Adoption of ISSB climate disclosure requirements vital to Hong Kong’s role as financial centre
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Aligning international best practice in sustainability reporting will boost Hong Kong’s competitiveness - PwC
Hong Kong, 6 May 2024 – PwC, in its role as technical consultant to Hong Kong Exchanges and Clearing Limited (HKEX) in the preparation of its implementation guidance1, has held a seminar to discuss HKEX’s ESG reporting framework. The event, attended by over 200 market professionals in Hong Kong, was an opportunity for policymakers to provide updates and further details on the framework.
Those present – including leading asset owners, asset managers and listed companies and industry associations – welcomed plans by HKEX to be one of the first exchanges in the world to implement new requirements for climate-related disclosures set out by the International Sustainability Standards Board (ISSB). The production of high-quality disclosures that are easily comparable with those of other companies worldwide and that align with international standards will be a boost for Hong Kong businesses seeking to tap into global capital markets, according to PwC.
The introduction of the new requirements will be phased: “comply or explain” for all Main Board listed companies from 2025, then mandatory for large cap issuers from 2026. The new requirements will be voluntary for GEM listed companies, except scope 1 and scope 2 greenhouse gas emissions will be mandatory for all Main Board and GEM listed companies from 2025. There will also be a system of ‘reliefs’ to reflect the fact that some companies will have less developed disclosure capabilities than others.
“The adoption of ISSB disclosures has been a strong ask from investors and corporate customers worldwide,” says Sammie Leung, Partner, Regional ESG Services, PwC Asia-Pacific. “With the market gaining in maturity in terms of ESG disclosures over the last few years, some businesses are enjoying the benefits created from sound disclosure practices, such as additional business opportunities and lower cost of capital.”
The ISSB was established by the International Financial Reporting Standards (IFRS) Foundation in 2021. Last year it published two sets of requirements on sustainability and climate-related disclosures (IFRS S1 and S2), which are collectively known as the ISSB Standards. The International Organisation of Securities Commissions (IOSCO) has endorsed the standards as an appropriate global framework for capital markets. Following extensive consultation, HKEX will implement the standards in phases from 1 January, 2025.
ESG disclosures are of fundamental importance to the asset management sector. The international investor community has been longing for a push to improve the availability and quality of climate-related data, particularly in emerging markets such as Asia Pacific. This region is also playing a critical role in energy transition. HKEX’s timely move to align with IFRS S2 helps cement Hong Kong’s position as an international financial centre, by channelling international capital to our region and unlocking opportunities in the sustainable investment space. To ensure this outcome, seminar participants agree that Hong Kong should seek to develop a sustainability disclosure ecosystem, providing guidance and training to industry participants.
Comments from speakers at the seminar:
Christine Kung, Senior Director, Head of International Affairs and Sustainable Finance, Securities and Futures Commission
“Sustainability-related disclosures are the bedrock of many financial activities. Clear, comparable and quality disclosures in these areas will meet investors’ needs and unlock financing and investment opportunities. Alignment with international sustainability reporting standards is crucial for Hong Kong as an international financial centre.”
Kelly Lee, Senior Vice President, Policy and Secretariat Services, Listing Division, Hong Kong Exchanges and Clearing Limited
“The principle of ‘reasonably available information’ is key to climate reporting. In line with the ISSB, we have provided various relief measures under HKEX’s new climate requirements. One of these measures is capability relief, which recognises that different listed companies are at different stages in terms of skills and capabilities. However, companies are still expected to enhance their capabilities over time.”
Liza Jansen, Head of Responsible Investment, Prudential
“ISSB is going to create higher transparency on climate disclosures and, very importantly, making forward-looking information available. How companies are making efforts in climate resilience and energy transition are very important information for investors.”
Emily Woodland, APAC Head of Sustainable and Transition Solutions, BlackRock
“Better data creates more opportunities – particularly for small and medium cap companies. Voluntary disclosures currently often lead to a favouring of large cap companies in sustainable investment strategies. ISSB-aligned reporting should help provide investors with better visibility and lead to a more level playing field.”
Johnny Yu, Head of Sustainability, Henderson Land
“Disclosures in areas such as scenario analysis and Scope 3 emissions may be challenging. Sometimes we need to make estimates and involve our partners or clients. But efforts put into such areas will allow us to explore opportunities for risk mitigation, cost reduction and even competitive advantages.”
Jessica Chan, Head of Sustainability, MTR Corporation
“Progress takes time, but taking an early step in engaging your suppliers and providing capacity building support can be helpful in advancing your Scope 3 emissions and achieving carbon neutrality goals.”
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