“EXCHANGE PUBLISHES ESG GUIDE CONSULTATION CONCLUSIONS AND ITS ESG DISCLOSURE REVIEW FINDINGS”, 18 December 2019

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX)… published conclusions to its consultation on the ‘Review of the Environmental, Social and Governance (ESG) Reporting Guide (ESG Guide) and Related Listing Rules’ (ESG Consultation Conclusions)… and the findings of its latest review of listed issuers’ ESG disclosures (ESG Disclosure Review)…

The Exchange received 153 responses from a broad range of respondents.  The feedback indicated strong support for the consultation proposals to enhance the ESG reporting framework.  The Exchange will implement the consultation proposals, with modifications, reflecting comments received.  The changes will be effective for financial years commencing on or after 1 July 2020.

Key changes to the ESG Guide and related Listing Rules include:

• Introducing mandatory disclosure requirements to include:
  • a board statement setting out the board’s consideration of ESG matters;
  • application of Reporting Principles “materiality”, “quantitative” and “consistency”; and
  • explanation of reporting boundaries of ESG reports;

• Requiring disclosure of significant climate-related issues which have impacted and may impact the issuer;

• Amending the “Environmental” key performance indicators (KPIs) to require disclosure of relevant targets;

• Upgrading the disclosure obligation of all “Social” KPIs to “comply or explain”; and

• Shortening the deadline for publication of ESG reports to within five months after the financial year-end.

Key findings and recommendations of the ESG Disclosure Review include:

• ... ESG reports from a majority of Sample Issuers contained little or no description of board involvement.It is important for boards to be meaningfully involved in assessing and addressing ESG-related risks.

• When an issuer is required to “comply or explain”, only 3 per cent of such provisions were “explained”. The high percentage of reports adopting the “comply” option may suggest that issuers have not properly determined what is material to them, or that the “explain” option is believed to be a less-preferable option. Issuers are reminded that if a “comply or explain” provision is immaterial to them, then an explanation to that effect may well be appropriate. “Explanation” is not a less preferred or secondary option...