On 19 April 2024, The Stock Exchange of Hong Kong Limited (the “Exchange“), published conclusions to its Consultation Paper on Enhancement of Climate-related Disclosures under the Environmental, Social and Governance (“ESG“) framework. As a result of receiving broad-based support from the market, the Exchange will adopt its proposals to introduce new climate-related disclosure requirements (the “New Climate Requirements”), and amend the Environmental, Social and Governance Reporting Guide (to be renamed as the Environmental, Social and Governance Reporting Code) (the “ESG Code“) set out in Appendix C2 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and Rules Governing the Listing of Securities on GEM (collectively, the “Listing Rules“).

Some key features of the New Climate Requirements are as follows:

1. Enhanced climate-related disclosures in the ESG reports

The existing climate reporting requirements are modelled on a “comply or explain” regime. Under the amended Listing Rules, a new Part D will be introduced to the ESG Code to comprehensively set out all climate-related disclosures (i.e. the New Climate Requirements), which will include both mandatory disclosures and disclosures under the “comply or explain” regime.

The New Climate Requirements will substantially adopt the latest international standards on climate-related disclosures developed by the International Sustainability Standards Board established by the International Financial Reporting Standards Foundation (the “ISSB Climate Standard“). In line with the ISSB Climate Standard, the New Climate Requirements will focus on climate reporting on the following four areas:

(1) Governance – the governance process, controls and procedures an issuer uses to monitor, manage and oversee climate-related risks and opportunities;

(2) Strategy – an issuer’s strategy for managing climate-related risks and opportunities;

(3) Risk management – the process an issuer uses to identify, assess, prioritise and monitor climate-related risks and opportunities; and

(4) Metrics and target – the metrics and targets an issuer uses to understand its performance in relation to climate-related risks and opportunities, including progress towards any climate-related targets that it has set, and any targets that it is required to meet by law or regulation.

Some of the relatively more challenging disclosures under the New Climate Requirements include disclosure of Scope 1, Scope 2 and Scope 3 greenhouse gas (“GHG“) emissions (the disclosure of Scope 3 GHG emissions being newly added in the amended ESG Code), quantification of climate-related financial effects, and the setting of climate targets.

The Exchange has also issued an Implementation Guidance to assist issuers in understanding and interpreting the New Climate Requirements, and to provide issuers with practical guidance for preparation of climate-disclosures in accordance with the amended ESG Code.

2. Implementation by phases

The amended Listing Rules will become effective on 1 January 2025. The Exchange will adopt a phased approach in implementing the New Climate Requirements as summarised below:

(1) all Main Board and GEM listed issuers will be required to make mandatory disclosures of Scope 1 and Scope 2 GHG emissions for the financial years commencing on or after 1 January 2025;

(2) all Main Board issuers are required to comply with the New Climate Requirements (other than those relating to Scope 1 and Scope 2 GHG emissions which are mandatory) on a “comply or explain” basis for the financial years commencing on or after 1 January 2025;

(3) LargeCap Issuers (i.e. issuers that are Hang Seng Composite LargeCap Index constituents throughout the year immediately prior to the relevant reporting year) are required to comply with the New Climate Requirements on a mandatory basis for the financial years commencing on or after 1 January 2026; and

(4) all GEM listed issuers are encouraged to comply with the New Climate Requirements (other than those relating to Scope 1 and Scope 2 GHG emissions which are mandatory) for the financial years commencing on or after 1 January 2025 on a voluntary basis.

Issuers are advised to review the New Climate Requirements in detail and seek legal advice when preparing disclosures under these new requirements.