The Stock Exchange of Hong Kong Limited (HKEX) recently published a consultation paper proposing to mandate all listed companies in Hong Kong to make climate-related disclosures in their Environmental, Social and Governance (ESG) reports – an upgrade from the current “comply or explain” enforcement mechanism. The proposal is formulated with reference to the Climate Standard exposure draft published by the International Sustainability Standards Board (ISSB) in March 2022, with subsequent ISSB deliberations up to April 2023, and will be introduced as a new Part D headed “Climate-related disclosures” of Appendix 27 to the Hong Kong Listing Rules.
The mandatory disclosure rules, if adopted, will come into effect and apply to ESG reports for Hong Kong-listed companies in respect of financial years commencing on or after 1 January 2024. A transition period of two years is proposed for certain (but not all) disclosures where interim provisions are in place. In other words, the first ESG report in full compliance with all the new climate-related disclosures will be produced in 2027 for financial years commencing on or after 1 January 2026.
The new climate-related disclosures will be categorised under four core pillars, namely Governance, Strategy, Risk management and Metrics and targets. A summary of key proposals is set out in the consultation paper by HKEX (link here)
The consultation ends on 14 July 2023. Given the unexpected imminency of the proposal, issuers should consult their lawyers/consultants to review the impact on their reporting obligations.
As for IPO applicants who are required to disclose material ESG risks and information in their prospectuses, they should be mindful of the new requirements to ensure compliance after listing once the new mandatory disclosure rules take effect.
HDH can help companies navigate the changing landscape of sustainability reporting and ensure they meet the needs of investors and other stakeholders. Contact us today to learn more.
What is ISSB?
The International Sustainability Standards Board (ISSB) was announced at the 2021 United Nations Climate Change Conference of the Parties (COP26) in Glasgow, and is a standard-setting body established in 2021 under the IFRS Foundation. Its role is critical in developing a global common language of sustainability-related financial disclosures, providing a clear framework to companies, investors, and other stakeholders.
Sustainability reporting is increasingly important in the financial industry, and the ISSB is a key player. The board is responsible for creating and maintaining IFRS Sustainability Disclosure Standards (IFRS SDS). This includes developing and pursuing its technical agenda, subject to certain consultation requirements with the Trustees and the public.
The ISSB’s work is also critical for promoting transparency and accountability in sustainability reporting, which in turn helps organizations identify risks and opportunities associated with sustainability-related matters. The ISSB Standards, which are built on the TCFD Recommendations, are expected to become the global baseline for sustainability-related disclosures.