The world is currently grappling with an unparalleled climate crisis, illuminating the urgency of action towards a more sustainable future. Responding to this crisis, investors globally are demanding high-quality climate reporting from corporations indicating their ESG performance. To address this demand, the International Sustainability Standards Board (ISSB) has been working towards finalizing the Climate Standard later this year. Similarly, the Hong Kong Exchanges and Clearing Limited (HKEX) has proposed increasingly comprehensive climate-related disclosures by all issuers in their ESG reports, incorporating new climate-related disclosures aligned with the ISSB Climate Standard in a new Part D of Appendix 27.
Proposed HKEX Climate Reporting Requirements:
To facilitate capital allocation towards a greener future, HKEX has proposed enhanced climate-related disclosures from all issuers in their ESG reports.
HKEX’s suggested climate-related disclosure expectations encompass:
- Disclose the issuer’s governance process, controls and procedures used to monitor and manage climate-related risks and opportunities;
- Climate-related risks and opportunities: Disclose material climate-related risks and, where applicable, opportunities faced by the issuer, and their impact on the issuer’s business operations, business model and strategy;
- Transition plans: Disclose issuer’s response to climate-related risks and opportunities identified, including any changes to its business model and strategy, adaptation and mitigation efforts, and climate-related targets set for such plans;
- Climate resilience: Disclose resilience of the issuer’s strategy (including its business model) and operations to climate-related changes, developments or uncertainties, which shall be assessed using a method of climate-related scenario analysis that is commensurate with the issuer’s circumstances;
- Financial effects of climate-related risks and opportunities: Disclose current (quantitative where material) and anticipated (qualitative) financial effects of climate-related risks, and where applicable, opportunities on the issuer’s financial position, financial performance and cash flows;
- Disclose the issuer’s process to identify, assess and manage climate-related risks and, where applicable, opportunities;
Metrics and target
- Greenhouse gas emissions: Disclose scope 1, scope 2 and scope 3 emissions;
- Cross-industry metrics: Disclose the amount and percentage of assets or business activities (i) vulnerable to transition/physical risks or (ii) aligned with climate-related opportunities, and the amount of capital expenditure deployed towards climate-related risks and opportunities;
- Internal carbon price: For issuers who maintain an internal carbon price, disclose the internal carbon price and such that was applied in the issuer’s decision-making; and
- Remuneration: Disclose how climate-related considerations are factored into executive remuneration policy.
HKEX’s climate reporting requirements are a momentous step in addressing the escalating demands from investors for high-quality climate reporting and other ESG issues. The deadline for submitting responses is 14 July 2023. Subject to the Consultation Paper responses, the new requirements will come into effect on 1 January 2024 and interim provisions for certain disclosures are proposed.
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