The Stock Exchange of Hong Kong Limited recently announced the adoption of new climate-related disclosure requirements under their environmental, social, and governance framework. Starting on January 1, 2025, companies will be required to disclose their Scope 1 and Scope 2 greenhouse gas emissions. This move is part of a global trend towards expanding financial reporting requirements to include sustainability and ESG issues.
The push for ESG reporting was driven by international organizations, fund managers, and market demands, leading to a surge in ESG and sustainability reports from corporations. However, this rapid growth in reporting outpaced existing regulatory frameworks, resulting in inconsistencies and potential legal challenges. In response to these concerns, the International Financial Reporting Standards Foundation announced the creation of the International Sustainability Standards Board at COP26 in 2021.
Over the past two years, the ISSB has been working on drafting sustainability disclosure standards, culminating in the release of the IFRS Sustainability Standards in June 2023. These standards are currently being amended and adopted by jurisdictions around the world to ensure compliance with legal and regulatory requirements. The IFRS Sustainability Standards are divided into two reporting tiers, IFRS S1 and IFRS S2, both of which came into effect on January 1, 2024.
IFRS S1 focuses on establishing sustainability disclosure requirements, while IFRS S2 sets out specific climate-related disclosures to be used in conjunction with IFRS S1. These disclosures cover a company’s governance, strategy, risk management, and metrics and targets related to sustainability or climate issues. One key requirement under IFRS S2 is the reporting of GHG emissions, which are divided into three scopes: Scope 1, Scope 2, and Scope 3.
Following a review of 115 responses on the proposal, the Stock Exchange of Hong Kong Limited has decided to adopt the New Climate Requirements, which are based on IFRS S2 with references to IFRS S1. Starting on January 1, 2025, companies will be required to disclose their Scope 1 and Scope 2 GHG emissions. The disclosure of Scope 3 emissions will vary depending on the type of filing entity, with LargeCap Issuers having an optional “comply or explain” standard in 2025 and mandatory disclosure starting on January 1, 2026.
The HKEX New Climate Requirements take a different approach compared to other major jurisdictions. For example, the European Sustainability Reporting Standards in the EU require Scope 3 disclosures for all reporting entities, while the U.S. SEC’s Climate-Related Disclosure Rule made Scope 3 optional based on a materiality assessment. However, the SEC rule has been delayed due to legal challenges. The move by the Stock Exchange of Hong Kong Limited reflects a growing trend towards enhanced climate-related disclosures and aligning with global standards for sustainable reporting.
