Corporate Governance Report

Corporate Governance Practices

China Power is committed to pursuing a high standard of corporate governance. The Board recognizes that good corporate governance is vital to the healthy and sustainable development of the Group. Through continuing exploration and practice, the Company has formed a standardized governance structure and established an effective internal control system. The Board and the management always follow good governance principles to manage the Group’s business effectively, treat all shareholders fairly and strive for the long-term, stable and growing return for the shareholders.

The Company has strictly complied with all the code provisions of Corporate Governance Code and Corporate Governance Report (the “CG Code”) as set out in the Appendix 14 to the Listing Rules throughout the year ended 31 December 2020, save for the CG Code provision of A.2.1.

Governance Framework

The Board

Board Composition

As at the date of this annual report, the Board comprises a total of seven Directors as follows:

Executive Director	Non-executive Directors	Independent Non-executive Directors
Mr. TIAN Jun (Chairman of the Board)	Mr. GUAN Qihong	Mr. KWONG Che Keung, Gordon
Mr. HE Xi (President)	Mr. WANG Xianchun	Mr. LI Fang
		Mr. YAU Ka Chi

Profiles of the Directors are set out in the section headed “Directors and Senior Management Profiles” of this annual report.

The current Board composition reflects diverse mix of various experience, capabilities, skills and expertise in the following fields that are suitable for and relevant to the Company’s businesses.

They are well experienced and having progressive thinking in leading the Group. The Diversity mix of the Board is summarized in the following chart:

The Diversity Mix of The Board

The non-executive Directors (including the independent non-executive Directors) form the majority of the Board. More than one-third of our Board members are independent non-executive directors who can help the Board to make more effective independent judgment. They are able to make decisions in an objective and professional manner, and to assist the management in formulating the Company’s development strategies. They ensure that the preparation of financial and other mandatory reports by the Board are compiled in strict accordance with relevant regulations and standards in order to protect the interests of the shareholders and the Company as a whole.

The Board has received annual written confirmation of independence from each of the independent non-executive Directors and believed that, as at the date of this annual report, they were independent of the Company in accordance with the relevant requirements of the Listing Rules.

Chairman and Chief Executive

The Chairman provides leadership for the Board and is responsible for ensuring that all Directors receive adequate information, which must be complete and reliable, in a timely manner and that Directors are properly briefed on issues arising at the Board meetings. He affirms the Board is working effectively and discharging its responsibilities. He also ensures good corporate governance practices and procedures are established, and appropriate steps are taken to provide effective communication with shareholders and those views of shareholders are communicated to the Board.

The Chairman encourages all Directors to make a full and active contribution to the Board’s affairs and take the lead to ensure that it acts in the best interests of the Company. He encourages Directors with different views to voice their concerns, allow sufficient time for discussion of issues and ensure that Board decisions fairly reflect Board consensus. He promotes a culture of openness and debate by facilitating the effective contribution of non-executive Directors in particular and ensuring constructive relations between executive and non-executive Directors.

Under the CG Code provision A.2.1, the role of both the chairman and chief executive should be separated and should not be performed by the same individual. Mr. TIAN Jun served as both the Chairman of the Board and the President (being the chief executive) of the Company until late July 2020.

With effect from 28 July 2020, Mr. TIAN Jun ceased to hold the position of the President of the Company, the same date Mr. HE Xi was appointed as an executive Director and the President of the Company. Mr. TIAN remains to serve as the Chairman of the Board, be responsible for the Company’s strategy development and key decision making, and continue to play his core leadership role. Mr. HE, as President of the Company, takes charge of the decision-making matters concerning the Group’s daily management and business, and oversees the execution of the Group’s business strategies.

Subsequent to the above changes, the Company has been in compliance with the CG Code provision of A.2.1.

Appointment and Re-election of Directors

In accordance with the Company’s articles of association, one-third of the Directors (including non-executive Directors with fixed term of three years) shall retire from office by rotation and be re-elected by shareholders at the annual general meetings. In addition, any new appointment to the Board is subject to re-appointment by shareholders at the upcoming general meeting. Every director, including those appointed for a specific term, should be subject to retirement by rotation at least once every three years.

If an independent non-executive Director serves more than nine years, his/her further appointment should be subject to a separate resolution to be approved by shareholders. The documents attached to shareholders accompanying that resolution should include the process used for identifying the individual and why the Board believes the individual should be elected and the reasons why it considers the individual to be independent; if the proposed independent non-executive director will be holding their seventh (or more) listed company directorship, why the board believes the individual would still be able to devote sufficient time to the Board; the perspectives, skills and experience that the individual can bring the Board; and how the individual contributes to diversity of the Board.

The Company has in place a Nomination Policy setting out the selection and recommendation criteria and the appropriate procedures to be adopted when considering nomination and appointment of suitable candidates for directorship to the Board. Please refer to the section headed “Nomination Policy” of this Corporate Governance Report for its details.

Training of Directors, Code of Conduct and Insurance

Every newly appointed Director will receive a comprehensive, formal and tailored induction on the first occasion of his/her appointment, so as to ensure that he/she has a proper understanding of the operations and business of the Company, and he/she is fully aware of his/her responsibilities under Statutes and Common Law, the Listing Rules, applicable rules and other regulatory requirements, and especially the governance policies of the Company.

All Directors are required to disclose to the Company their offices held in public companies or organizations and other significant commitments. Every Director should ensure that he can give sufficient time and attention to the Company’s affairs.

All Directors have been given the “Guidelines on Directors’ Duties” and “Working Guidelines for the Board” of the Company and various guides for directors published by the Hong Kong Stock Exchange and Securities and Futures Commission. The Company Secretary continuously updates and refreshes the Directors on the latest laws, rules and regulations regarding their duties and responsibilities.

Directors’ training is an ongoing process, in order to ensure that their contribution to the Board remains informed and relevant. The Company encourages all Directors to participate in appropriate training programs to develop and refresh their knowledge and skills. During the year under review, all members of the Board have provided their records of training to the Company Secretary for record. Their trainings included attending seminars, webinars and discussion forums, reading briefings and updated materials on current rules and regulations.

The Company has adopted a set of Code of Conduct for Securities Transactions by Directors (“Code of Conduct”), the terms of which are not less exacting than the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules. Having made specific inquiries to all Directors, all Directors confirmed that they have complied with the Code of Conduct throughout the year 2020.

The Company has arranged appropriate insurance cover on Directors’ and officers’ liabilities in respect of legal actions against its Directors and senior management arising out of corporate activities.

Power of and Delegation by the Board

The Board is the highest decision-making and managing body of the Company. Having regard to the best interests of the Company and its shareholders, the Board provides leadership and guidance to the Group’s activities. It reviews and approves major matters such as business strategies, policies, business plans, financial budgets, major investments as well as mergers and acquisitions.

The Directors have acknowledged that the principal responsibilities of the Board also include overseeing risk management and internal control systems, corporate governance, environmental and social responsibilities governance, supervising and administrating the operation and financial position of the Company, approving the result announcements and other disclosures as required in accordance with applicable laws and regulatory rules, optimizing corporate governance structure and promoting the communication with our shareholders.

There are currently four committees under the Board, namely Audit Committee, Risk Management Committee, Remuneration and Nomination Committee and Executive Committee to implement internal supervision and control on each relevant aspects of the Group. In addition, there is a Sustainability Working Committee under the Risk Management Committee which specifically formed to assist the Risk Management Committee with regard to policies formulation and practices implementation of sustainability-related matters of the Group.

The Board delegates certain management and operational functions to the Executive Committee and the management, and reviews such arrangements periodically to ensure that they remain appropriate to the Group’s needs.

The management has overall responsibility for the Group’s daily operations. The Board establishes clear responsibilities and authorities for management to ensure the daily operational efficiency. It acts within the authority approved by the Board to fulfill the day-to-day management responsibilities and makes timely decisions. With regard to matters beyond its authority, the management will report to the Executive Committee or the Board in a timely manner in accordance with the relevant working guidelines.

Audit Committee

The Company established the Audit Committee on 24 August 2004 with written terms of reference in compliance with the Listing Rules and the CG Code provisions. The primary duties and functions of the Audit Committee set out in its terms of reference, inter alia, include the following:

To communicate with internal auditor and determine annual internal audit plans, discuss internal audit procedures with the internal auditor at least once every six months, review and monitor the internal control system, internal audit functions and effects of annual internal audit plans.
To make proposals to the Board on the appointment, re-appointment and removal of the external auditor, review and monitor the independence, objectivity and audit effectiveness of the external auditor in accordance with the relevant standards issued by the Hong Kong Institute of Certified Public Accountants, formulate and implement the engagement policy on the provision of non-audit services by the external auditor.
To review financial information of the Company.
To supervise the financial reporting system and internal control system including the adequacy of resources, qualifications and experience of staff of the Company’s accounting and financial reporting function, and their training programs and budget.
To conduct any inspection authorized by the Board based on its terms of reference, in that case, the committee is entitled to solicit any necessary information from any employees while who have been instructed to assist the committee to satisfy any of its requirements.

The Audit Committee comprises of three members, namely Mr. KWONG Che Keung, Gordon, Mr. LI Fang and Mr. YAU Ka Chi, all of whom are independent non-executive Directors. The chairman and the secretary of the Audit Committee are served by Mr. KWONG Che Keung, Gordon and the Company Secretary of the Company respectively. For the purpose of reinforcing their independence, all members of the Audit Committee have appropriate professional qualifications, accounting or related financial management experience referred to in the Listing Rules.

The details of the terms of reference of the Audit Committee have been posted on the websites of the Company and the Hong Kong Stock Exchange.

The Audit Committee held two meetings during 2020 (average attendance was 100%). The work performed by the committee during the year including:

reviewed the annual financial statements and “Corporate Governance Report” for the year ended 31 December 2019 and the interim financial statements for the six months ended 30 June 2020, including the major accounting issues raised by the external auditor;
reviewed, endorsed and recommended to the Board the appointment of Ernst & Young as the new auditor of the Company upon the retirement of the former auditor in March 2020;
reviewed and approved the audit plan and audit strategy submitted by the external auditor for the year ended 31 December 2020;
reviewed the internal control reports prepared by the Company’s Internal Audit Department relating to the Company’s internal audit plan, internal control system and risk management procedures;
reviewed the continuing connected transactions of the Company;
considered and approved the terms of engagement and remuneration of external auditor for its provision of audit and permitted non-audit related services; and
reviewed the internal and independent audit results and discussed matters relating to audit, internal control system and financial reporting, including the adequacy of resources, staff qualifications and experience of the Company’s accounting, internal audit and financial reporting functions, together with the senior management, internal and external auditors of the Company.

Risk Management Committee

The Company established the Risk Management Committee on 23 March 2016 with written terms of reference in compliance with the Listing Rules and the CG Code provisions. The Company established a Sustainability Working Committee, being a sub-committee of the Risk Management Committee, with a specific aim to assist the Risk Management Committee on sustainability-related matters of the Group. Subsequent to the establishment of the said working committee, the terms of reference of the Risk Management Committee was revised with effect from 1 September 2020. The primary duties and functions of the Risk Management Committee set out in its terms of reference, inter alia, include the following:

To review and recommend for the Board’s approval the Group’s overall risk management strategies and risk appetite/tolerance which shall take into account of the strategic, sustainable development, financial, operational, compliance and all the relevant risks faced by the Group and the prevailing and prospective market and economic conditions at least annually.
To review and recommend for the Board’s approval the Group’s sustainable development strategies, objectives, and standards at least annually;
To review and recommend for the Board’s approval the Group’s risk management framework, risk management system and corporate governance framework including their appropriateness, effectiveness and independence of risk management functions at least annually.
To review reports from the management and to make recommendations to the Board on the Group’s risk management and sustainable development policies which govern the identification, assessment, monitoring and reporting of the major risks faced by the Group.
To supervise the Sustainability Working Committee and monitor its works.
To oversee the implementation of risk management and sustainable development policies and the compliance with the respective statutory rules and regulations.
To report any significant risk management issues to the Board and suggest solutions.

The Risk Management Committee comprises of four members, namely the three independent non-executive Directors, Mr. KWONG Che Keung, Gordon, Mr. LI Fang and Mr. YAU Ka Chi, and the executive Director and the Chairman of the Board, Mr. TIAN Jun. The chairman and the secretary of the Risk Management Committee are served by Mr. TIAN Jun and the Company Secretary of the Company respectively.

The details of the terms of reference of the Risk Management Committee and its revised version have been posted on the websites of the Company and the Hong Kong Stock Exchange.

The Risk Management Committee held two meetings during 2020 (average attendance was 100%). The work performed by the committee during the year including:

reviewed and approved the “Risk Management Report” for the year 2019 and the first half of 2020, and the risk management plan for the year 2020 prepared by the Company’s Internal Audit Department relating to the Group’s risk management framework, effectiveness of the risk management system, the circumstances of specific risk management and the measures adopted for risk control, and risk management policies which govern the identification, assessment, monitoring and reporting of the major risks faced by the Group;
reviewed and approved the adequacy of resources, qualifications and experience of the staff of the Company’s risk management function;
reviewed, considered and endorsed the establishment of the Sustainability Working Committee under the Risk Management Committee and confirmed its terms of reference, and made recommendations to the Board; and
reviewed and confirmed the revised terms of reference of the Risk Management Committee and made recommendations to the Board.

The management’s annual confirmation on the effectiveness of the Group’s risk management and internal control systems was reviewed and endorsed by the Risk Management Committee and the Audit Committee respectively and was reported to the Board.

SUSTAINABILITY WORKING COMMITTEE

On 27 August 2020, the Company resolved to establish a Sustainability Working Committee, being a sub-committee of Risk Management Committee under the Board with written terms of reference and with effect from 1 September 2020. The Sustainability Working Committee shall report directly to the Risk Management Committee and shall assist the Risk Management Committee in providing leadership, direction and oversight with regard to policies formulation and practices implementation of sustainability-related matters of the Group. The primary duties and functions of the Sustainability Working Committee set out in its terms of reference, inter alia, include the following:

To lead and maintain sustainable growth and manage the sustainability risks and opportunities of the Group. To review and identify the sustainable and sustainability elements affecting or relevant to the Group’s business or operations and make recommendations to the Board through the Risk Management Committee for approval.
To assist formulating the Group’s sustainable development strategies, objectives and standards and provide them to the Board through the Risk Management Committee for approval.
To oversee the Group’s implementation of policies, measures, duties and activities on sustainability matters to attain those goals and standards and to review and evaluate their effectiveness at least annually and provide the Board through the Risk Management Committee with confirmations and recommendations for improvement.
To ensure the adequacy of resources, staff qualifications and experience, training programs and budget for internal implementation of sustainable development function.

The chairman and members of the Sustainability Working Committee shall be appointed by the Board in which the chairman shall be a vice president of the Company and the members shall include but not limited to the general managers or the heads of all the business and functional departments of the Company. The chairman of the Sustainability Working Committee is currently served by Mr. HUANG Yuntao, the vice president of the Company.

The details of the terms of reference of the Sustainability Working Committee have been posted on the websites of the Company and the Hong Kong Stock Exchange.

Remuneration and Nomination Committee

The Company established the Remuneration and Nomination Committee on 24 August 2004 with written terms of reference in compliance with the Listing Rules and the CG Code provisions. The primary duties and functions of the Remuneration and Nomination Committee set out in its terms of reference, inter alia, include the following:

Remuneration

To make recommendations to the Board on the remuneration policy and structure for all Directors and senior management of the Company, and to make recommendations on the establishment of a formal and transparent procedure for formulating remuneration policy.
To review and approve the management’s remuneration proposals with reference to the Board’s corporate goals and objectives.
To make recommendations to the Board on the remuneration packages of individual executive Directors and senior management of the Company with reference to their experience, performance, duties and market conditions. This should include benefits in kind, pension rights and compensation payments, including any compensation payable for loss or termination of their office or appointment.
To make recommendations to the Board on the remuneration of non-executive Directors.

Nomination

To review the structure, size and composition (including the skills, knowledge and experience) of the Board at least annually and make recommendations on any proposed changes to the Board to complement the Company’s corporate strategy.
To identify individuals suitably qualified to become Board members based on a range of diverse perspectives and select or make recommendations to the Board on the selection of individuals nominated for directorships.
To make recommendations to the Board on the appointment or re-appointment of Directors and succession planning for Directors, in particular the chairman and the chief executive.
To assess the independence of independent non-executive Directors.

Nomination Policy

(A) Selection Criteria

In evaluating and selecting any candidate for directorship, the following criteria should be considered:

(a)	Character and integrity.
(b)	Qualifications including professional qualifications, skills, knowledge, expertise and experience that are relevant to the Company’s business and corporate strategy.
(c)	Good records of accomplishments in present and prior positions.
(d)	Potential contributions the candidate can bring to the Board in terms of diversity in its all aspects under the Company’s Board diversity policy.
(e)	Commitment of the candidate to devote sufficient time to effectively carry out his/her duties.
(f)	Potential or actual conflicts of interest that may arise if the candidate is selected.
(g)	Independence of the candidate.

(B) Nomination Procedures and Process

1. Appointment of new Director

(a)	Upon receipt of the proposal on appointment of new Director, the Committee identifies or selects candidates, with or without assistance from external agencies or the Company, and evaluate such candidate based on the criteria as set out in this Policy to determine whether such candidate is qualified for directorship.
(b)	The Committee may use any process it deems appropriate to evaluate the candidates, which may include personal interviews, background checks, presentations or written submissions by the candidates and third party references.
(c)	The Committee should then recommend to the Board to appoint the appropriate candidate for directorship, as applicable, and provide to the Board with all the information required including information set out in the Listing Rules in relation to the candidates.2
(d)	The Board should deliberate and decide on the appointment based upon the recommendations of the Committee.

2. Re-election of Director

(a)	The Committee should review the overall contribution and service to the Company of the retiring Director and the level of participation and performance on the Board. In the case of a proposed re-appointment of a retiring independent non-executive Director, also consider the number of years he/she has already served.
(b)	The Committee should also review and determine whether the retiring Director continues to meet the criteria as set out in this Policy.
(c)	The Committee and/or the Board should then make recommendations to shareholders in respect of the proposed re-election of Director at the general meeting.

Board Diversity Policy

The policy is summarized as follows:

for identifying suitably qualified candidates to become Board members, it should be based on a number of diverse aspects, including Board members with different background, skills, regional and industry experience, gender and other qualities, that are in balanced and complementary with each other, creating synergy, and enabling the Board to function effectively as a whole.
when reviewing and assessing the composition of the Board, it should be based on the Company’s own business position and management needs from time to time, considering a number of factors including but not limited to the above mentioned background, skills, regional and industry experience, and other factors in order to achieve the Board with a reasonable structure that runs efficiently.

The Remuneration and Nomination Committee has three members, namely Mr. LI Fang, Mr. KWONG Che Keung, Gordon, and Mr. YAU Ka Chi, all of whom are independent non-executive Directors. The chairman and the secretary of the Remuneration and Nomination Committee are served by Mr. LI Fang and the Company Secretary of the Company respectively.

The details of the terms of reference of the Remuneration and Nomination Committee have been posted on the websites of the Company and the Hong Kong Stock Exchange.

The Remuneration and Nomination Committee held two meetings during 2020 (average attendance was 100%). The work performed by the committee during the year including:

considered and approved the overall remuneration package of the Directors and senior management of the Company in 2019 with reference to the remuneration system of the parent companies;
reviewed the Company’s matters relating to remuneration in 2020 and made recommendations to the Board;
considered the profile of the Directors who would retire from office by rotation and stand for re-election at the annual general meeting in accordance with the Company’s articles of association and made recommendations to the Board; and
reviewed, considered and confirmed the appointment of Mr. HE Xi as the executive Director, the President of the Company and the member of the Executive Committee under the Board, and made recommendations to the Board.

Pursuant to the CG Code provision B.1.5, the remuneration of the members of the senior management by remuneration band for the year ended 31 December 2020 is set out below:

Remuneration band	Number of individuals
(HK$)	2020	2019
0 to 1,000,000	4	4
1,000,001 to 1,500,000	6	8
1,500,001 to 2,000,000	1	–

Executive Committee

The Company established the Executive Committee in 2008. As a committee under the Board, the Executive Committee conducts its work under the guidance of the Board and reports to the Board pursuant to the “Working Guidelines for the Executive Committee” approved by the Board. The chairman of the Executive Committee is served by Mr. TIAN Jun, the executive Director and the Chairman of the Board. The members of the committee include the executive Directors and all the vice presidents of the Company. It has been delegated with the responsibilities to ensure the effective direction and control of the business and to deliver the Group’s long-term strategies and goals. It advises the Board in formulating policies in relation to the Group’s business operations, monitors the performance and compliance of the business, and supervises the management to implement the Board resolutions.

The Executive Committee acts as a bridge for communication and connection between the Board and the management, and plays a crucial role in enhancing the quality of corporate governance as well as strengthening the management efficiency of the Company. It ensures that the Board can timely hear the voices of the operation and management staff and acts timely in respect of material operation affairs of the Company. It meets on a regular basis to review the Group’s activities and discuss management and operational issues.

The Executive Committee held fifteen meetings during 2020. The executive Directors, the vice presidents and the senior management of the Company attended the meetings.

Company Secretary

Ms. CHEUNG Siu Lan, secretary of the company, is an employee of the Company, appointed by the Board, and responsible to the Board. The Company Secretary is responsible for ensuring that the activities of the Board conducted efficiently and effectively, and the procedures and all applicable laws and regulations are followed. She also supports and facilitates the training and professional development of Directors.

The Company Secretary reports to the Chairman and the Board, provides advice on corporate governance and corporate transactions, and assists the Board in discharging its obligations to shareholders pursuant to the Listing Rules. All Directors may call upon her for advice and assistance at any time in respect to their duties and the effective operation of the Board and the Board Committees.

During the year under review, Ms. CHEUNG has attended relevant professional seminars/webinars to update her skills and knowledge. She has complied with the Listing Rules to take no less than 15 hours of relevant professional training in a financial year.

Operation of Meetings and Supply of and Access to Information

Throughout the year under review, arrangements were in place to ensure all Directors were given an opportunity to include matters in the agenda for regular Board meetings. Notice of at least fourteen days was given of a regular Board meeting to give all Directors an opportunity to attend. For all other Board meetings, reasonable notice was also given.

Full Board or committee papers were sent to all Directors at least three days before the intended date of a Board meeting or a committee meeting. Management had supplied the Board and its committees with adequate information and explanations so as to enable them to make an informed assessment of the financial and other information put before the Board and its committees for approval. Management was also invited to join the Board or committee meetings where appropriate.

For meetings of the Board, if a substantial shareholder or a Director has a conflict of interest in a matter to be considered by the Board which the Board has determined to be material, the matter must be dealt with by a physical Board meeting rather than a written resolution. Independent non-executive Directors who, and whose close associates, have no material interest in the transaction shall be present at that Board meeting. Any Director who has a conflict of interest must abstain from voting.

During the year under review, minutes of the Board meetings and meetings of Board Committees were recorded in detail the matters considered and decisions reached at the meetings. Draft and final versions of minutes were sent to all Directors for their comments within a reasonable time after the Board or committee meetings were held. Minutes of the meetings are always kept by our Company Secretary, and the Board and committee members may inspect the documents and minutes of the Board and Board Committees at any reasonable time by giving reasonable notice.

At all time, where necessary, the Directors can seek separate independent professional advice at the Company’s expenses so as to discharge his/her duties to the Company. All the Directors are also entitled to have access to timely information in relation to our business and make further enquiries where necessary, and they have separate and independent access to senior management of the Company.

Directors' Attendance Record

In the year 2020, the attendance records of the Directors at Board meetings, Audit Committee meetings, Risk Management Committee meetings, Remuneration and Nomination Committee meetings and the annual general meeting are as follows:

Directors	Board	Audit Committee	Risk Management Committee	Remuneration and Nomination Committee	Annual General Meeting
Executive Director:
TIAN Jun (Chairman of the Board and the Risk Management Committee) ⁽¹⁾	5/5	–	2/2	–	1/1
HE Xi (President of the Company) ⁽²⁾	2/2	–	–	–	–

Non-executive Directors:
GUAN Qihong	3/5	–	–	–	1/1
WANG Xianchun	5/5	–	–	–	1/1

Independent Non-executive Directors:
KWONG Che Keung, Gordon (Chairman of the Audit Committee)	5/5	2/2	2/2	2/2	1/1
LI Fang (Chairman of the Remuneration and Nomination Committee)	5/5	2/2	2/2	2/2	1/1
YAU Ka Chi	5/5	2/2	2/2	2/2	1/1

Notes:
(1) Mr. TIAN Jun ceased to hold the position of the President of the Company with effect from 28 July 2020.
(2) Mr. HE Xi was appointed as an executive Director and the President of the Company with effect from 28 July 2020.

Accountability and Audit

Financial Reporting

Directors acknowledge their responsibility for preparing the financial statements on a going concern basis, with supporting assumptions or qualifications as necessary. The Company’s financial statements are prepared in accordance with the Listing Rules, Hong Kong Companies Ordinance and also the accounting principles and practices generally accepted in Hong Kong. Appropriate accounting policies are selected and applied consistently; judgments and estimates made are prudent and reasonable.

During the year 2020, all Directors have been given on a monthly basis the latest information and briefings about the financial position, changes in the business and the development of the Group. “Letter to the Shareholders” from the Chairman of the Board contained a summary of the Company’s performance in this annual report and how the Company will preserve value over the long term and our strategies for delivering the Company’s objectives. The Directors ensured a balanced, clear and understandable assessment of the Company’s performance, position and prospects in annual reports, interim reports, inside information announcements and other disclosures required under the Listing Rules and other statutory requirements.

Risk Management and Internal Controls

The Board puts particular emphasis on risk management and strengthening internal control system. In respect of organizational structure, the Company has set up the Audit Committee, the Risk Management Committee, the Remuneration and Nomination Committee and the Executive Committee, and there is also a Sustainability Working Committee under the Risk Management Committee. The principles of the internal control framework of the Company are to strengthen the Company’s internal monitoring and control in accordance with the requirements of the Hong Kong Stock Exchange, continuously improve the Company’s corporate governance structure, build up corporate integrity culture, establish an effective control system, continuously assess the competence of the internal control system and the efficiency of the management through auditing, risk assessments and internal assessments, review identified risk exposures and ensure the effective running of the control system.

The Company has an Internal Audit Department in place and has been ensuring the independence of its organization, staffing and work, which is crucial to the Company’s internal controls. In order to actively create a sound internal control environment, the Internal Audit Department provides internal control assessment reports to the management on a regular as well as ad hoc basis. It also reports to the Audit Committee, the Risk Management Committee and the Board at least twice a year on internal control and risk management matters. To minimize risks faced by the Company, the department evaluates and reviews the Company’s internal control processes to avoid risks and provide a solid foundation for building up an effective internal control system.

The Company has a comprehensive internal control criterion which includes seven parts, namely “basic framework of the internal control system”, “management authorization manual”, “staff disciplinary code”, “code on conflicts of interests”, “operational standards for internal control activities”, “assessment standards for internal control system”, and “implementation standards for internal audit”, details of which are contained in our “Risk Management and Internal Control Specifications”.

While taking into full account the risk management framework requirements of The Committee of Sponsoring Organizations of the Treadway Commission (the “COSO”), the promoter of the National Commission on Fraudulent Financial Reporting, and risk management guidelines set out by the Hong Kong Institute of Certified Public Accountants, the internal control system of the Company also learns from the experience of outstanding management companies and takes into consideration our actual situation and business characteristics in formulating the control framework for assessing the efficiency and competence of the internal control system, which provide a reasonable assurance to ensure the effectiveness of the Company’s operating activities, reliability of its financial reports and compliance of laws and regulations.

In 2019, the Company established an audit center. With the objectives of standardizing and information-digitalizing internal audit and risk management, the audit center provides systematic support to the internal audit and control team, and provides relevant personnel training for the development of the Group.

The Board through the Audit Committee and the Risk Management Committee has reviewed the efficiency of internal control system of the Group in aspects such as financial controls, operational controls, regulatory compliance and risk management. The Directors believe that the risk management and internal control systems are efficient and adequate, and controls effectively the risks that might have impacts on the Company in achieving its goals.

During the year under review, the Company has strictly complied with the relevant provisions of the CG Code regarding risk management and internal control. Leveraging the internal information sharing platform of the Company and the management effectiveness of the Enterprise Resource Planning (“ERP”) system, the Company has driven the transformation and upgrade from traditional auditing to informationized auditing, thereby advancing the auditing works aided with big data in full swing. During the year, the Internal Audit Department commenced tasks including the following:

Containing the epidemic spread without compromising auditing works. The outbreak of the novel coronavirus pandemic since early last year has affected normal gatherings and exchanges. The Company was at the forefront of setting up a “Remote Audit Expert Pool” in February last year in order to commence remote internal audit work, and was able to complete the annual audit for 2019 smoothly according to the stipulated timeframe. Regarding the audit center established in 2019, we have strengthened the audit-related talent team by completing the internal recruitment of appropriate positions for the audit center early last year. The audit center was put into official operation in the first half of last year. The new audit information system has provided remote online access as scheduled, laying the foundation for the transformation and upgrade of internal audit and full audit coverage. Combining comprehensive audit and specialized audit, the Group completed a total of 11 comprehensive audits (which include various power plants, procurement platform companies and research and development companies) and 1 specialized audit for pollution prevention and control during the year. It has also commenced the specialized audit for the Liaoning Chaoyang 500MW photovoltaic grid parity demonstration project.

Implementing various measures at the same time to enhance the management and control over provincial companies and direct subordinate units. We have developed an instant communication and liaison mechanism with each of the Group’s provincial companies for the audit management of their construction projects. We have also conducted the audit, continued tracking and follow-up ledger management for a total of 30 construction projects. During the year, we commenced post-evaluation works for various investment projects of our provincial companies, such as the investment projects of Jingmen Power Station, which engages in natural gas power and heat supply, and the Macheng intelligent energy project. Subsequently, we will make full use of the results from the post-evaluation works for the investment projects of our provincial companies and conclude our experience in new energy investment projects, thereby providing the basis for the Group’s approval for and control over the investment decisions of our provincial companies in the future.

Properly implementing audit rectification and self-examination and self-correction. With reference to the audit results published by the National Audit Office in the 2019 audit announcement, we were able to apply such information to the daily operation and management of the Group and enhanced the overall management level of the Group. At the same time, the issues identified in the inspection of different areas, including tendering and bidding management, contract management, construction management, assets management, materials management, fuel management, remuneration and benefits management, accounting, auditing and finance management and major risks management, were compiled into case studies according to the results of various audit and internal control assessments in 2019. Through this, the Company supervised all business departments to amend and implement closed-loop management for rectification, thereby ensuring improvement on such issues.

Persisting in implementing full coverage of major risk prevention. In conjunction with the post-pandemic risk management, the Company organized and commenced its efforts in major risks prevention and elimination on monthly basis by reviewing various risk management ledgers. We continued to persist in the concept of incorporating risk management efforts into our corporate strategies and performance management. Major risks were analyzed in detail with responsibilities assigned to individuals. Employees’ awareness of personal responsibility was enhanced, and risk prevention response measures were refined, thereby further consolidating the comprehensive risk management system that integrated hierarchical management and control with the “three lines of defence”. Meanwhile, the Company has performed in-depth analysis and research on the overall major risks in 2020. The management was responsible for overseeing 5 general major risk checkpoints and 7 core actions. Relevant departments followed up on specific risks and included the targets of major risks prevention and elimination in the letters of responsibilities for the annual goals of each department, while formulating and implementing responsive measures and contingency plans against risks, with an aim to ensure the Company’s major risks are controllable and under control in general.

Continuing to strengthen risk management on investment projects. We persisted in incorporating the major decision-making for risk assessment into the prerequisite procedures for project investment. The Company tracked the handling progress of risks involved with investment projects on a monthly basis. In respect of projects with major changes of risks, dynamic studies were performed promptly, so as to assess our risk tolerance in advance. In case of non-compliance with the Company’s risk management requirements, the relevant investment project would be terminated immediately. In addition, in order to strengthen the closed-loop management on the risks involved with investment projects, those investment projects tabled on the investment decision meetings have been put under monthly review and assessment. Analysis and tracking were also conducted according to their comprehensive risk assessment reports and risk responses, and risk alerts were issued in due course, so as to strengthen the dynamic risk management on investment projects. During the year, the Internal Audit Department completed risk assessment reports for 21 projects.

Reviewing and inspecting continuing connected transactions. The Internal Audit Department took appropriate measures to review and inspect quarterly the implementation of the Group’s existing continuing connected transactions. During the year under review, each of the relevant companies of the Group had strictly monitored the agreed prices and terms of the various continuing connected transactions in the actual course of business operations and these transactions did not exceed the related annual caps as disclosed.

Whistleblowing Policy

For good corporate governance practice, the Board approved launching a “Whistleblowing Policy” in April 2012, for employees and those who deal with the Group (e.g. customers and suppliers) to raise concerns, in secure and confidence manner, with the Internal Audit Department on any possible improprieties in any matter related to the Group, and through the Internal Audit Department reports directly to the Audit Committee.

Inside Information

The Company adopted its own “Inside Information Management Policy” setting out the procedures and internal controls for handling and dissemination of inside information in August 2013 with reference to the “Guidelines on Disclosure of Inside Information” issued by the Securities and Futures Commission in June 2012.

The Company incorporated the topic on inside information into its annual internal training to its senior management regarding the continuing disclosure obligations under the Securities and Futures Ordinance and the Listing Rules.

External Auditor's and its Remuneration

The Company appointed Ernst & Young, a Registered Public Interest Entity Auditor, as the Company’s auditor (the “Auditor”) after obtained the approval by our shareholders in the annual general meeting held on 11 June 2020. The Audit Committee is responsible for making recommendations to the Board on the appointment, reappointment and removal of the Auditor, and to approve the remuneration and terms of engagement of the Auditor, and any questions of its resignation or dismissal.

For the year ended 31 December 2020, the Audit Committee reviewed and monitored the Auditor’s independence and objectivity and the effectiveness of the audit process in accordance with applicable standards.

For the year ended 31 December 2020, the fees payable by the Company to the Auditor in respect of audit and non-audit services provided were as follows:

	HK$'000
Audit services	6,100
Non-audit services:
Interim review	1,320
Continuing connected transactions	200
Issuance of super & short-term commercial paper and medium-term notes	220
Tax service	671
Others	2,327

Communication with Shareholders

Apart from reporting to the shareholders and investors on its operations and financial conditions semi-annually and annually, the Company also discloses relevant information such as electricity sold of the Company quarterly so that the investors have a better understanding about the operation of the Company. The Company maintains a corporate website at www.chinapower.hk where important and updated information about the Group’s activities and corporate matters such as annual and interim reports, announcements, business development and operations, corporate governance practices and other information are available for review by shareholders and other stakeholders. When announcements are made through the Hong Kong Stock Exchange, the same information is made available on the Company’s website simultaneously

The Company also holds regular press conferences and meetings with financial analysts and investors, during which the Company’s management will directly provide relevant information and data to the media, financial analysts, fund managers and investors, as well as answer their enquiries in a prompt, complete and accurate manner. The Company’s website is updated continuously, providing up-to-date information regarding every aspect of the Company to investors and the public.

The Company has a Capital Markets & Investor Relations Department, which takes charge of the Company’s relationship with investors and shareholders by providing information and services to them, promptly replying to their enquiries, and maintaining channels of active and timely communication with them.

Shareholders Communication Policy

In March 2012, the Board adopted a “Shareholders Communication Policy” of the Company which aims to set out the provisions with the objective of ensuring that the shareholders and potential investors are provided with ready, equal and timely access to balanced and understandable information about the Company, in order to enable shareholders to exercise their rights in an informed manner, and to allow shareholders and potential investors to engage actively with the Company. The “Shareholders Communication Policy” of the Company is posted on the Company’s website under the “Corporate Governance” section.

The Chairman of the Board attended and chaired the Company’s annual general meeting held on 11 June 2020. Other Directors, including three independent non-executive Directors, being the chairman/members of Audit Committee, Risk Management Committee and Remuneration and Nomination Committee together with the external independent auditor attended the annual general meeting and answered questions from the attending shareholders and investors. All resolutions proposed were duly passed by shareholders’ voting at the meeting.

Dividend Policy

In January 2019, the Company has adopted a new “Dividend Policy” which aims to set out the provisions with the objective of providing stable dividends to shareholders.

The Company may declare and distribute annual cash dividends to its shareholders in an amount representing not less than 50% of the profit attributable to ordinary shareholders of the Company in any financial year, subject to the criteria set out in the Dividend Policy. In addition to cash, the dividends may be paid up in the form of the Company’s shares, by the distribution of specific assets of any kind or by distribution of any form.

A decision to declare or to pay any dividends, and the amount of dividends, will be based on the recommendation of the Board after taking into consideration of, inter alia, the following factors:

(i)	The financial results and financial condition of the Group;
(ii)	The Group’s actual and future operations and liquidity position;
(iii)	The Group’s expected working capital requirements, capital expenditure requirements and future expansion plans;
(iv)	The Group’s debt-to-equity ratio, return on equity and committed financial covenants;
(v)	The retained earnings and distributable reserves of the Company and each of the members of the Group;
(vi)	The general economic conditions, the national policies for energy and related industries, and other internal or external factors that may have an impact on the business or financial performance and position of the Company;
(vii)	The shareholders’ and the investors’ expectation and industry’s norm; and
(viii)	Any other factors that the Board deems appropriate.

The Company shall prioritize payment of cash dividends to its shareholders. Such declaration and payment of dividends shall be determined at the sole discretion of the Board and subject to all applicable requirements under the Company Ordinance (Chapter 622 of the Laws of Hong Kong) and the articles of association of the Company.

Shareholders' Rights

Procedures for Shareholders of the Company (the “Shareholders”) to Convene General Meeting

Shareholders are entitled to have right to request the Company to convene a general meeting pursuant to Part 12 of the Hong Kong Companies Ordinance. The procedures are as follows:

The Directors are required to call a general meeting if the Company has received requests to do so from the Shareholders representing at least 5% of the total voting rights of all the members having a right to vote at general meetings.

A request -

(a)	must state the general nature of the business to be dealt with at the general meeting; and
(b)	may include the text of a resolution that may properly be moved and is intended to be moved at the general meeting.

Requests may consist of several documents in like form that –

(a)	may be sent to the Company in hard copy form or in electronic form; and
(b)	must be authenticated by the person or persons making it.

Directors must call a general meeting with 21 days after the date on which they become subject to the requirement, and must be held on a date not more than 28 days after the date of the notice convening the general meeting.
If the requests received by the Company identify a resolution that may properly be moved and is intended to be moved at the general meeting, the notice of the general meeting must include notice of the resolution.
If the resolution is to be proposed as a special resolution, the Directors are to be regarded as not having duly called the general meeting unless the notice of the general meeting includes the text of the resolution and specifies the intention to propose the resolution as a special resolution.

Voting by Poll

Save as provided under the Listing Rules, resolutions put to vote at the general meetings of the Company (other than procedural matters) are taken by poll. Procedures regarding the conduct of the poll are explained to the Shareholders at the commencement of each general meeting, and questions from Shareholders regarding the voting procedures are answered. The poll results are posted on the respective websites of the Company and the Hong Kong Stock Exchange on the same day of the poll.

Procedures for Shareholders Sending Enquiries to the Board

Shareholders should direct their questions about their shareholdings to the Company’s registrar and whose details are as follows:

Computershare Hong Kong Investor Services Limited
Shops 1712–1716, 17/F., Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong
Tel: (852) 2862 8628
Fax: (852) 2865 0990

The Company Secretary and the Capital Markets & Investor Relations Department of the Company also handle both telephone and written enquiries from Shareholders from time to time. Shareholders’ enquiries and concerns will be forwarded to the Board and/or relevant Board Committees of the Company, where appropriate, to answer the Shareholders’ questions. For Shareholders and investors’ enquiries, the contact information is set out in the “Useful Information for Investors” section of this annual report.

Other Procedures for Shareholders’ Proposals

The details of the following procedures are available at the Company’s website www.chinapower.hk under the “Corporate Governance” section for review.

Procedures for Shareholders making proposals at general meetings
Procedures for Shareholders to nominate a person to stand for election as a Director

Constitutional Documents

The Company’s constitutional documents have been posted on the Company’s website www.chinapower.hk under the “Corporate Governance” section. During the year under review, there was no change in the Company’s articles of association.

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Address	Suite 6301, 63/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong
Phone	(852) 2802-3861
Fax	(852) 2802-3922
Email	ir@chinapower.hk

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