Legal development

Hong Kong Stock Exchange puts climate-related disclosures in the spotlight

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    The Hong Kong Stock Exchange published a consultation paper in mid-April 2023 to significantly enhance climate-related disclosures for listed companies. The consultation period ends on 14 July 2023.

    The consultation proposes a significant increase in climate-related disclosures required under the Environmental, Social and Governance Reporting Guide (ESG Guide) set out in Appendix 27 to the Listing Rules (Appendix 27). These proposals are substantially aligned with the draft requirements published by the International Sustainability Standards Board (ISSB). The final ISSB standards, which are expected to become the global baseline for sustainability-related disclosure standards, are likely to be announced by the end of June 2023.

    Proposed Changes

    The proposed changes to the Listing Rules include the following.

    • Certain existing "comply or explain" climate-related disclosures in Appendix 27 will become mandatory.
    • The additional climate-related disclosures will all be mandatory. The new requirements will be set out in new Part D of Appendix 27 (contained in Appendix II to the consultation paper).
    • The additional climate-related disclosures are categorized under 4 pillars. A brief summary of the requirements is set out below.

    1) Governance: Issuers should disclose its governance processes, controls and procedures to monitor and manage climate-related risks and opportunities.

    2) Strategy

    - Climate-related risks and opportunities: Issuers should disclose material climate-related risks (and opportunities faced by the issuer if applicable), including their impact on the issuer’s business operations, business model and strategy.

    - Transition plans: Issuers should disclose their response to identified climate-related risks and opportunities, including any changes to its business model and strategy, adaptation and mitigation efforts, and climate-related targets set for such plans.

     - Climate resilience: Issuers should disclose its strategy (including its business model) and operations to climate-related changes, developments or uncertainties.

    - Financial effects: Issuers should 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.

    3) Risk management: Issuers should disclose its process to identify, assess and manage climate related risks (and opportunities, if applicable)

    4) Metrics and targets

    - Greenhouse gas emissions: Issuers should disclose scope 1, 2 and 3 emissions.

    Various metrics: Issuers should disclose the amount and percentage of assets or business activities that are (i) vulnerable to transition risks, (ii) vulnerable to physical risks, and/or (iii) aligned with climate-related opportunities. Issuers should also disclose the amount of capital expenditure deployed towards climate-related risks and opportunities.

    - Remuneration: Issuers should disclose how climate-related considerations are factored into executive remuneration policy.

    • The ESG Guide will be renamed as the ESG Code.

    It is notable that a number of proposals (which largely mirror ISSB's proposals) require quantitative disclosures (rather than merely qualitative disclosures), including in areas where data may be difficult to obtain. For example, issuers are expected to make quantitative disclosures relating to scope 3 emissions (i.e. indirect emissions that occur in the value chain of the issuer), and are also expected to quantify the financial effect of material climate-related risks. Complying with such disclosure requirements may be a challenge for some issuers.


    • The revised Listing Rules and Appendix 27 will come into effect on 1 January 2024 (Effective Date), and apply to ESG reports in respect of financial years commencing on or after the Effective Date.
    • A 2-year transition period applies to some of the proposed changes. These mostly relate to disclosure requirements where data may be difficult to come by. In many cases, qualitative (instead of quantitative) disclosures will be required during the transition period. The final requirements will apply to ESG reports in respect of financial years commencing on or after 1 January 2026. This means that ESG reports published in 2027 need to fully comply with all the new ESG climate disclosure requirements.
    • The Exchange plans to issue further implementation guidance when they issue their consultation conclusions on this topic. The final Listing Rules and Exchange guidance will take into account the final ISSB standards.


    Significant changes to the climate-related disclosure requirements are inevitable, as they are needed to align Hong Kong's regulatory regime with international standards.

    Issuers should familiarize themselves with the proposed changes sooner rather than later. This is because the internal processes required to comply with the proposed requirements are complex and time consuming. Issuers should educate the board, integrate climate-related issues into their internal governance structure, and refine their internal processes in order to obtain the necessary data to report under the new disclosure requirements.

    IPO applicants should be mindful of the new climate-related disclosure requirements and ensure compliance after listing once the new requirements take effect.

    For further information, please reach out to your usual contact at Ashurst or the partners mentioned below.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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