Climate Change: Hong Kong’s bourse proposes tougher climate and sustainability disclosures for listed firms to align with international standards
- The proposals follow a review of existing disclosure rules for environment, social and governance (ESG) matters
- Earlier this month the ISSB said it will issue a finalised set of climate and sustainability reporting standards by June 30
Hong Kong’s bourse is proposing tougher climate and sustainability risks and opportunities disclosures by listed firms, to keep up with international standards and maintain the city’s competitiveness as a financial centre.
The proposals, which follow a review of existing disclosure rules for environment, social and governance (ESG) matters, will encourage capital allocation towards a more sustainable future, Hong Kong Exchanges and Clearing said in a consultation paper on Friday.
“The proposals … reflect our commitment to promoting sustainability by preparing our issuers to get ready for the climate-related reporting requirements based on the ISSB climate standard,” it said.
Earlier this month, the International Sustainability Standards Board (ISSB), a new body set up in late 2021 to consolidate various ESG reporting standards, said it will issue a finalised set of climate and sustainability reporting standards by June 30.
“Hong Kong’s early adoption of climate-related corporate reporting requirements will consolidate its position as a leading green and sustainable finance hub within the region and globally,” said Julia Leung, CEO of the Securities and Futures Commission, in a statement on Friday.
“We have been working closely with HKEX to adopt a balanced approach which aims to provide appropriate flexibility for listed companies whilst promoting relevant, consistent and comparable disclosures to investors,” said Leung.
Under HKEX’s proposals, listed firms will have to disclose any climate-related targets they have set, and whether any climate change mitigation and adaptation efforts they undertake will change their business models and strategies.
They also have to disclose the resilience of business models to climate change impacts, and provide an analysis based on different degrees of the impacts.
In addition, quantitative disclosures on the current effects and a qualitative description of the future effects on their financial position, performance and cash flows will be needed.
However, during an interim period covering the first two years of implementation, qualitative disclosures on current financial effects and a description of the most significant expected impact in future will suffice.
On greenhouse gas emissions, companies will be required to disclose their own facilities’ emissions (Scope 1), emissions arising from bought energy (Scope 2), and emissions attributable to suppliers and customers (Scope 3), according to the HKEX paper.
In the interim period for Scope 3 emissions, companies will be allowed to state what upstream and downstream activities give rise to such emissions, without giving figures.
Meanwhile, companies will also need to disclose the percentage of their assets or business activities that are vulnerable to climate risks or aligned with climate-related opportunities, and the funding budgeted for them.
However, in the interim period, they only need to describe the assets and activities without giving the exact percentages.
The new rules will apply to ESG reports to be published in 2025, for financial years beginning on or after January 1, 2024, the HKEX paper states.
Full compliance – beyond the easier interim requirements – will be mandatory for ESG reports to be released in 2027, and for financial years starting on January 1, 2026 or after.
Initial public offering candidates will need to disclose material ESG risks and opportunities information in their listing prospectuses, and have mechanisms in place that enable them to meet the new ESG requirements upon listing.
