Exposure Draft HKFRS S1 and HKFRS S2
The Hong Kong Institute of Certified Public Accountants (HKICPA) releases Exposure Draft HKFRS S1 and HKFRS S2, aimed at soliciting opinions on Hong Kong sustainable development disclosure rules.
The two drafts are namely the Exposure Draft HKFRS S1 General Requirements for Disclosure of Sustainability related Financial Information and the Exposure Draft HKFRS S2 Climate related Disclosures. They are created based on IFRS S1 and IFRS S2.
Related Post: Hong Kong Exchange Releases Guidance for Climate Disclosures
Development of Sustainable Disclosure Rules in Hong Kong
With the release of international sustainable disclosure regulations, the Hong Kong government announced in its 2023 Policy Address that it will collaborate with financial regulators and stakeholders to develop a roadmap for Hong Kong to adopt ISSB standards. In March 2024, the Financial Services and Treasury Bureau of Hong Kong reiterated this point in its Vision Statement, planning to establish a sustainable information disclosure ecosystem.
The Exposure Draft HKFRS S1 and HKFRS S2 are based on the International Sustainability Standards Board (ISSB) standard and will officially come into effect in August 2025. Its priority scope of application includes Hong Kong listed companies and regulated financial institutions such as banks, asset management companies, and insurance companies. HKICPA plans to collect stakeholders’ opinions before October 27, 2024, in order to adjust the two sustainable financial reporting standards, and release the final version by the end of 2024.
ISSB stipulated in the first Preview of the Inaugural Juridical Guide for the Adoption or Other Use of ISSB Standards that jurisdictions should adopt sustainable information disclosure before 2030. The Hong Kong Stock Exchange, Hong Kong Monetary Authority, Hong Kong Securities and Futures Commission, Hong Kong Insurance Regulatory Authority, and Mandatory Provident Fund Schemes Authority will conduct consultations on HKFRS S1 and HKFRS S2 to confirm the timing of adopting the standards. Although HKFRS S1 and HKFRS S2 are established based on ISSB standards, HKICPA will consider whether to adopt other standards published by ISSB in Hong Kong case by case in the future.
HKFRS and HKEX Climate Disclosure Rules
HKICPA compares HKFRS S1 and HKFRS S2 with the climate disclosure rules issued by the Hong Kong Exchange, and believes that there are several differences:
- Reporting boundary: The HKEX requires entities to decide which entities to include in the scope of information disclosure, while the ISSB standard requires all entities in the consolidated financial statements to be included in the scope of information disclosure. At present, most entities only include substantive entities in their information disclosure. However, excluded entities may still face climate related risks and opportunities. Therefore, when adopting ISSB standards, these entities need to adjust their reporting scope to be consistent with their financial statements.
- Industry-based metrics: The HKEX encourages entities to disclose industry-based indicators, such as the carbon emissions involved in the business activities of banks, asset management companies, and insurance companies, but does not require mandatory disclosure. The ISSB standard requires entities to provide industry-specific disclosures and refer to and consider their applicability in the final standard, in order to enhance the credibility of information disclosure.
- Carbon emissions disclosure: The ISSB standard requires consolidated entities to disclose their Scope 1 and Scope 2 carbon emissions data separately. The HKEX encourages listed companies to adopt this method, but there is no mandatory requirement.
- Percentage of remuneration related to climate considerations: The HKEX does not require listed companies to disclose the percentage of compensation related to climate issues, only whether or how they have included climate issues in their compensation policies. The ISSB standard requires listed companies to disclose the specific proportion of climate related remunerations.
HKICPA has conducted a Technical Feasibility Study with HKEX to analyze the differences mentioned above. HKICPA believes that HKFRS S1 and HKFRS S2, which are fully aligned with ISSB standards, can strengthen the connection between global investors and the Hong Kong market.
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