This issue of your journal examines recent proposals from Hong Kong Exchanges and Clearing Ltd (HKEX) updating the ESG Reporting Guide to the ESG Reporting Code with tighter disclosure requirements for climate-related information. This follows the work of the International Sustainability Standards Board (ISSB), which is pushing for global baseline standards for sustainability and climate-related disclosures to address the concerns of investors and other capital providers.
The current ESG Reporting Guide is founded on the notion that companies should disclose how material ESG issues affect their operations and vice versa (a twofold or ‘double materiality’ approach). At the same time, ISSB is developing standards that only call for reporting material ESG concerns on a company’s enterprise value so that investors and other capital providers can have coherent and comparable information to make their decisions (a ‘single materiality’ approach). This is expected to provide more quantitative financial information to investors to make investment decisions. The governance professional should know this difference in materiality assessment and ensure proper reporting of climate change disclosures.
Returning to the background, in June 2023, the ISSB released its general sustainability-related financial information (IFRS S1) and climate- related disclosures (IFRS S2) standards (collectively the Standards). Attracting investors is crucial to Hong Kong’s status as a leading international financial centre; hence HKEX suggests the current reform. However, HKEX aims to align with the Standards rather than adopt them.
The cover article of this edition explains that this is based on HKEX’s assessment of what Hong Kong–listed issuers may be able to comply with. It highlights that adopting IFRS S1’s requirements and whether more than the IFRS S2’s baseline on climate- related disclosures will be required are attracting market attention. HKEX will no doubt consider these and other issues under its consultation conclusions, which are to be published. In the meantime, the Institute is collaborating with HKEX on promoting the new requirements and is grateful to HKEX’s venue sponsorship of the HKEX Connect Hall for a seminar on climate-related disclosures to be held in September.
HKEX plans for the new Listing Rules to go into effect on 1 January 2024, subject to the consultation outcomes. For the first two reporting years following that date, interim provisions will apply to requirements that are thought to be particularly onerous, including the requirement to disclose Scope 3 greenhouse gas emissions. However, the message for journal readers is the need to prepare for Hong Kong’s new requirements urgently.
I would add that the end goal is not compliance. In addition to examining internal processes and implementing any necessary measures to comply with the updated regulations, listed companies can significantly benefit in how they operate by ensuring that the board of directors shape their strategy, and regularly and effectively oversee these matters based on investor concerns.
I also want to draw attention to a recent Institute report, Upping the Game, published in June of this year. As a thought leader for the governance profession, our Institute closely monitors how stakeholder expectations and the changing environment affect the roles of governance professionals in Hong Kong and the Mainland. In this vein, the Technical Consultation Panel of the Institute worked together to create the Report with three academics from Hong Kong and the UK, with the Institute Chief Executive as contributing editor.
The current ESG Reporting Guide is founded on the notion that companies should disclose how material ESG issues affect their operations and vice versa (a twofold or ‘double materiality’ approach). At the same time, ISSB is developing standards that only call for reporting material ESG concerns on a company’s enterprise value so that investors and other capital providers can have coherent and comparable information to make their decisions (a ‘single materiality’ approach). This is expected to provide more quantitative financial information to investors to make investment decisions. The governance professional should know this difference in materiality assessment and ensure proper reporting of climate change disclosures.
Returning to the background, in June 2023, the ISSB released its general sustainability-related financial information (IFRS S1) and climate- related disclosures (IFRS S2) standards (collectively the Standards). Attracting investors is crucial to Hong Kong’s status as a leading international financial centre; hence HKEX suggests the current reform. However, HKEX aims to align with the Standards rather than adopt them.
The cover article of this edition explains that this is based on HKEX’s assessment of what Hong Kong–listed issuers may be able to comply with. It highlights that adopting IFRS S1’s requirements and whether more than the IFRS S2’s baseline on climate- related disclosures will be required are attracting market attention. HKEX will no doubt consider these and other issues under its consultation conclusions, which are to be published. In the meantime, the Institute is collaborating with HKEX on promoting the new requirements and is grateful to HKEX’s venue sponsorship of the HKEX Connect Hall for a seminar on climate-related disclosures to be held in September.
HKEX plans for the new Listing Rules to go into effect on 1 January 2024, subject to the consultation outcomes. For the first two reporting years following that date, interim provisions will apply to requirements that are thought to be particularly onerous, including the requirement to disclose Scope 3 greenhouse gas emissions. However, the message for journal readers is the need to prepare for Hong Kong’s new requirements urgently.
I would add that the end goal is not compliance. In addition to examining internal processes and implementing any necessary measures to comply with the updated regulations, listed companies can significantly benefit in how they operate by ensuring that the board of directors shape their strategy, and regularly and effectively oversee these matters based on investor concerns.
I also want to draw attention to a recent Institute report, Upping the Game, published in June of this year. As a thought leader for the governance profession, our Institute closely monitors how stakeholder expectations and the changing environment affect the roles of governance professionals in Hong Kong and the Mainland. In this vein, the Technical Consultation Panel of the Institute worked together to create the Report with three academics from Hong Kong and the UK, with the Institute Chief Executive as contributing editor.
