Hong Kong Stock Exchange announces climate disclosure requirements for 2025

On April 19, the Stock Exchange of Hong Kong Limited announced the approval of climate-related disclosures under its environmental, social and governance framework. The new regulations require the disclosure of Scope 1 and Scope 2 greenhouse gas emissions from January 1, 2025.

There has been a global push to expand corporate financial reporting requirements beyond traditional financial data to include sustainability and other ESG issues. The push for ESG was driven by international organizations, fund managers and the market. The result has been a rush by companies to release ESG and sustainability reports. However, the proliferation of reports outpaced existing regulations, resulting in inconsistencies and potential legal pitfalls.

At COP26, the 2021 United Nations Climate Change Conference, the International Financial Reporting Standards Foundation announced the creation of the International Sustainability Standards Board. IFRS develops global accounting standards that are used in 168 jurisdictions, including Hong Kong.

The ISSB has been working for two years to establish sustainability disclosure standards. The IFRS Sustainability Standards were released in June 2023 and jurisdictions are currently working to amend and adopt them in accordance with their respective legal and regulatory requirements.

The IFRS Sustainability Standards are divided into two reporting levels, IFRS S1 and IFRS S2, both of which came into effect on January 1, 2024. IFRS S1 established sustainability disclosure requirements, while IFRS S2 set out specific climate-related disclosures to be used in conjunction with IFRS S1. . Both focus on a company’s governance, strategy, risk management, metrics and objectives as they relate to sustainability or climate.

Based on measurement data and objectives, IFRS S2 requires the reporting of greenhouse gas emissions. These reports are divided into three scopes. Scope 1 emissions are those that occur from sources under the company’s control. Scope 2 emissions are indirect emissions from the “generation of purchased or acquired electricity, steam, heating or cooling consumed by an entity.” Scope 3 emissions are divided into 15 categories, the most notable of which are ‘purchased goods and services’.

The Exchange, a wholly owned subsidiary of Hong Kong Exchanges and Clearing Limited, has announced that it will adopt new climate requirements after reviewing 115 responses to the proposal. The requirements are based on IFRS S2, with references to IFRS S1. Notably, the new requirements only include mandatory disclosure of Scope 1 and Scope 2 greenhouse gases from January 1, 2025.

Scope 3 disclosure divided by filing entity type. For LargeCap issuers, Scope 3 is optional until 2025, using a ‘comply or explain’ standard. Scope 3 will become mandatory from January 1, 2026. For issuers of the Main Board, this is optional under ‘comply or explain’. This is voluntary for GEM publishers.

The HKEX New Climate Requirements offer a different approach than other major jurisdictions. The EU’s European Sustainability Reporting Standards, also known as ESRS, require Scope 3 for all reporting entities. The U.S. Securities and Exchange Commission’s Climate-Related Disclosure Rule made Scope 3 optional, based on a materiality assessment. The SEC rule has since been delayed due to legal issues.