Hong Kong has been officially recognized by the IFRS Foundation as one of the first jurisdictions aiming for full adoption of the ISSB (International Sustainability Standards Board) framework, signaling the city's commitment to enhancing transparency in capital markets. This move is set to provide investors, asset managers, bankers, and other market participants with reliable, comparable, and actionable sustainability data for investment decisions, risk management, and portfolio planning.

Phased Implementation for Large Public Entities

Hong Kong plans to implement ISSB standards in stages, achieving full adoption by 2028. The framework applies primarily to large public-interest entities, including listed companies and major financial institutions that manage assets on behalf of clients. The initial phase targets large listed issuers and key banks, insurers, and asset managers, while non-priority firms are encouraged to adopt the standards voluntarily to build early capabilities.

The ISSB's IFRS S2 Climate Standard provides a unified methodology for reporting Scope 1, 2, and 3 greenhouse gas (GHG) emissions, along with climate-related financial impacts, addressing inconsistencies in previous standards. Over 100 jurisdictions—including the UK, Japan, and Singapore—have adopted or plan to adopt ISSB standards, many making compliance mandatory. Hong Kong is following suit, integrating S2 requirements into the Hong Kong Exchange's ESG Reporting Guide, with staged disclosure obligations starting January 2025 for Scope 1 and 2 emissions, and 2026 for Scope 3 emissions by large-cap companies.

Key Disclosure Areas

International investors should note five core areas that will shape reporting and market assessment:

Governance and Materiality: Companies must articulate board-level accountability and align materiality assessments with KPIs and business strategies, providing confidence that risk and capital are properly managed.

Boundaries and Value Chain: Full disclosure of organizational boundaries and value chain emissions is required, especially for Scope 3, which often represents the largest part of corporate carbon footprints.

Metrics and Targets: Reporting should include total and intensity-based emissions, sector-specific KPIs, interim targets, and funding strategies, enabling investors to assess feasibility and financial impact of transition plans.

Scenario Analysis and Financial Implications: Companies are expected to quantify climate risks and opportunities, mapping them to revenue, costs, asset impairments, insurance premiums, and financing terms—creating a standardized language for market stress testing.

Assurance and Data Integrity: High-quality, auditable data—including AI-supported metrics—is essential for credible reporting. External assurance enhances comparability, reliability, and market trust.

Government Support and Capacity Building

To facilitate the transition, Hong Kong authorities are establishing a supportive ecosystem. Local accounting bodies have developed HKFRS S1/S2 aligned with ISSB, while regulators provide guidance on assurance frameworks. Tools for GHG calculation, a sustainable finance taxonomy, and targeted training programs help companies, including SMEs, comply efficiently. These measures aim to lower compliance costs, improve reporting quality, and allow markets to accurately price sustainability-related risks.