HKEX Enhances Climate-related Disclosures

Background

On 19 April 2024, The Stock Exchange of Hong Kong Limited (Exchange) published its conclusions (Consultation Conclusions) on its consultation to enhance climate-related disclosures under the environmental, social and governance (ESG) framework under the Listing Rules.

The new climate reporting requirements will come into effect on 1 January 2025. The Exchange previously announced in November 2023 that the formerly proposed implementation date of 1 January 2024 would be postponed by a year, so that issuers could become familiar with the ISSB Climate Standard that will be taken into account in the new climate reporting requirements. The amendments are accompanied by Implementation Guidance for Climate Disclosures under HKEX ESG reporting framework (Implementation Guidance) to assist issuers in complying with the new climate reporting requirements.

Market feedback

The Exchange received 115 non-duplicate responses from the public, including not only industry and institutional respondents, but also from non-governmental/ charitable organisations and individuals. 13% of the responses were from individual respondents, and 9% were from non governmental/ charitable organisations.

All of the proposals received broad support from over 65% of the respondents. Notably, the Securities and Futures Commission has also expressed support for the Consultation Conclusions, stating in its press release that the proposed amendments would better align disclosure requirements in Hong Kong with the ISSB Climate Standard.

The Exchange has decided to adopt all of the proposals with modifications in response to market comments.

Key changes to be adopted

Issuers will be required to disclose information on the following:

Implementation reliefs

According to the Implementation Guidance, the ESG Code will provide the following categories of implementation reliefs for climate-related disclosures, to address issues around issuers’ readiness and concerns in data availability:

• Reasonable Information Relief, where issuers are required only to make disclosures based on reasonable and supportable information available at the reporting date without undue cost or effort;
• Capabilities Relief, which takes into account issuers’ available skills, capabilities and resources when preparing disclosures (though issuers are expected to develop their skills and capabilities and strengthen their disclosures over time);
• Commercial Sensitivity Relief, which would provide an exemption where issuers would otherwise be required to divulge confidential and commercially sensitive information; and
• Financial Effects Relief, in respect of requirements for issuers to quantify current and anticipated financial effects.

Implementation of the new requirements

The Exchange will adopt a phased approach in implementing the new climate reporting requirements alongside the disclosures required to be made pursuant to the ISSB Climate Standard. With reference to the ISSB Adoption Guide Preview, issuers will be required to comply with the ISSB Climate Standard and the Exchange’s Listing Rules amendments as follows:

• All listed issuers (both Main Board and GEM listed issuers) must disclose scope 1 and scope 2 greenhouse gas emissions, on a mandatory basis, for financial years commencing on or after 1 January 2025;
• All Main Board listed issuers must report on the new climate reporting requirements pursuant to the Exchange’s Listing Rules amendments, on a “comply or explain” basis, for financial years commencing on or after 1 January 2025;
• Hang Seng Composite LargeCap Index constituents must report on the new climate reporting requirements pursuant to the Exchange’s Listing Rules amendments, on a mandatory basis, for financial years commencing on or after 1 January 2026; and
• All GEM listed issuers are encouraged to report on the new climate reporting requirements on a voluntary basis, in addition to the scope 1 and scope 2 greenhouse gas emissions on which all listed issuers must report, for financial years commencing on or after 1 January 2025.

For the avoidance of doubt, non-climate related disclosure requirements set out in Parts A to C of Appendix C2 to the Listing Rules will continue to apply, and all issuers must continue to report on the relevant provisions in their ESG reports.

Conclusion

Considering the increasing relevance of ESG matters and in particular concerns on climate change to investment and commercial decisions, it is important that issuers provide sufficient ESG-related information on their business and operations for their stakeholders, investors, other market participants and the wider public. The new climate reporting requirements will increase the amount of relevant and comparable information, enhancing transparency on what listed issuers are doing to contribute towards sustainability.

Listed issuers are advised to familiarise themselves with the new climate reporting requirements and the ISSB Climate Standard, and to update their internal systems and procedures accordingly. Listed issuers may also refer to further guidance and training to be published by the Exchange for assistance.

The Exchange’s commitment in supporting Hong Kong to achieve its carbon neutrality target by 2050, and to strengthen Hong Kong’s position as a competitive and international fundraising hub are all evident. The alignment of the disclosure requirements under the Listing Rules with the international ISSB Climate Standard will bring Hong Kong in step with global efforts to develop regulatory efforts for sustainable finance.