The Stock Exchange published consultation paper on enhancement of climate disclosure under its ESG framework
Introduction
In April 2023, The Stock Exchange of Hong Kong Limited (the “Stock Exchange”)
published a consultation paper (the “Consultation Paper”) seeking market
feedback on proposals to enhance climate-related disclosures under the
environmental, social and governance (“ESG”) framework.
Background
For maintaining Hong Kong’s
competitiveness as an international financial centre and to further strengthen its
position as a trusted venue for capital raising, the Stock Exchange reviewed
the current ESG framework to ensure that it continues to keep pace with
international developments, reflect
stakeholders’ expectations and facilitate capital allocation towards a more
sustainable future. The proposals in the Consultation Paper aim to prepare its issuers for the climate-related
reporting requirements based on the International Sustainability Standards
Board (“ISSB”) Climate Standard.
The period for the Consultation Paper will
be three months. Subject to responses to the Consultation Paper, the revised rules governing the listing of
securities on Main Board (the “Listing
Rules”) and GEM of the Stock Exchange (the “GEM Listing Rules”) will come into effect on 1 January 2024 and
apply to ESG reports in respect of financial years commencing on or after 1
January 2024. Considering the readiness of issuers in complying with the new
reporting requirements, the Stock Exchange also proposed interim proposals for
certain disclosures during an issuer’s first and second reporting periods
following 1 January 2024 (the “Interim
Period”).
Summary
of the New Climate-related Disclosure Requirements
The Stock Exchange proposed to mandate all
issuers to make climate-related disclosures in their ESG reports, which is more
stringent than the current “comply or explain” requirement. New climate-related
disclosures based on the ISSB Climate Standard will be introduced as a new Part
D of Appendix 27 to the Listing Rules (or Appendix 20
to the GEM Listing Rules).
The new climate-related disclosures will
be categorised under four core pillars, namely Governance, Strategy, Risk management
and Metrics and targets. The major disclosure requirements are summarised as
follows:
Governance
|
Current disclosures |
Proposed disclosures |
Interim provision during the Interim
Period |
|
Disclose
the board’s oversight and governance of ESG issues, the board’s ESG
management approach and strategy, and how the board reviews progress made
against ESG-related goals and targets. |
Disclose
the issuer’s governance process, controls and procedures used to monitor and
manage climate-related risks and opportunities. |
N/A |
Strategy
|
Current disclosures |
Proposed disclosures |
Interim provision during the Interim
Period |
|
Disclose
the board’s ESG management approach and strategy in managing ESG issues and
to describe the significant climate-related issues which have impacted, and
those which may impact, the issuer, and the actions taken to manage them. |
(a) Climate-related
risks and opportunities Disclose
climate-related risks and, where applicable, opportunities faced by the
issuer and their impact on the issuer’s business operations, business model
and strategy. |
N/A |
|
(b) Transition
plans Disclose the issuer’s response to the
climate-related risks and, where applicable, opportunities identified in (a)
above, including: (i)
any changes to the issuer’s business
model and strategy, and any adaptation and mitigation efforts undertaken to
address such risks and opportunities; and (ii)
any climate-related targets the issuer
has set for transition plans, and any greenhouse gas (“GHG”) emission targets the issuer is required to meet by local legislation. |
N/A |
|
|
(c)
Climate resilience Disclose the resilience of the issuer’s strategy
(including its business model) and operations to climate-related changes,
developments or uncertainties, which shall be assessed using a method of
climate-related scenario analysis that is commensurate with the issuer’s
circumstances. |
N/A |
|
|
(d) Financial
effects of climate-related risks and opportunities Disclose the current (quantitative where
material) and anticipated (qualitative) financial effects of climate-related
risks and, where applicable, opportunities on the issuer’s financial
position, financial performance and cash flows. |
Yes Current financial effect Allow
qualitative disclosures. Anticipated financial effect (i) information
that enables investors to understand the aspects of financial statements that
are most affected; and (ii) work
plan, progress and timetable for full disclosure. |
Risk Management
|
Current disclosures |
Proposed disclosures |
Interim provision during the Interim
Period |
|
Disclose
(a) the process used to evaluate, prioritise and manage material ESG-related
issues (including risks to the issuer’s businesses) and (b) the effectiveness
of their risk management and internal control systems. There is no specific
requirement to disclose the risk assessment process. |
Disclose the issuer’s process to identify, assess
and manage climate-related risks and, where applicable, opportunities. |
N/A |
Metrics and targets
|
Current disclosures |
Proposed disclosures |
Interim provision during the Interim
Period |
|
Disclose
the following environmental key performance indicators (“KPIs”) on a “comply or explain” basis: (a)
Emissions, including scope 1 and scope 2
GHG emissions; (b)
Waste, i.e. hazardous waste and
non-hazardous waste produced; (c)
Energy consumption, such as electricity,
gas or oil; (d)
Total water consumption; and (e)
Total packaging material used for finished
products, and
where appropriate, issuers may also disclose the intensity (e.g. per unit of
production volume, per facility) for each metric above. |
(a) GHG
emissions Disclose scope 1, scope 2 and scope 3 emissions. “Scope 3 emissions” refers to indirect emissions
outside of scope 2 emissions that occur in the value chain of the issuer,
including both upstream and downstream emissions. |
Yes Scope 3 emissions (i)
information that enables investors to
understand the issuer’s relevant upstream or downstream activities along the
value chain; and (ii)
work plan, progress and timetable for
full disclosure. |
|
(b) Other
cross-industry metrics Disclose cross-industry metrics such as the
percentage of assets or business activities (i) vulnerable to
transition/physical risks or (ii) aligned with climate-related opportunities,
and the amount of capital expenditure deployed towards climate related risks
and opportunities. |
Yes (i)
describe the assets or business
activities vulnerable to or aligned with such risks or opportunities, or that
require capital expenditure; and (ii)
work plan, progress and timetable for
full disclosure. |
|
|
(c)
Internal carbon price For issuers who maintain an internal carbon
price, disclose the internal carbon price and explain how it is applied in
the issuer’s decision-making. |
N/A |
|
|
(d) Remuneration
Disclose how climate-related considerations are
factored into remuneration policy. |
N/A |
|
|
(e) Industry-based
metrics Consider industry-based disclosure requirements
prescribed under international ESG reporting frameworks and make disclosures
as the issuer sees fit. |
N/A |
Conclusion
The proposals in the Consultation Paper
reflect the Stock Exchange’s commitment in promoting sustainability and maintaining
Hong Kong competitiveness for capital raising. While the amendments to the
Listing Rules (or GEM Listing Rules) on ESG will be effective from
1 January 2024, issuers are expected to be in full compliance with all the new
climate-related disclosures in respect of financial years commencing on or
after 1 January 2026 (i.e. the first ESG reports fully compliant with the new
Rules will be produced in 2027). As certain disclosure requirements may require
more time and work to comply with, it is important that issuers should start
reviewing their internal procedures and put in place any measures necessary for
complying with the enhanced requirements.
For enquiries,
please feel free to contact us at: |
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Kong |
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Important: The law and procedure on
this subject are very specialised and
complicated. This article is just a very general outline for reference and
cannot be relied upon as legal advice in any individual case. If any advice
or assistance is needed, please contact our solicitors. |
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Published by ONC Lawyers © 2023 |
