Climate-related disclosure requirements finalised


Hong Kong Stock Exchange (HKEx) issued the consultation conclusion namely, the ‘Enhancement of Climate-related Disclosure under the ESG Framework’ (the conclusion) on 19 April 2024.  According to the Conclusion, the reporting requirement framework is renamed as ‘Environmental, Social and Governance Reporting Code’ (the Code) and a new section climate-related disclosure is created under Part D of the Code. The climate-related disclosure requirements are mostly aligned with the IFRS S2 Climate-related Disclosures issued by the International Sustainability Standards Board (ISSB). The new disclosure requirements will come into effect for financial year beginning on or after 1 January 2025.  

Mandatory disclosure of Scope 1 and 2 GHG emissions 
According to the Conclusion, all listed companies are mandatorily required to disclose Scope 1 and 2 GHG emissions which were upgraded from ‘Comply or explain’ in the past. For the remaining disclosure requirements under Part D, disclosure by listed companies will be subject to the following arrangements:

Effective date for climate-related disclosure requirements
LargeCap issuers* ‘Comply or explain’ (financial year beginning on or after
1 January 2025)
Mandatory disclosure (financial year beginning on or after
1 January 2026)
 
Main Board ‘Comply or explain’ (financial year beginning on or after
1 January 2025)
 
GEM Voluntary disclosure (financial year beginning on or after
1 January 2025)
 
(* referring to the constituent of the Hang Seng Composite LargeCap Index (HSCLI))

Replaced interim provisions with various reliefs 
In the consultation paper, certain interim provisions were proposed in areas such as current and anticipated financial effects of climate-related risks and opportunities; metrics and targets; and other cross-industry metrics. According to the Conclusion, these interim provisions were removed resulting from the introduction of the following reliefs:
  Types of reliefs available

Current financial effect

  • Financial effects relief

Anticipated financial effect
  • Reasonable information relief; financial effects relief; capabilities relief

Scope 3 GHG emission

  • Reasonable information relief

Other cross-industry metrics
  • Reasonable information relief

Apart from the above, some of these reliefs are made available to areas including identification of climate related risks and opportunities; determination of the scope of the value chain; use of climate-related scenario analysis, etc.   

However, it is worth noting that, when applying the related reliefs, listed companies are expected to provide considered reasons for why specific disclosure requirements could not be complied with and to provide action plans indicating when the requirements will be met.  

Implementation Guidance 
Alongside with the Conclusion, HKEx also published an ‘Implementation Guide for Climate Disclosure under HKEx ESG Reporting framework’ (the ‘Guide’). The Guide covers all four core pillars of the Task Force on Climate-related Financial Disclosure (TCFD) namely, governance, strategy, risk management and metrics and targets. The Guide provides links to further references, illustrative examples and comments for appropriate disclosure contents.  

Connectivity with financial statements
Though General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) has not been aligned with in the Conclusion, the concept of connectivity is reflected through the disclosure of anticipated financial effects of climate-related risks and opportunities on certain financial line items or balances in the financial statements for current and future financial reporting periods.  

Preparation for challenges
Since the issuance of the consultation paper by HKEx thus far, most of the feedbacks on concerns we heard from the market are mainly relating to the availability of Scope 3 GHG emission data and conversion factors, quantification of financial effects of climate-related risks and opportunities, description of value chain, etc. Definition of materiality plays an important role which will facilitate the listed companies to determine appropriate boundaries for disclosure purpose. Having said that, much time would be needed for listed companies to becoming prepared for fulfilling the requirements, for instances:

  • Identification and evaluation of climate-related risks and opportunities (CROs)
  • Determination how CROs affect the company’s business model and the level of dependence over value chain stakeholders
  • Assessment of whether transition plans have been formulated to effectively mitigate climate-related risks, whether the plans are adequately resourced and to facilitate the achievement of climate-related goals and targets
  • Appropriate climate scenario analysis should be selected to ascertain the possible range of expected outcomes for strategic decision making
  • For financial effects, the potential consequences or mitigating measures for climate-related risks should be mapped to the financial statements
  • Climate-related risks assessment has been conducted regularly
  • Collection of Scope 3 GHG emission data and calculations 
  • Collection of data and calculation of cross-industry metrics 
We learned that some of the listed companies have already kick-started their preparation process and seek support well before the publication of the Conclusion, if there are any questions, please feel free to contact us.  

If you require further information on this publication or any assistance, please contact:

Ricky Cheng
Director and Head of Risk Advisory
(e): rickycheng@bdo.com.hk
(t): +852 2218 8266

Vijo Fok
Principal of Risk Advisory
(e): vijofok@bdo.com.hk
(t): +852 2218 8472