Recognising that businesses have a responsibility to operate in a sustainable and socially responsible manner, beyond just financial performance, the Hong Kong Exchanges and Clearing Limited’s (HKEx) Environmental, Social, and Governance (ESG) Reporting Guide aims to provide guidance and set standards for companies listed on the Hong Kong Stock Exchange to enhance their ESG performance and disclosure. The code and implemenation guide outlines a set of disclosure requirements, covering governance, climate risks, emissions, resources consumption, labour rights, anti-corruption, product responsibility, etc.
Under the requirements of latest listing rules of HKEX, an issuer must publish its ESG report on an annual basis and regarding the same period covered in its annual report. An ESG report may be presented as information in the issuer’s annual report or in a separate report. Regardless of the format adopted, the ESG report must be published on the Exchange’s website and the issuer’s website.
On 19 April 2024, HKEX published a consultation conclusions on climate disclosure requirements.
First of all, ESG Code has replaced the name of ESG Guide, meaning that its importance is further strengthened.
Critical Effective Dates of New Requirements
HKEx will adopt a phased approach by requiring issuers to report on the New Climate Requirements, as follows:
- all listed issuers (i.e. both Main Board listed issuers and GEM listed issuers) will be required to disclose scope 1 and scope 2 GHG emissions on a mandatory basis for financial years commencing on or after 1 January 2025;
- all Main Board listed issuers will be required to report on the New Climate Requirements (other than scope 1 and scope 2 GHG emissions which are required to be disclosed by all issuers) on a “comply or explain” basis for financial years commencing on or after 1 January 2025;
- LargeCap Issuers (i.e. Hang Seng Composite LargeCap Index constituents) will be required to report on the New Climate Requirements on a mandatory basis for financial years commencing on or after 1 January 2026; and
- GEM listed issuers are encouraged to report on the New Climate Requirements (in addition to scope 1 and scope 2 GHG emissions which are required to be disclosed by all issuers) for financial years commencing on or after 1 January 2025, on a voluntary basis
For the avoidance of doubt, the table above only summarises issuers’ disclosure obligations under Part D of the ESG Code. Non-climate disclosure requirements set out in Parts A to C of the ESG Code will continue to apply.
Key points that we believe issuers will have to prepare early for a progressive plan to fulfill the disclosure requirements:
Governance
- Issuers must disclose information about the governance body or individuals responsible for overseeing climate-related risks and opportunities. This includes identifying those responsible and providing details about their roles as reflected in terms of reference, mandates, role descriptions, and other related policies.
- Oversight Functions and Management’s Role
Climate-related risks and opportunities
- including physical risk and transition risk over the short, medium and long term.
- A description of the current and anticipated effects of climate-related risks and opportunities on the issuer’s business model and value chain; and
- A description of where in the issuer’s business model and value chain climate- related risks and opportunities are concentrated.
About Strategy and Decision-making
- Current and anticipated changes to the issuer’s business model, including its resource allocation, to address climate-related risks and opportunities;
- adaptation and mitigation efforts (whether direct or indirect);
- transition plan the issuer has (including information about key assumptions used in developing its transition plan, and dependencies on which the issuer’s transition plan relies), or an appropriate negative statement where the issuer does not have a climate-related transition plan; and
- how the issuer plans to achieve any climate-related targets (including any greenhouse gas emissions targets (if any))
- Issuer will also need to disclose information on resources planning and progress of plans
Financial Impact Related Disclosures
- Disclosures (qualitative and quantitative) on impact on financial position, financial performance and cash flows for the reporting period
Resilience
- Disclosures of information that enables an understanding of the resilience of the issuer’s strategy and business model to climate-related changes, developments and uncertainties from the identified climate-related risks and opportunities.
Risk Management Process and Related Policies
Greenhouse Gas Emissions
- Scope 1 greenhouse gas emissions
- Scope 2 greenhouse gas emissions
- Scope 3 greenhouse gas emissions
- Standards: the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) and Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011)
Capital deployment
- the amount of capital expenditure, financing or investment deployed towards climate-related risks and opportunities.
Carbon Prices
- Information on internal carbon prices (if used)
Remuneration
- Disclousres on whether climate-related considerations are factored into remuneration policy, or an appropriate negative statement
Setting and Disclosing Climate-rated Targets
- -hether the target is a gross greenhouse gas emissions target or a net greenhouse gas emissions target. If the issuer discloses a net greenhouse gas emissions target, the issuer is also required to separately disclose its associated gross greenhouse gas emissions target;
- Detailed information about uses of carbon credits
Testimonials and Clients’ Recognition
GreenCo’s team possess good technical knowledge and project management skills. They deliver top quality work well within tight timeframe. They also have great communication with clients.
GreenCo’s team is helpful and always provides prompt responses. They have demonstrated professionalism in sharing valuable insight in ESG development.
We appreciate the competence and professionalism GreenCo’s team demonstrated during the preparation and delivery of the workshop and the analysis.
What are the key updates that Hong Kong Listed Companies should get prepared for?
In view of:
- The level of complication and the level of resources required to fully comply with the proposed climate-related disclosure is much higher than the current ESG reporting framework;
- The nature of the proposed climate-related disclosures is mandatory, meaning that issuers are not possible to use general and brief explanations to fulfil the disclosure requirement as under the “comply or explain” provision; and
- Investors’ demand and stakeholders’ expectations of transparent and accountable disclosure are surging,
GreenCo suggests companies getting prepared as soon as possible.
What are the detailed scope of ESG reporting or disclosure services GreenCo provides?
Attributed to our experience and professionalism, GreenCo can offer you the following services:
Materiality Assessment
This involves identifying and prioritizing the sustainability issues that are most significant to the organization and its stakeholders. Consultants help companies conduct stakeholder engagement and analysis to determine the environmental, social, and governance topics that should be featured prominently in their sustainability reports.
Data Collection and Management
Report Writing and Development
Crafting the sustainability report itself is a core service. Consultants work with organizations to develop the content and structure of the report, ensuring it effectively communicates the company’s sustainability performance, goals, and progress. This includes writing, editing, and designing the report to meet both compliance requirements and strategic storytelling objectives.
Reporting Frameworks and Standards Guidance
Benchmarking and Best Practices
Consultants analyze industry benchmarks and best practices to advise companies on how to improve their sustainability reporting. This can include comparing the organization’s practices with those of peers to identify gaps and opportunities for enhancement.
Stakeholder Communication and Engagement
Integration with Corporate Strategy
Consultants help ensure that the sustainability reporting process is integrated with the organization’s broader corporate strategy. This involves aligning sustainability goals and disclosures with business objectives, risk management, and investor relations.
Assurance and Verification (Optional but Recommended)
Some companies opt to have their sustainability reports assured by a third party to enhance credibility. Consultants can guide companies through the assurance process, helping them prepare for external audits and working with assurance providers to verify the accuracy and completeness of the data reported.
Continuous Improvement and Strategy Update
After the report is published, consultants often work with companies to analyze feedback, assess the impact of the report, and plan for continuous improvement in both sustainability performance and future reporting cycles.
Disclosure consulting and ESG reporting services are designed to help your company navigate the complexities of reporting standards, ensure compliance, and effectively communicate your sustainability efforts. A good sustainability report can enhance transparency, stakeholder trust, and corporate reputation that can increase company’s value over time.