On April 19, the Stock Exchange of Hong Kong Limited announced the adoption of climate-related disclosures under its environmental, social, and governance framework.
Mandatory disclosures
The new regulations will require the disclosure of Scope 1 and Scope 2 greenhouse gas emissions starting January 1, 2025.
These will be mandatory climate-related disclosure requirements for all listed companies, based on the International Sustainability Standards Board (ISSB) new reporting standards, with Scope 1 and 2 emissions disclosure starting from the 2025 reporting year.
There has been a global push to expand the financial reporting requirements of corporations from traditional financial data, to include sustainability and other ESG issues.
Launch of IFRS sustainability standards
At COP26, the 2021 United Nations Climate Change Conference (UNCCC), the International Financial Reporting Standards Foundation (IFRS) announced the creation of the International Sustainability Standards Board (ISSB). IFRS develops global accounting standards that are used in 168 jurisdictions, including Hong Kong.
The ISSB worked for two years drafting sustainability disclosure standards. The IFRS Sustainability Standards were released in June 2023, and jurisdictions are currently working on amending and adopting them in compliance with their respective legal and regulatory requirements.
The IFRS Sustainability Standards are divided into two reporting tiers, IFRS S1 and IFRS S2, both went into effect January 1, 2024.
IFRS S1 established sustainability disclosure requirements, while IFRS S2 set out specific climate-related disclosures to be used along with IFRS S1. Both focus on a company’s governance, strategy, risk management, and metrics and target, as they relate to either sustainability or climate.
Under metrics and target, the IFRS S2 requires the reporting of GHG emissions. These reports are divided into three scopes. Scope 1 emissions are those that occur from sources controlled by the company. Scope 2 emissions are indirect emissions from the “generation of purchased or acquired electricity, steam, heating or cooling consumed by an entity.” Scope 3 emissions are divided into 15 categories, the most notable being “purchased goods and services.”
Alignment with ISSB standards
The Exchange, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited, announced that this decision follows a consultation launched last year, receiving broad support, and aligns with global calls to incorporate ISSB standards into sustainability reporting frameworks. The new requirements are based on IFRS S2, with references to IFRS S1.
The move reflects the Hong Kong government’s commitment to developing a comprehensive sustainability ecosystem, including local standards aligned with ISSB.
Katherine Ng, Head of Listing at Hong Kong Exchanges and Clearing Limited (HKEX), emphasized that these requirements are part of a broader roadmap for local adoption of ISSB standards, aiming to enhance Hong Kong’s capital markets attractiveness and competitiveness.
Under the new rules, issuers will commence Scope 1 and 2 GHG emissions disclosures from January 1, 2025, with additional requirements for LargeCap issuers to report on Scope 3 emissions, progressively expanding to smaller issuers.
Ng highlighted HKEX’s phased approach and implementation reliefs to support companies in meeting these requirements effectively.
Source: Forbes, April 26, 2024
