their awareness and understanding of sustainable business practices. Professionals who are wellequipped with ESG skills will help drive progress in building up a sustainable ecosystem for Hong Kong and the region,” she says. April 2021 13
SECOND OPINIONS: WHAT’S THE BESTWAY TOWORK WITH FRESH RECRUITS? SECOND OPINIONS Leadership EDMUND CHAN PRACTISING DIRECTOR, AUDIT AND ASSURANCE, MAZARS IN HONG KONG, AND AN INSTITUTE MEMBER It is important to prepare fresh recruits or graduates for the work environment when they join the firm, as well as the audit methodology and working approach. To achieve this, we offer a two-week induction programme for fresh graduates at Mazars. Here is what we’ve found. Don’t be too technical: As many are new to audit, we try to avoid using too many technical terms when introducing audit methodologies and procedures at first. It is also important to answer the question of “why” in addition to talking about the “what” and “how.” By doing so, new employees will have a better understanding of the rationale behind audit procedures and how their work impacts clients’ financial statements. Appreciate their differences: We bear in mind that fresh recruits come from different backgrounds, universities and have varying levels of accounting knowledge and work experiences. To raise their interest in learning, we put them into small groups and encourage them to share ideas with each other. When they are given opportunities to interact with others, this synergy further enhances their learning experience, as it helps them to connect with each other and work close together as a team. Being together matters: COVID-19-related workfrom-home arrangements last year posed challenges to our onboarding. Since staff members were still working remotely during the third quarter of 2020, we were deciding whether the induction programme should be shifted online. We understood that virtual training could still work, but that interacting online would not be as effective as face-to-face conversations. Also, being present in the workplace provides fresh graduates with a sense of belonging. Fortunately, the COVID-19 situation eased shortly before their joining date in early October. With additional safety measures put in place, we decided to hold the induction programme physically. At the end of the training, the feedback received was positive. These new associates noted that they felt welcome, connected well with their batch mates and were able to build relationships with others in person. Staying connected can be virtual: As auditors, we need to work as a team and know how to multitask. With flexible work arrangements under the pandemic, we train all staff to use online collaboration tools such as Zoom and Microsoft Teams to discuss work items as they would in the office. Staying connected – virtually and in person – makes fresh recruits feel part of a bigger team. 14 April 2021 “ When they are given opportunities to interact with others, this synergy further enhances their learning experience, as it helps them to connect with each other and work close together as a team.”
APLUS Every year, fresh recruits join a company, and the biggest challenge for their supervisors is to help them grow from inexperienced university graduates to competent staff members within a designated (and often short) period of time. Under such conditions, every company develops something fit for themselves. Some of them may choose to have formal classroom training, while others may have a mentorship programme in place. Some of them even have overseas training programmes where fresh recruits leave home for a few weeks for the purpose of acquiring new skills abroad, which is very effective, but expensive and difficult during this pandemic. Despite the different formats, the objective is the same – making sure fresh recruits are part of a team, able to work smoothly with colleagues across different levels, manage tasks on hand efficiently and deliver results. But after all these years, I find that the most effective way of achieving this is for supervisors to take a step back and to let the fresh recruits find their own way. The recruits should be the ones deciding how they should approach a task. I did it when I had my first full time job. When I arrived the office on my first day of work, I remember that my supervisor was on his honeymoon and that the manager was very busy. The only thing she did was tell me where I’d sit and the jobs I would take on from day one, many of which were handed over to me from another employee who was reassigned to work in a different department. So, I had to book a time with her to ensure a smooth handover. I also phoned my coworkers working in other departments one by one and introduced myself to see how they would interact with me in future. I was in charge of working out my own timetable and schedule while also taking care of my daily tasks. In other words, I tried to drive myself as far as I could. I went back to my manager when required and reported progress regularly. In the end, I found this to be extremely useful and repeated it in all my future roles. I later found out that my supervisor and manager did that intentionally, not by chance. They believe that the best way of teaching one to swim is to throw him or her into the water and then coach them along the way. I guess that our fresh recruits are mature enough to manage their orientation and training schedule as they are in early 20s. Many of them are bright and smart – which are reasons why we hire them in the first place. Let your fresh recruits explore as much as they can, but be there for their questions. So, would you consider repeating the same magic my manager/ supervisor did on me over 30 years ago? DEREK YUEN PEOPLE PARTNER, AUDIT, HONG KONG, KPMG CHINA AND AN INSTITUTE MEMBER K.M. WONG CHIEF FINANCIAL OFFICER, HONG KONG ELECTRIC INVESTMENTS AND AN INSTITUTE MEMBER KPMG recruits over 200 new graduates each year in Hong Kong to support the firm’s development across different functions and sectors. It is important to us that they understand our firm’s business, values and culture and feel welcome, so that we can achieve success together. Our engagements with fresh recruits start from the moment we make them an offer and, after they join, continue throughout a nine-to-12 month period. We use various social media platforms to engage and interact with them through live online events, small group virtual meetings and group chats to answer their questions and help them prepare even before the formal induction begins. It is key to provide fresh graduates with the right support in order to help them transition from university to professional life. Upon joining, they participate in a welcome session hosted by our senior management and receive induction training. In our induction programme, we set out their responsibilities to their peers, clients and to the public. We equip them with technical knowledge and a problem-solving mindset to exercise effective judgement, deliver exceptional client experience, and build relevant capabilities over their career at the firm. This is strengthened through experienced colleagues sharing real-life cases that demonstrate the values which form our corporate DNA and guide our daily behaviours and decisions. We encourage new joiners to participate in interest groups and cross-function initiatives to build their network within the firm. During the pandemic, technology has made it possible to host regular meetings to keep the team engaged. We have come up with creative ways to help our new recruits bond with their batch mates, including a virtual ice-breaking and networking game on social media. We’ve found that such bonding – virtual or in person – among batch mates often remains strong for many years even after they have been assigned to different departments or functions. It is also important that new joiners’ views are heard and their achievements are recognized. To foster a culture of open communication, we always ensure everyone has a fair chance to speak up in meetings. With a good support system put in place by the firm, we encourage new graduates to also do their part: Be passionate at work, support each other with a positive spirit, and learn to grow as a team. “ In our induction programme, we set out their responsibilities to their peers, clients and to the public.” “ Many of them are bright and smart – which are reasons why we hire them in the first place.” April 2021 15
LEADERSHIP PROFILE John Chu 16 April 2021
APLUS ALWAYS SERVING THE PUBLIC As Director of Audit at the Audit Commission, John Chu helps the government improve the performance and accountability of public sector organizations, while ensuring Hong Kong taxpayers get value for money. He tells Nicky Burridge about the landmark changes and challenges he has experienced over the last three decades at the commission, the increasing importance of accountability, and the most rewarding aspects that come with a career in the public sector Photography by Calvin Sit Better strategies need to be formulated to reduce diesel commercial vehicles running on the roads, which is the main cause of roadside pollution. More also needs to be done to increase the provision of boarding places in special schools for children with special educational needs. At first glance, these two issues may not have much in common, but they are both recommendations put forward in reports compiled by the Audit Commission, demonstrating its broad scope. John Chu, Director of Audit at the Audit Commission, explains that the commission’s mission is to provide independent audit services to help the government and other public sector bodies enhance their performance and accountability. “Our audit reviews aim to identify areas for improvement and help them learn lessons. We make workable and constructive suggestions for improvements. We are not trying to criticize or find fault with officials. We are forward-looking and try to add value to government operations,” says Chu, a member of the Hong Kong Institute of CPAs. He says all of the observations and recommendations made in the commission’s reports have been accepted by the government. He gives the example of two lengthy reports on food safety that were issued by the commission in 2018 and contained nearly 100 recommendations for improving the import control of food by air, road and sea. “Even though we were critical of the controls of the import of food, the government department concerned was very positive towards our recommendations,” he says. However, Chu says that difficulties can arise when there is no single government bureau or department that is responsible for a problem identified in an audit report. He explains that in 2013, the commission produced a report on the management of roadside skips, or open-top containers, in view of an increase in public complaints about them. April 2021 17
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