The Stock Exchange of Hong Kong (HKEX) is set to become a global leader in sustainability reporting with the implementation of mandatory climate-related disclosure requirements for listed companies. These new requirements, known as the “New Climate Requirements,” were announced by HKEX after receiving “broad-based support” during a consultation process. Aligned closely with the International Sustainability Standards Board’s (ISSB) IFRS S2 standards, the aim of the New Climate Requirements is to enhance transparency and standardization in sustainability reporting within Hong Kong’s capital markets.
The roll-out of the New Climate Requirements will occur gradually, commencing in 2025. All listed companies will need to disclose their Scope 1 and 2 greenhouse gas (GHG) emissions from the 2025 reporting year onwards. This initial mandate lays the groundwork for assessing a company’s environmental impact by focusing on direct operations (Scope 1) and purchased electricity (Scope 2).
In the first year, larger companies and those listed in the prestigious Hang Seng Composite LargeCap Index will face more extensive reporting obligations. They will need to disclose Scope 3 emissions on a “comply or explain” basis in 2025. Scope 3 emissions cover those generated indirectly across a company’s value chain, offering a more holistic view of its environmental footprint. Should a company opt not to disclose Scope 3 emissions, they must provide a rationale. Mandatory disclosure of Scope 3 emissions for these large companies will follow in 2026. Smaller and mid-size companies on the Growth Enterprise Market (GEM) have the option to voluntarily disclose Scope 3 emissions.
HKEX’s decision to adopt ISSB standards strategically aligns with the Hong Kong government’s sustainability reporting vision. This move signifies HKEX’s dedication to enhancing the transparency and credibility of environmental reporting practices in Hong Kong.
The benefits of these new requirements go beyond environmental transparency. By embracing globally recognized standards, HKEX aims to make Hong Kong more appealing and competitive for investors seeking sustainable opportunities. Given investors’ growing emphasis on environmental, social, and governance (ESG) factors, robust sustainability reporting enables them to make well-informed investment decisions.
To facilitate a smooth transition for listed companies, HKEX has issued guidance referencing IFRS S1 principles to aid compliance with the New Climate Requirements. This guidance serves as a clear roadmap for companies navigating the new reporting standards. Recognizing potential implementation challenges, HKEX has pledged to provide additional training and resources as necessary.
The Hong Kong government’s sustainability reporting approach further bolsters the framework set by HKEX. The government’s recent statement outlines plans to establish a comprehensive sustainability disclosure ecosystem. This includes collaborating with regulators and stakeholders to develop a roadmap for adopting ISSB standards and creating local sustainability reporting standards in line with them.
HKEX’s enforcement of mandatory climate-related disclosure standards marks a significant stride in sustainability reporting in Hong Kong. Through alignment with ISSB’s IFRS S2 standards and phased implementation, HKEX ensures transparency and support for listed companies. Coupled with the Hong Kong government’s commitment to building a robust sustainability reporting ecosystem, this positions Hong Kong as a leader in attracting environmentally-conscious investors and nurturing a sustainable future.