Hong Kong-listed firms ‘strongly’ advised to prepare for ISSB climate-disclosure demands, bourse operator says

Issuers should get familiar with the new ISSB climate-disclosure standards, Hong Kong Exchanges and Clearing said in report on Friday
Just over 85 per cent of 400 listed companies studied had made disclosures on three climate-specific requirements added in 2020, HKEX said

Business of climate change

Eric Ng

Published: 10:30am, 28 Nov 2022

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Hong Kong listed firms are “strongly” advised to get ahead of the curve on an impending expansion of required climate disclosures, even as the vast majority have met strengthened reporting requirements imposed in 2020, the city’s bourse operator said.

“Issuers are strongly encouraged to get familiar with the new International Sustainability Standards Board (ISSB) climate [disclosure] standards, for planning and building the necessary infrastructure and system in preparation of the enhanced climate-reporting requirements,” Hong Kong Exchanges and Clearing (HKEX) said in a review report late on Friday.

Among 400 companies, more than 90 per cent achieved compliance on 12 out of 15 environment, social and governance (ESG) reporting requirements implemented in 2020, while 77 to 89 per cent met the other three requirements, HKEX said. Some 2,582 firms are listed on the exchange.

Just over 85 per cent of the companies made disclosures on the three climate-specific requirements added in 2020, according to the study, which looked at ESG reports for financial years ending between June last year and March this year.

An electronic billboard displays Hang Seng Index prices outside Exchange Square, the home of bourse operator Hong Kong Exchanges and Cleaning in Central on October 28, 2022. Photo: SCMP / Yik Yeung-man

The three climate-specific requirements are identifying impactful climate-related issues, devising mitigation strategies with targets and disclosing Scope 1 and Scope 2 greenhouse-gas emissions. Scope 1 emissions are those directly generated by the company, while Scope 2 covers emissions generated through purchased energy and supplies.

Advanced strategic planning by businesses for global warming is important because more frequent extreme climate events will affect both their financial viability and asset value in the long term.

As much as US$12.7 trillion of global assets are exposed to once-in-a-century coastal flood risk by 2100 due to the impacts of climate change, the Intergovernmental Panel on Climate Change said in a report published in February.

Around a third of the 400 firms studied reported Scope 3 greenhouse gas emissions, those arising from the activities of their suppliers and during consumption of their products. Just 5 per cent of the 400 provided climate scenario analysis.

Many Hong Kong listed firms, especially smaller ones, are far from ready to have reliable data to meet the Scope 3 and climate scenario analysis requirements, said Elsa Pau, founder of BlueOnion, which runs a portal that tracks sustainability data for companies and funds.

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Since much of the Scope 3 data must be sourced from suppliers, many of which are small companies, most Hong Kong-listed firms have been relying on external consultants to help estimate such emissions.

“The HKEX may be getting ahead of themselves,” she said. “Reporting is reporting, but holding companies to the account is a different story.”

These requirements are not yet mandatory in Hong Kong, nor in most stock markets globally, but are expected to be widely adopted in a phased-manner – including Hong Kong and mainland China – after the ISSB finalises a set of globally accepted baseline climate and sustainability reporting standards next year.

“[The results] reflected issuers’ commitment and effort in managing climate risks,” the HKEX report said. “Our findings reinforce the direction towards further enhancing climate-related disclosures in line with the Task Force on Climate-Related Financial Disclosure (TCFD) framework and the new ISSB climate standards.”

Hong Kong’s Green and Sustainable Finance Cross-Agency Steering Group, led by the Hong Kong Monetary Authority and the Securities and Futures Commission, announced in July last year that it aims for mandatory TCFD-aligned climate-related disclosures by 2025.

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TCFD, established in 2015 by the G20 Financial Stability Board, recommends the disclosure of Scope 1, 2 and 3 emissions, as well as regular analysis of climate-related risks and opportunities, including the financial impact, under different scenarios based on how many degrees of global warming take place.

The ISSB was created under the International Financial Reporting Standards Foundation, which sets global accounting standards, in November 2021 during the global climate talks in Glasgow. It has consolidated standards launched by different organisations over the years to enhance the comparability of disclosures.

Earlier this month, the ISSB decided that disclosure of all three categories of greenhouse-gas emissions will be mandatory, although relief provisions – including giving companies more time to provide Scope 3 and certain “safe harbour” protections – will be developed.

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