The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX) published a consultation paper seeking market feedback on proposals to enhance climate-related disclosures under the environmental, social and governance (ESG) framework.

The Exchange proposes to mandate all issuers to make climate-related disclosures in their ESG reports, and introduce new climate-related disclosures aligned with the International Sustainability Standards Board (ISSB) Climate Standard¹. The ISSB Climate Standard builds on the principles of the TCFD recommendations², and sets out detailed climate disclosures. The proposals mark a significant milestone in achieving the commitment to mandate TCFD-aligned disclosures by 2025 as announced by the Hong Kong Green and Sustainable Finance Cross-Agency Steering Group³. Acknowledging the readiness of the issuers and their concerns, the Exchange proposes interim provisions⁴ for certain disclosures (eg financial effects of climate-related risks and opportunities, scope 3 emissions and certain cross-industry metrics) for the first two reporting years following the effective date of 1 January 2024.

“At HKEX, we see ourselves as a change agent promoting sustainability across our business, operations, and markets. With climate change being a global concern and focus, investors are demanding more information on how climate issues and related policy change could impact an issuer’s assets, business operations and financials. 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,” said HKEX’s Head of Listing Katherine Ng.

A summary of the new climate-related disclosure requirements are as follows:

Governance

• Disclose the issuer’s governance process, controls and procedures used to monitor and manage climate-related risks and opportunities;
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Strategy

• Climate-related risks and opportunities: Disclose material climate-related risks and, where applicable, opportunities faced by the issuer, and their impact on the issuer’s business operations, business model and strategy;
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• Transition plans: Disclose issuer’s response to climate-related risks and opportunities identified, including any changes to its business model and strategy, adaptation and mitigation efforts, and climate-related targets set for such plans;
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• Climate resilience: Disclose resilience of the issuer’s strategy (including its business model) and operations to climate-related changes, developments or uncertainties, which shall be assessed using a method of climate-related scenario analysis that is commensurate with the issuer’s circumstances;
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• Financial effects of climate-related risks and opportunities: Disclose current (quantitative where material) and anticipated (qualitative) financial effects of climate-related risks, and where applicable, opportunities on the issuer’s financial position, financial performance and cash flows;
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Risk management

• Disclose the issuer’s process to identify, assess and manage climate-related risks and, where applicable, opportunities;
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Metrics and target

• Greenhouse gas emissions: Disclose scope 1, scope 2 and scope 3 emissions;
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• Cross-industry metrics: Disclose the amount and percentage of assets or business activities (i) vulnerable to transition/physical risks or (ii) aligned with climate-related opportunities, and the amount of capital expenditure deployed towards climate-related risks and opportunities;
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• Internal carbon price: For issuers who maintain an internal carbon price, disclose the internal carbon price and such that was applied in the issuer’s decision-making; and
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• Remuneration: Disclose how climate-related considerations are factored into executive remuneration policy.

Interested parties are encouraged to respond to the consultation paper by submitting a questionnaire on the HKEX website by 14 July 2023.

Notes:

1. ♦The IFRS S2 Climate-related Disclosures Exposure Draft published by the IFRS’s International Sustainability Standards Board (ISSB) in March 2022, as supplemented or modified by deliberations of the ISSB, sets out the specific requirements for the identification, measurement and disclosure of climate-related financial information. The ISSB has indicated its intention to publish the final standards by the end of the second quarter of 2023.
2. ♦The recommendations of the Task Force on Climate-related Financial Disclosures.
3. ♦In December 2020, the Green and Sustainable Finance Cross-Agency Steering Group announced five key action points to strengthen Hong Kong’s financial ecosystem. See press release.
4. ♦Issuers that have yet to make the required disclosure will be allowed to provide qualitative disclosures, and should disclose information that enable readers to understand the relevant item together with the work plan, progress and timetable for full compliance.