Hong Kong Stock Exchange Proposes Mandatory Disclosure of Climate-related Risks in Listed Companies' ESG Reports from 1 January 2024

The Stock Exchange of Hong Kong Limited (HKEX) recently published a consultation paper proposing to mandate all listed companies in Hong Kong to provide climate-related disclosure in their Environmental, Social and Governance (ESG) reports. The proposal is formulated with reference to the Climate Standard exposure draft published by the International Sustainability Standards Board and will be introduced as a new Part D of Appendix 27 to the Hong Kong Listing Rules.

The mandatory disclosure rules, if adopted, will come into effect and apply to ESG reports in respect of financial years commencing on or after 1 January 2024. A transition period of two years is proposed for certain (but not all) disclosures where interim provisions are in place. In other words, the first ESG report in full compliance with all the new climate-related disclosures will be produced in 2027 for financial years commencing on or after 1 January 2026.

The proposed climate-related disclosures are categorised under four core pillars, of which the key requirements are summarised below:

Governance
- The governance process, controls and procedures the issuer uses to monitor and manage climate-related risks and opportunities.
Strategy
- The issuer’s strategy for addressing significant climate-related risks and opportunities, including details of (i) assessment; (ii) transition plan towards a low carbon economy; (iii) climate resilience; and (iv) current and anticipated financial effects of climate-related risks.
Risk Management
- The process the issuer uses to identify, assess and manage climate-related risks and opportunities.
Metrics and Targets
- The metrics and targets the issuer uses to measure, monitor and manage significant climate-related risks and opportunities, and how the issuer assesses its performance, including details of (i) greenhouse gas (GHG) emissions (directly from issuer's own sources or indirectly from issuer’s purchased electricity or value chain); (ii) cross-industry metrics such as the percentage of assets or business activities vulnerable to transition/physical risks and the amount of capital expenditure deployed; (iii) internal carbon price; and (iv) how climate-related considerations are factored into executive remuneration policy.

Under the consultation proposal, save for disclosures relating to Strategy – 'current and anticipated financial effects of climate-related risks'; Metrics and Targets – 'indirect GHG emissions from value chain' and 'cross-industry metrics', where issuers are required to comply with the less stringent interim provisions, all other disclosures must be made in compliance with the new requirements in issuers' ESG reports for financial years commencing on or after 1 January 2024.

As for IPO applicants who are required to disclose material ESG risks and information in their prospectuses, they should be mindful of the new requirements to ensure compliance after listing once the new mandatory disclosure rules take effect.

The consultation ends on 14 July 2023. Given the unexpected imminency of the proposal, issuers should consult their lawyers/consultants to review the impact on their reporting obligations.