Exchange Publishes Consultation Paper on Enhancement of Climate Disclosure under its ESG Framework

The Hong Kong Exchanges and Clearing Limited, short HKEX, has issued a consultation paper on proposed modifications to the ESG disclosure requirements of listed issuers. Specifically, the Exchange seeks to enhance the obligations of listed issuers to align the disclosure requirements with those set out in the current draft climate standard of the International Sustainability Standards Board (ISSB) which is built on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and expected to be finalized later this year. The HKEX expects the ISSB disclosure framework to become the new global standard which is why it seeks an early alignment.
The key enhancements to the currently already existing disclosure requirements of listed issuers would include the following:
– all „optional“ disclosure obligations with a „comply or explain“ provision would become mandatory;
– ESG governance disclosure requirements would be expanded, for example, to include disclosure on the processes and frequency by which climate-related issues are discussed or to include disclosures on how to ensure that the governance body (e.g. board of directors) has sufficient know-how in the area of climate-related risks;
– ESG strategy disclosure requirements would be expanded to include – besides the now required description of ESG risks and opportunities – the impact of such risks and opportunities on the business model of a listed issuer or on its cash flows and to include a breakdown of such risks and opportunities in the short-term, medium-term, and long-term;
– ESG strategy disclosure requirements would also be expanded to require the disclosure of any climate-related targets an issuer has set, including transition plans, and any green house gas emission targets it is required to meet by regulation;
– issuers would also have to disclose any changes to the targets or changes to the risk and opportunity assessments;
– issuers would also have to perform scenario analysis of climate-related risks and the impacts of such on their businesses;
– ESG risk management disclosures would be expanded to require the disclosure of „the process used by the company to identify, assess and prioritise climate-related risks (including the assessment of likelihood and effects associated with such risks, prioritisation of climate-related risks relative to other types of risks, use of risk assessment tools, etc.)“;
– issuers would also have to disclose the methods they apply to monitor climate-related risks;
– the current disclosure requirement concerning greenhouse gas emissions, including scope 1 and scope 2 greenhouse gas emissions, would be expanded to include scope 3 emissions;
– issuers would also have to disclose the amount and percentage of assets or business activities vulnerable to transition risks and how ESG considerations are factored in their remuneration policies of senior staff; and
– issuers would have to disclose the amount of „capital expenditure, financing, or investment deployed towards climate-related risks and opportunities“.
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As these are only the key proposed changes to the current disclosure requirements, please refer to the enclosed document for more detailed, comprehensive information.
For those seeking to respond to the consultation, the corresponding questionnaire to the consultation issued by HKEX may be accessed via this link.