Consultation Document on Climate Disclosure by HKEX
The Hong Kong Stock Exchange has released a consultation document on climate disclosure for listed companies, and plans to change the requirement of “Comply or Explain” to mandatory disclosure in 2024, and promote it to all listed companies in 2026.
On the basis of considering the current ESG disclosure framework, HKEX has launched a new climate information disclosure framework based on the ISSB climate criteria, in order to promote sustainable development, reflect investors’ expectations for climate related disclosures, and maintain the status of green finance center of Hong Kong.
Background of ESG and Climate Information Disclosure
Hong Kong has formulated the 2050 carbon neutrality goal, launched the 2050 Climate Action Blueprint, and developed a series of low-carbon economic measures to address climate change. The financial industry plans to implement climate information disclosure targets that comply with TCFD standards by 2025.
In the past two years, the issuance of green and sustainable bonds and sustainable development linked loans in Hong Kong has increased nearly fourfold, and the government plans to continue issuing over $20 billion in green bonds to support ESG development. For listed companies, conducting climate information disclosure can help them cope with business and regulatory risks.
New Climate Disclosure Framework
The Hong Kong Stock Exchange has developed a new framework for climate information disclosure based on the draft guidelines published by the ISSB in March last year and the recommendations adopted at the ISSB meeting in April this year. ISSB stated in January this year that it will release the final ISSB guidelines in the second quarter, and HKEX will adjust the disclosure framework for the final guidelines. The current consultation document can provide issuers with more time for internal coordination and preparation.
The new climate information disclosure framework consists of four parts, namely governance, strategy, risk management, and indicators. Each section mainly includes the following content:
Governance: Disclose the processes used by the issuer to monitor and manage climate related risks;
- Climate related risks and opportunities: disclose the climate risks and opportunities faced by the issuer, as well as the impact of these matters on the issuer’s business operations;
- Climate transition plan: disclose the response measures to climate related risks, such as greenhouse gas targets set for the transition plan and methods for mitigating climate change;
- Climate resilience: disclose the ability to adapt to uncertain factors such as climate change;
- The financial impact of climate risk: disclose the current and expected future impacts of climate related risks on financial condition, cash flow, and other related factors;
Risk management: Disclose the processes used by the issuer to identify, evaluate, and manage climate related risks;
- Greenhouse gas emissions: including Scope 123 emissions;
- Cross industry indicators: the proportion of assets and businesses related to climate risk, and the amount of investment in addressing climate change related risks;
- Carbon price: the internal carbon price of the issuer;
- Salary: Incorporate climate risk into salary decisions;
- Industry indicators: Other indicators involved in the international ESG framework;
Applicable Conditions for the New Framework
After the release of the consultation document, HKEX plans to implement the new climate information disclosure framework starting from 2024, and listed companies need to use the new framework in their ESG reports. At the same time, considering the different industries involved by listed companies and the differences in the development level of ESG, HKEX has set a two-year transition period (2024 and 2025) for issuers, and listed companies need to start mandatory disclosure in 2026.
For issuers of initial public offerings, HKEX requires them to disclose ESG risks in their prospectus and refer to the new climate disclosure requirements. The Hong Kong Stock Exchange will continue to monitor the compliance status of these companies and provide guidance and training.