On 14 April 2024, the Stock Exchange of Hong Kong Limited published conclusions to its consultation on the enhancement of climate-related disclosures under its environmental, social, and governance ("ESG") framework. With effect from 1 January 2025, a new set of rules mandating climate-related disclosures (the "New Requirements") will be added to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the "Listing Rules"). The New Requirements will be implemented in phases subject to certain implementation relief.
New Disclosure Requirements
The New Requirements call for disclosure regarding the following four core pillars in relation to climate-related risks and opportunities:
- Governance: Issuer's governance process, controls, and procedures used to monitor and manage climate-related risks and opportunities.
- Strategy: Issuer's strategy for managing
climate-related risks and opportunities that could reasonably be
expected to affect the issuer's cash flows, its access to
finance, or cost of capital over the short, medium, or long term.
The issuer shall:
- Describe climate-related risks and opportunities that could reasonably be expected to affect the issuer's cash flows, its access to finance, or cost of capital over the short, medium, or long term;
- Disclose information that enables an understanding of the current and anticipated effects of climate-related risks and opportunities on the issuer's business model and value chain;
- Provide qualitative and quantitative disclosures about how climate-related risks and opportunities have affected its financial position, financial performance, and cash flows for the reporting period; and disclose the climate-related risks and opportunities identified for which there is a significant risk of a material adjustment within the next annual reporting period to the carrying amounts of assets and liabilities reported in the related financial statements; and
- Disclose information that enables an understanding of the resilience of the issuer's strategy and business model to climate-related changes, developments, and uncertainties.
- Risk management: Disclose information about (1) the processes and related policies it uses to identify, assess, prioritise, and monitor climate-related risks; (2) the processes the issuer uses to identify, assess, prioritise, and monitor climate-related opportunities (including information about whether and how the issuer uses climate-related scenario analysis to inform its identification of climate-related opportunities); and (3) the extent to which, and how, the processes for identifying, assessing, prioritising, and monitoring climate-related risks and opportunities are integrated into and inform the issuer's overall risk management process.
- Metrics and Targets: Disclose the metrics and targets an issuer uses to understand its performance in relation to climate-related risks and opportunities.
Phased Approach
HKEx will adopt the following phased approach by requiring issuers to report on the New Requirements, as follows:
- All listed issuers will be required to disclose scope 1 and scope 2 GHG emissions on a mandatory basis for financial years commencing on or after 1 January 2025;
- All Main Board listed issuers will be required to report on the New Requirements (other than scope 1 and scope 2 GHG emissions which are required to be disclosed by all issuers) on a "comply or explain" basis for financial years commencing on or after 1 January 2025;
- Large Cap Issuers (i.e., Hang Seng Composite Large Cap Index constituents) will be required to report on the New Requirements on a mandatory basis for financial years commencing on or after 1 January 2026; and
- GEM listed issuers are encouraged to report on the New Requirements for financial years commencing on or after 1 January 2025, on a voluntary basis.
Issuers subject to the comply-or explain regime are required to provide considered reasons (including the application of any implementation relief) for nondisclosure of information called for under the ESG Code.
In addition, where an issuer has yet to disclose information required by under any of the New Requirements, regardless of whether an issuer has (i) opted to "explain" why it has not made a particular disclosure under the "comply or explain" regime, or (ii) chosen to apply an implementation relief available under the Listing Rules (whether it is required to report on a mandatory or "comply or explain" basis), it is encouraged to provide information on the work plan, progress, and timetable for making the required disclosure.
Implementation Relief
The Listing Rules has provided four grounds for relief from implementation of certain disclosure requirements to address concerns over the reporting challenges that some issuers may face by virtue of a lack of resources and/or technical knowledge and expertise:
- Reasonable Information Relief: This allows issuers to make disclosures based on reasonable and supportable information that is available at the reporting date without undue cost or effort. "Reasonable and supportable information" may include external data (e.g., rating agency's ESG ratings, sustainability disclosures and economist's forecasts) and internal data (e.g., the issuer's risk management response, climate-risk assessments). The assessment of what constitutes "undue cost or effort" depends on the issuer's circumstances and requires a balanced consideration of the costs and efforts for the issuer and the benefits of the resulting information for stakeholders.
- Capabilities Relief: This allows issuers to use an approach that is informed by or commensurate with their available skills, capabilities, and resources at a particular point in time in preparing disclosures on climate-related scenario analysis and anticipated financial effects.
- Commercial Sensitivity Relief: This allows issuers to not divulge confidential and commercially sensitive information which the information about the climate-related opportunity is not already publicly available; disclosure of such information could reasonably be expected to seriously prejudice the economic benefits the issuer would otherwise be able to realise in pursuing the opportunity; and it is not possible to disclose such information in a manner, for example, at an aggregated level, that would enable the issuer to meet the objectives of the disclosure requirements without seriously prejudicing the economic benefits the issuer would otherwise be able to realise in pursuing the opportunity.
- Financial Effects Relief: This allows disclosure of qualitative instead of quantitative information where certain conditions are met.
Next Steps
To align with the New Requirements, consider taking the following actions:
- Familiarize and Comply with the New Disclosure
Requirements: Thoroughly review the New Requirements and
identify if they have been complied with. Should there be any gaps
between the existing disclosures and the required disclosures,
please check whether you are eligible to apply for any relief
(refer to the section "Implementation Relief" above).
When applying for relief, please provide reasons as to why the
specific disclosure requirements could not be complied with and
create an action plan to address when the New Requirements could be
met by you.
If no relief is applicable, you should begin collecting data so that you can make the necessary disclosures. Prioritize data collection processes for Scope 1 and Scope 2 GHG emissions to meet the mandatory disclosure deadline by 1 January 2025. If you have the capacity, you are encouraged to start preparing for Scope 3 GHG emissions disclosure, though such disclosures are mandatory for Large Cap Issuers from 1 January 2026 onwards, but it is anticipated that the disclosures may become mandatory in light of the ever-growing ESG trend. - Review Internal Governance Policies: As HKEx expects the board and senior management of issuers to set the right tone from the top, you should also review your internal governance and risk management processes, controls, procedures, and resources to ensure that they are well-positioned to comply with the new reporting and disclosure requirements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.