Climate-Related Risks Disclosure
Introduction
Flow Capital (HK) Limited (the “Company”) is a corporation licensed with the Hong Kong Securities and Futures Commission to conduct Type 1 (Dealing in Securities), Type 4 (Advising on Securities) and type 9 (Asset Management) Regulated Activities. As the world moves towards net zero, we are aware that climate-related factors may potentially bring risks or opportunities to funds (the “Funds”) under our management. In line with SFC’s recent update to the regulatory requirements which requires fund managers to take climate-related risks into consideration, we developed a robust governance structure with appropriate policies and procedures to effectively evaluate and mitigate potential climate-related risks. Climate change has increasingly been recognized as a source of extreme risk and is also posing potential financial risks for businesses.
The Company as a responsible fund manager, in line with SFC’s requirement, will ensure appropriate measures are in place to manage material climate risks when managing fund assets on behalf of clients, including a robust governance structure and appropriate policies and procedures to effectively evaluate and mitigate potential climate-related risks.
The Company has, after careful evaluation, found climate-related risks to be in relevant but immaterial to all Funds under our management.
Governance
The Board’s role and oversight
The Company’s Board of Directors (the “Board”) is responsible for ensuring risk management procedures (including the management of climate-related risks) are observed and strictly enforced. The Board organizes periodic meetings (at least on an annual basis) to assess and discuss any matters related to risk management. The Board is kept up to date of the affairs of all Funds by acting as a formal escalation point should any issues/ breaches arise.
Management’s roles and responsibilities
Senior management and Investment team exercise oversight over any significant risk related to the Funds and is responsible for assessing relevance and materiality of climate-related risks, supervising and monitoring the integration of climate-related considerations into the investment and risk management processes, as appropriate. Senior Management is entitled to the right to call ad-hoc meetings with investment and non-investment functions, whenever necessary, to discuss any risk-related issues.
Determining Relevance and Materiality
We analysed the relevance and materiality of climate-related risks to our Funds and our processes are outlined below:
Relevance of climate-related risks
When determining the relevance of climate-related risks, we looked at our Funds’ (i) overall investment strategy, (ii) geographic location of our investee companies, (iii) the time horizon of our investments, and (iv) the composition of our Fund for a more comprehensive evaluation. Since all our Funds mainly invest in bonds and certificates of deposits and are subject to credit risk of issuers (which may potentially be affected by climaterelated risks), and fixed income products, and may also invest in equities and other real properties, such as real estate etc , we concluded that climate-related risks for our Fund are considered relevant.
Materiality of climate-related risks
We integrated both top-down and bottom-up approach when evaluating the materiality of climate-related risks by assessing the impact of climate-related physical and transitional risks on the (a) industry level, (b) geographical level and also (c) the portfolio level, including identifying any concentration of risks, comparing ESG ratings taken from several data sources (if any), and credit ratings of issuers. Our comprehensive approach to the materiality assessment concludes that climate-related risks are immaterial to our Funds.
Conclusion
The results of our analysis indicate that climate-related physical and transitional risks are relevant but immaterial to our portfolio. We will continue to monitor and assess the potential impacts of climate-related risks on our investments on a periodic basis (at least on an annual basis) to ensure that such risks are effectively mitigated.
