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Hong Kong Exchange Mandates IFRS-based Climate Disclosure Starting 2025

Hong Kong Exchange Mandates IFRS-based Climate Disclosure Starting 2025

New Climate Requirements
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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 New Climate Requirements aim to bring transparency and standardization to sustainability reporting in Hong Kong’s capital markets.

With a strong market mandate, we at HKEX are pleased to be among the world’s first exchanges to enhance the climate-related disclosure requirements based on IFRS S2,” said Katherine Ng, Head of Listing at Hong Kong Exchanges and Clearing Limited (HKEX). Ms. Ng further emphasized the phased approach and support measures in place: “We are also adopting a phased approach and implementation reliefs to support listed companies to meet the new requirements without undue burden and within a reasonable timeframe“.

The implementation of the New Climate Requirements will be phased in, starting in 2025. All listed companies will be required to disclose Scope 1 and 2 greenhouse gas (GHG) emissions starting in the 2025 reporting year. This initial requirement provides a foundation for measuring a company’s environmental impact by focusing on direct operations (Scope 1) and purchased electricity (Scope 2).

Larger companies and those in the prestigious Hang Seng Composite LargeCap Index will face a more extensive reporting requirement in the first year. They will be required to disclose Scope 3 emissions on a “comply or explain” basis in 2025. Scope 3 emissions encompass those generated indirectly throughout a company’s value chain, providing a more comprehensive picture of a company’s environmental footprint. If a company chooses not to disclose Scope 3 emissions, they will be required to explain their rationale. Mandatory disclosure of Scope 3 emissions for these large companies will then follow in 202. Smaller and mid-size companies on the Growth Enterprise Market (GEM) can voluntarily disclose Scope 3 emissions if they choose to.

The decision by HKEX to adopt the ISSB standards is a strategic move that aligns with the Hong Kong government’s vision for sustainability reporting. As stated by Ms. Ng, “The New Climate Requirements form part of the wider Hong Kong roadmap for the local adoption of the ISSB Standards“. This alignment with a globally recognized standard signifies HKEX’s commitment to enhancing the transparency and credibility of environmental reporting practices in Hong Kong.

The benefits of these new requirements extend beyond environmental transparency. By embracing a globally recognized standard, HKEX aims to make Hong Kong a more attractive and competitive destination for investors seeking sustainable investment opportunities. Investors increasingly prioritize environmental, social, and governance (ESG) factors in their decision-making, and robust sustainability reporting allows them to make informed investment choices.

To ensure a smooth transition for listed companies, HKEX has published guidance that references IFRS S1 principles to assist them in complying with the New Climate Requirements. This guidance should serve as a clear roadmap for companies as they navigate the new reporting standards. Recognizing the potential challenges of implementation, HKEX has also committed to providing further training and resources as needed.

The Hong Kong government’s approach to sustainability reporting further strengthens the framework being established by HKEX. The government recently released a statement outlining its plan to develop a comprehensive ecosystem for sustainability disclosure. This plan includes working with regulators and stakeholders to develop a roadmap for adopting ISSB standards and creating local sustainability reporting standards aligned with them.

Related Article: US SEC Pauses Climate Disclosure Rule Pending Court Challenge

In conclusion, the implementation of mandatory climate-related disclosure requirements by HKEX represents a significant step forward for sustainability reporting in Hong Kong. By aligning with the ISSB’s IFRS S2 standards and adopting a phased approach, HKEX is ensuring transparency and providing support to listed companies. This move, coupled with the Hong Kong government’s commitment to developing a comprehensive sustainability reporting ecosystem, positions Hong Kong as a leader in attracting environmentally conscious investors and fostering a sustainable future.

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