HKEX Issues Guidance on TCFD-aligned Climate Disclosures

Climate-related reporting will become mandatory in Hong Kong by 2025.

The Hong Kong Exchanges and Clearing (HKEX) has published new guidance to help listed issuers assess their response to risks arising from climate change and prepare for Task Force on Climate-related Financial Disclosures-aligned (TCFD) reporting.

The guide is aimed at companies that are yet to develop substantive in-house expertise on climate-related issues, and seeks to mitigate the  challenges currently faced by most companies in TCFD reporting, including:

  • Lack of understanding of concepts relating to climate change issues
  • Insufficient resources (e.g. lack of access to sustainability experts and lack of data)
  • Unclear roles and responsibilities
  • Lack of awareness from different corporate departments

The current ESG reporting requirements incorporate key TCFD recommendations. In December 2020, Hong Kong’s Green and Sustainable Finance Cross-Agency Steering Group announced plans for TCFD-aligned climate-related disclosures to become mandatory by 2025.

HKEX says it will review the existing ESG reporting framework to further align with TCFD recommendations, and collaborate with other regulators to evaluate and potentially adopt new standards being developed by the International Sustainability Standards Board (ISSB) under the International Financial Reporting Standards (IFRS) Foundation.

Separately, the HKEX has published a review of IPO applicants’ practices on corporate governance, diversity and ESG – which was based on an evaluation of prospectuses for new primary listing between July 2020 and June 2021.

Based on the findings, HKEX says IPO applicants should instil a strong corporate culture that fully adopts and prioritises compliance and governance measures of integrity, and embeds the compliance culture into everyday workflows.

On board diversity, HKEX says gender diversity of new applicants has improved significantly, with the percentage of single gender board applicants dropping from 30% in 2019 to 21% in 2020, and down further to 12% in the first half of 2021. IPO applicants are expected to not have single gender boards and should prioritise on achieving board gender diversity, HKEX says.

The review also found that most applicants made disclosures on environmental and social issues at IPO. Nonetheless, IPO applicants should conduct a thorough analysis and assessment to identify material ESG risks, and consider making appropriate disclosure on climate-related issues and initiatives to reduce carbon emissions.

“ESG risk management starts before listing, and it is important for IPO applicants to plan ahead to implement the necessary measures to ensure future compliance,” HKEX said.

Finally, HKEX has announced that a new centralised ESG educational platform, ESG Academy, will be launched to guide issuers and the broader business community in their sustainability journeys.

“The ESG Academy serves as a compass for stakeholders to gain clear understanding on the evolving ESG requirements,” HKEX said. “Issuers may also access the Exchange’s guidance materials to explore the trends that define the future of ESG and to develop a roadmap to integrate ESG considerations into their business strategies.”

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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