New rules aligned with ISSB and TCFD will become effective on 1 January 2024, applying to ESG reports published in 2025.
Hong Kong Exchanges and Clearing (HKEX) has published a new consultation paper proposing to require climate-related disclosures in ESG reports, an upgrade from the current ‘comply-or-explain’ approach.
The paper, which is open for comment until 14 July 2023, proposes to introduce new climate-related disclosures aligned with the International Sustainability Standards Board (ISSB) Climate Standard.
The standard is due to be finalised by mid-2023 and builds on the principles of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
In December 2020, the Hong Kong Green and Sustainable Finance Cross-Agency Steering Group announced a commitment to mandate TCFD-aligned disclosures by 2025. Like the TCFD recommendations and draft ISSB standard, HKEX’s proposed climate-related disclosure requirements cover governance, strategy, risk management, and metrics and targets.
Under the new rules, listed companies 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.
Additionally, they will have to disclose the resilience of their business models to climate change impacts, an analysis based on different degrees of impacts, and quantitative disclosures on the current effects and a qualitative description of the future effects on their financial position, performance and cash flows.
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.
The metrics and targets requirements cover disclosures of Scope 1, Scope 2 and Scope 3 GHG emissions; information on any internal carbon price maintained by issuers; and how climate-related considerations are factored into executive remuneration policy.
The new rules will take effect from 1 January 2024, and apply to ESG reports published in 2025, for financial years beginning on or after the effective date.
HKEX has proposed interim provisions for certain disclosures – such as financial effects of climate-related risks and opportunities, scope 3 emissions and certain cross-industry metrics – for the first two reporting years following the January 2024 effective date.
HKEX said under the interim provisions, issuers that have yet to make the required disclosure will be allowed to provide qualitative disclosures and should disclose information that enables readers to understand the relevant item together with the work plan, progress and timetable for full compliance.
For example, in the interim period for Scope 3 emissions, companies will be allowed to state what upstream and downstream activities give rise to GHG emissions, without providing figures.
Once the new rules take effect on 1 January 2024, IPO applicants are expected to disclose material ESG risks and information in their prospectuses, and have mechanisms in place that enable them to meet HKEX’s ESG requirements upon listing.
To support issuers in understanding and complying with the new requirements, HKEX will issue implementation guidance with illustrative examples and references to external frameworks, tools and guidelines helpful for disclosures.
Katherine Ng, Head of Listing at HKEX, said: “our proposals aim to accelerate the building of resiliency and the sustainability journey of our issuers, further strengthening Hong Kong’s position as a trusted and attractive venue for capital raising”.
In a separate statement, Julia Leung, CEO at Hong Kong’s Securities and Futures Commission (SFC), said 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.”
The SFC has been working with HKEX to adopt a “balanced approach” that provides “appropriate flexibility for listed companies whilst promoting relevant, consistent and comparable disclosures to investors,” she added.