【Policy Express】HKEX ESG Guidelines: What’s the Next?



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Hi! I would like to learn about the details of the latest HKEX ESG reporting requirements.

The latest ESG reporting requirements of HKEX are issued in the consultation summary of the review of the Corporate Governance Code and related Listing Rules, which were released in December 2021 and required the release of ESG reports to be synchronous with annual reports.


Apart from this, are there any updates regarding the ESG reporting requirements?

On the evening of June 10, 2022, the HKEX released the Listing Newsletters. Several articles in it have mentioned “ESG”, accentuating the content of New Standards for Climate Disclosure and also the Special Purpose Acquisition Companies (SPACs) and ESG.


What should the listed companies be cautious of? And what are we expected to do?


  • The “Two Checks, Two Emphases, and One Alignment” has caught my attention.
  • “Two Checks”: (1) HKEX plans to examine the ESG disclosure of listed companies this year (especially the changes in effect made after July 2020) and come up with advice. It has conducted investigations and published the summary documents in the past 2018, 2019, and 2021 respectively, which point out some potential improvements in ESG reports and serve as the indicator before the renewal of ESG guidelines. (2) HKEX will check the ESG Reporting Framework, which should refer to Appendix 27 or Appendix 20 ESG Reporting Guide.
  • “Two Emphases”: (1) HKEX will pay special attention to climate-related information disclosure (Aspect A4) throughout the process of reviewing the ESG reporting framework to further align our regulatory requirements with the Task Force on Climate-Related Financial Disclosures (TCFD)’s recommendations. In another word, the next update will focus on Aspect A4, while the content of Aspect A4 will be further updated according to TCFD recommendations. All companies listed in HKEX are required to make further disclosures in accordance with TCFD recommendations (Highlight!!!). (2) This review by HKEX will also make the ESG reporting guidelines reflect the latest updates of the International Standards Board for Sustainable Development (ISSB).
  • ISSB: International Sustainability Standards Board (ISSB) was established by International Financial Reporting Standards (IFRS) Foundation. The latest ISSB guidelines refer to the one that was published in March this year, namely, Announcement of Issue of Exposure Drafts on Climate and General Sustainability-related Financial Disclosures. The draft is mainly concerned with the disclosure of sustainability-related and climate-related information. Building on TCFD recommendations, the new global sustainability reporting standards to be developed by ISSB are expected to require more specific and quantitative climate disclosures.



Has HKEX constantly tightened the requirements to disclose climate-related issues? What is the latest trend?

Yes. The HKEX does continuously highlight the disclosure of climate changes related issues in ESG reports. The requirements have gradually integrated with the TCFD recommendations, as shown in the figure below:

Figure: Major Milestones/Developments of Climate Information Discourse of HKEX


What about the “One Alignment”?

This is closely related to the second facet of the “Two Emphases”.

HKEX recommended that listed companies refer to the IFRS Foundation’s consultation draft on climate-related information disclosure, conduct the gap analysis, and close the gaps by following the guidance.


How popular are the TCFD recommendations? Specifically, how many companies adopted the rules?

So far, some of the listed companies have followed the recommendations to disclose information, as can be seen from their ESG reports. However, a large proportion of the companies have not yet followed the recommendations.


How can we prepare for the changes? And what kind of actions do you recommend us to take?

At present, the sustainability and climate-related information disclosure standards issued by IFRS Foundation and ISSB are still in the consultation stage. Therefore, companies are recommended to follow the TCFD recommendations for comprehensive preparation and disclosure in advance. The recommendations can be divided into the following four thematic categories: governance, strategy, risk management, and metrics and targets. For those who have not yet conducted relevant practices, they can start by identifying and evaluating climate-related risks and opportunities, also known as ‘risk management’, and then gradually shift to the refinement of other areas.


How can we translate the guidelines into practice?


I am still in the process of learning. For more details, please contact the experts in our company.


Reference:


1. Hong Kong Exchanges and Clearing Limited, Listing Newsletters Issue No.4 (June, 2022), https://www.hkex.com.hk/-/media/HKEX-Market/Listing/How-We-Regulate/listing-newsletter/2022/HKEX_Listing_Newsletter_issue4_en.pdf

2. Hong Kong Exchanges and Clearing Limited, Publication and Training, ESG. https://www.hkex.com.hk/Listing/Sustainability/ESG-Academy/Publications-and-Training?sc_lang=en

3. IFRS, ISSB delivers proposals that create comprehensive global baseline of sustainability disclosures, https://www.ifrs.org/news-and-events/news/2022/03/issb-delivers-proposals-that-create-comprehensive-global-baseline-of-sustainability-disclosures/?utm_medium=email&utm_source=website-follows-alert&utm_campaign=immediate

4. IFRS，[Draft] IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, https://www.ifrs.org/content/dam/ifrs/project/general-sustainability-related-disclosures/exposure-draft-ifrs-s1-general-requirements-for-disclosure-of-sustainability-related-financial-information.pdf

5. IFRS，[Draft] IFRS S2 Climate-related Disclosures,https://www.ifrs.org/content/dam/ifrs/project/climate-related-disclosures/issb-exposure-draft-2022-2-climate-related-disclosures.pdf

6. CECEPEC, Policy Express, Consultation Summary on Review of Corporate Governance Code and related Listing Regulation Rules——The Time Left for ESG report has been shorten again! https://mp.weixin.qq.com/s/Yp4gf5wRjBq3GFkHjS65ZQ

7. TCFD, [Final Report] Recommendations of the Task Force on Climate-related Financial Disclosures, https://assets.bbhub.io/company/sites/60/2020/10/FINAL-2017-TCFD-Report-11052018.pdf





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date：2022-06-21

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