Embracing the global trend of ISSB Standards: New climate disclosure regime under HKSE Listing Rules

1. The New Developments

Under the New Climate Rules, a new Part D will be added to the current Environmental, Social and Governance Reporting Guide² (the ESG Code). This Part D sets out a detail framework of required disclosures that had to be made in the ESG reports, which focuses on climate related risks and opportunities (CRRO) that the issuers are facing³.

(a) Market Tiers and Phased Approach

Taking into account market readiness for the change, the listed issuers will be classified into different market tiers. Each tier has different degree of compliance requirements, which will be implemented at a different timetable (the Phased Approach):

For LargeCap Issuers, once they are subject to mandatory disclosure requirements under the New Climate Rules, they must continue to make relevant disclosures in future ESG reports, even if they subsequently cease to be qualified as LargeCap Issuers.

(b)  Disclosure Requirements – the 4 Core Pillars

Under the current Listing Rules, issuers are only required to provide a general disclosure regarding their policies for handling significant climate-related issues, and how impacts (if any) stemming from those issues are managed⁸. 

The New Climate Rules set to broaden the disclosure regime, and align with the IFRS S2 to the maximum extent possible. Issuers are required to disclose information under the categorisation of 4 core pillars. The summary table below aims to provide a general overview of the New Climate Rules.

Note: In preparing the disclosures, issuers shall refer to and consider the applicability of cross-industry metrics and industry-based metrics set out in the Metrics and Targets pillar under Core Pillar (IV) of the table (except discussions in relation to climate-related targets)¹⁵

(c) Implementation Reliefs 

To address concerns over issuers’ reporting challenges by virtue of limitations in the resources and/or technical knowledge and expertise for compliance with the New Climate Rules, the HKSE has introduced four implementation reliefs that are applicable to certain disclosures under the New Climate Rules. These reliefs are summarised below¹⁶:

1. Reasonable Information Relief: disclosures can be made based on reasonable and supportable information that is available at the reporting date without undue cost or effort of the issuer;
2. Capabilities Relief: in preparing disclosures on climate-related scenario analysis and anticipated financial effects, issuers can adopt an approach that is informed by or commensurate with their available skills, capabilities and resources at a particular point in time;
3. Commercial Sensitivity Relief: this relief applies to all disclosure requirements forclimate related opportunities, if (i) such information is not publicly available, (ii) it could reasonably be expected to seriously prejudice the economic benefits the issuer would otherwise be able to realise in pursuing the opportunity, and (iii) it could not be disclosed in manner without leading to such prejudice;
4. Financial Effects Relief: allows disclosure of qualitative instead of quantitative financial information where certain conditions are met.

The ESG Code establishes the framework for the applicability of the reliefs, and specifies the disclosure requirements to which these relief measures are relevant.

2. Getting Ready for the New Climate Rules

(a) HKSE’s Guidance 

To support issuers in meeting the New Climate Rules, the HKSE has released a “Implementation Guidance for Climate Disclosures under HKEX ESG reporting framework” (the Implementation Guidance). The Implementation Guidance sets out principles, guidance and illustrative examples for the implementation of the New Climate Rules and aims to provide practical, step-by-step guidance for preparation of reports in accordance with the revised the ESG Code. Issuers are encouraged to refer to the guidance to facilitate an efficient preparation for the new regime. 

(b) Plan Early 

While the climate-related information will only be required to publish in 2026, some disclosure obligations necessitate collection of climate-related data for the full financial year starting from the Effective Date (being 1 January 2025). It may also require issuers to adjust their daily operations to facilitate the data collection. Issuers therefore are advised to plan ahead early to prepare for data collection and to minimise disruptions, if any, to their operations. Issuers may also consider engaging ESG consultants to assist with the process.

(c) Internal Governance 

The New Climate Rules require disclosure on the governance process an issuer put in place to monitor and manage CRRO. It is therefore recommended for issuers to revisit, and enhance if necessary, their terms of reference and internal policies in order to address the disclosure requirements.

3. Conclusion: Charting the path forward

With the New Climate Rules, HKSE is committed to uphold market quality in line with the global trend of the ISSB standards, which will also serve as the foundation for Hong Kong’s local set of sustainability reporting standards. It is also part of HKSE’s efforts to prepare for and facilitate the issuers' smooth transition towards mandatory climate-related disclosures. 

It is therefore crucial for issuers from all industries and of all sizes to maintain a flexible mind, to embrace and prepare for future changes, which are bound to be more robust and extensive in terms of the level of compliance obligations.