HK Bourse Finalises New Rules on Governance, Board Diversity

Amended corporate governance code and listing rules will require firms to ensure board independence, refreshment and diversity from January 2022.

The Stock Exchange of Hong Kong , a wholly-owned subsidiary of HKEX (Hong Kong Exchanges and Clearing), has finalised amendments to its corporate governance code and listing rules to enhance practices amongst Hong Kong listed companies.

The consultation was issued in April, proposing new measures aimed at further enhancing corporate governance standards, specifically in the areas of corporate culture, director independence, diversity, and ESG disclosures.

The exchange received 214 responses to the consultation, which were broadly positive feedback on proposals to strengthen board independence and promote better boardroom gender diversity. The proposals will be adopted subject to modifications and clarifications.

Under the amended corporate governance code and listing rules, issuers will be required to align their company culture with their purpose, values and strategy, and have anti-corruption and whistleblowing policies in place.

In addition, listed companies will have to put in place a mechanism to ensure board independence and refreshment. The mechanism should “ensure independent views are available to the board”, and include an annual review process to ensure effectiveness.

Listed companies will be required to appoint a new INED (independent non-executive director) if all INEDs on board have served more than nine years. Additional disclosures should be made on the factors considered, process and the board’s discussion on why long serving INEDs are still independent and should be re-elected.

Disclosure is also required regarding the length of tenure of long serving INEDs, on a named basis, in the papers to shareholders for the AGM mandatory nomination committee, which should be chaired by either the board chairman or an INED, and comprise a majority of INEDs.

On board diversity, listed companies will have a three-year transition period (i.e. until 31 December 2024) to ensure their boards do not comprise just a single gender, which SEHK says is “not considered to be a diverse board”.

IPO applicants also have to identify at least one director of a different gender in any listing application submitted on or after 1 July 2022.

Listed companies have to set numerical targets and timelines for achieving gender diversity at board level. Board diversity policies must be reviewed annually, and disclosures must be made on gender ratios in the workforce (including senior management), plans or measurable objectives companies have set for achieving gender diversity.

The new rules also require listed companies to issue disclosures on their shareholder communication policies, and review such policies annually to maintain their effectiveness.

Moving forward, ESG reports will also have to be published at the same time as annual reports. The exchange’s updated ESG reporting requirements came into effect from July 2021.

The amended corporate governance code and listing rules will come into effect on 1 January 2022.

The requirements under the new corporate governance code will apply to reports issued for financial years commencing on or after 1 January 2022.

The consultation conclusions are published here.

The exchange has also published new corporate governance guidance for boards and directors, to assist issuers in their compliance with the new requirements.

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