Chinese companies are delisting from US stock exchanges amid political tensions and auditing standards, but will have to raise their ESG standards if they are to list in Asia Pacific instead.
A research note from Sustainable Fitch explained the US Securities and Exchange Commission (SEC) identified in August more than 160 companies at risk of having their listing removed by 2024. Under the Holding Foreign Companies Accountable Act, these companies must have access to an overseas auditor. More than 80% of these companies are based in China, said Sustainable Fitch.
In order to shift their US listings to other financial centres such as Hong Kong or Singapore, however, firms will need to comply with other ESG rules they do not currently meet on board diversity and sustainability governance requirements, for instance.
The Hong Kong Stock Exchange added board diversity to its Listing Rules in January this year, meaning that existing firms now have until 2024 to appoint new directors and they must also now disclose gender ratios of the board, senior management and overall workforce.
Of the top 50 US-listed Chinese companies by market capitalisation, nearly a quarter have all-male boards, and nearly half have only female directors in non-executive capacities, said the note.
Singapore Stock Exchange is another popular secondary listing market, but it too has introduced rules on annual sustainability reporting, board diversity policies and materiality-based disclosure.
The 223 Chinese companies listed on the major US exchanges have had few sustainability regulatory requirements to date.
PetroChina, China Life Insurance Company and Aluminium Corporation of China are among those companies that have indicated they will exit US exchanges and are already listed in Hong Kong.
“Over the past year, a number of large Chinese companies, including high-profile state-owned entities, have withdrawn their US listings or announced plans to do so.
“The trend is driven by a disagreement between US and Chinese financial regulators over access to audits of listed companies conducted in China, but also occurs in the context of other political tensions between the two countries,” the note said.
“An unintended effect of the shift from New York to Hong Kong could be the improved quality of ESG disclosure from publicly-listed Chinese companies, particularly among those whose sole listing is in the US where stock exchange sustainability reporting remains largely voluntary.”