Corporate Sustainability in Hong Kong: Navigating HKEX Requirements

In recent years, Hong Kong has emerged as a leader in promoting corporate sustainability, particularly through the efforts of the Hong Kong Exchanges and Clearing Limited (HKEX). The HKEX has introduced a series of requirements aimed at enhancing environmental, social, and governance (ESG) disclosures among listed companies. This blog explores the current landscape of corporate sustainability in Hong Kong under the HKEX's requirements and highlights key developments in sustainability reporting.

Overview of HKEX Sustainability Requirements

The HKEX has been proactive in enhancing its ESG reporting framework to align with international standards. The Environmental, Social, and Governance (ESG) Reporting Guide, now referred to as the ESG Code, guides listed companies to disclose their ESG performance and risks. This guide covers a range of topics, including governance, climate risks, emissions, resource consumption, labour rights, anti-corruption, and product responsibility.

New Climate Disclosure Requirements

As part of its commitment to sustainability, the HKEX has introduced New Climate Requirements that mandate listed companies to disclose climate-related information. These requirements are closely aligned with the International Sustainability Standards Board (ISSB) standards, specifically the IFRS S2 Climate-related Disclosures. Key aspects of these requirements include:

• Scope 1 and 2 GHG Emissions Disclosure: All listed issuers must disclose their direct (Scope 1) and indirect (Scope 2) greenhouse gas emissions on a mandatory basis starting from financial years commencing on or after January 1, 2025.

• Scope 3 Emissions Disclosure: Large-cap issuers, particularly those included in the Hang Seng Composite LargeCap Index, will be required to disclose Scope 3 emissions (value chain emissions) on a comply-or-explain basis initially, with mandatory disclosure expected in subsequent years.

Implementation Timeline

The HKEX is adopting a phased approach to implement these new requirements:

• 2025: All issuers must disclose Scope 1 and 2 emissions. Main Board issuers will report on additional climate-related disclosures on a comply-or-explain basis.

• 2026: Large-cap issuers will be required to provide mandatory disclosures for additional climate metrics.

• 2028: Significant financial institutions will also be required to adhere to these standards, with broader sustainability reporting expected to be mandated for all listed entities.

A large number of corporate governance standards internationally

Benefits and Challenges

Benefits

• Enhanced Transparency: The new requirements promote transparency and comparability in sustainability reporting, which can enhance investor confidence and support more informed decision-making.

• Global Alignment: By aligning with ISSB standards, Hong Kong's sustainability disclosure framework becomes more compatible with international practices, enhancing its attractiveness as a financial hub.

Challenges

• Implementation Costs: Companies may face initial costs in adapting to the new disclosure requirements, particularly in collecting and reporting Scope 3 emissions data.

• Data Quality and Assurance: Ensuring the accuracy and reliability of sustainability data will be crucial, potentially requiring additional resources for data verification and assurance processes.

Conclusion

The HKEX's efforts to enhance corporate sustainability reporting in Hong Kong reflect a broader commitment to aligning local practices with international standards. As the city moves towards mandatory sustainability reporting by 2028, companies listed on the HKEX must prepare to meet these evolving requirements. By doing so, they will not only comply with regulatory demands but also contribute to a more sustainable and transparent business environment in Hong Kong.

Sources: internet resources

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