Hong Kong Stock Exchange puts more emphasis on new applicants’ / listed companies’ disclosures on ESG matters and board gender diversity

The ESG Reporting Guide states that the board has overall responsibility for the issuer’s ESG strategy and reporting.

To mandate the disclosure of a statement from the board containing:

• a disclosure of the board’s oversight of ESG issues;

• the process used to identify, evaluate and manage material ESG-related issues (including risks to the issuer’s businesses); and

• how the board reviews progress made against ESG-related goals and targets.

The board statement should include information on the issuer’s current ESG management approach, strategy, priorities and goals/targets and an explanation of how they relate to the issuer’s businesses.

To mandate the disclosure of an explanation on how the issuer has applied the reporting principles in the preparation of the ESG report:

• on “materiality”, the issuer must disclose a description of significant stakeholders identified, the process and results of the issuer’s stakeholder engagement (if any), and the criteria for the selection of material ESG factors; and

• on “quantitative”, the issuer must disclose information on the standards, methodologies, assumptions and/or calculation tools used, and source of the conversion factors used for the reporting of emissions/energy consumption (where applicable).

(c) Reporting boundaries

Currently, an ESG report should state which entities in the issuer’s group and/or which operations have been included in the report, but issuers are not required to disclose the process in which entities or operations are chosen to be excluded from the ESG report.  Investors may potentially misunderstand an issuer’s overall ESG performance where poor-performing entities or operations are excluded from the ESG report without explanation.

To mandate the disclosure of an explanation of the ESG report’s reporting boundary, disclosing the process an issuer used to identify the specific entities or operations that are included in the ESG report.

(3) Requiring disclosure of significant climate-related issues

Currently, issuers are not required to disclose how climate change impacts them.

To introduce a new aspect under subject area “Environmental” (subject to “comply or explain”) requiring disclosure of the significant climate-related issues which have impacted, and those which may impact the issuer, and the actions taken to manage them. 

(4) Revising “Environmental” key performance indicators (KPIs)

Issuers are required to disclose “results achieved” from their initiatives to reduce emissions/waste, but not targets.

Issuers are required to disclose greenhouse gas emissions (GHG) in total and the intensity, but not emissions by scope types.

To require disclosure of a description of targets set regarding emissions, energy use and water efficiency, waste reduction, etc. and steps taken to achieve them. 

To require disclosure of Scope 1* and Scope 2* GHG emissions.

* Scopes of emissions are defined in accordance with the international reporting framework published by the World Resources Institute / World Business Council for Sustainable Development, as reported in The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard.

(5) Upgrading the disclosure obligation of “Social” KPIs

Currently, the Social KPIs of the ESG Reporting Guide are recommended disclosures (i.e. voluntary disclosures).

To upgrade the disclosure obligation of Social KPIs to “comply or explain”.

(6) Revising “Social” KPIs

(a) Employment types

Issuers are recommended to disclose total workforce by gender, employment type, age group and geographical region.

To clarify that “employment types” should include “full- and part-time” staff.

(b) Rate of fatalities

Issuers are recommended to disclose the number and rate of work-related fatalities for the reporting year.

To require disclosure of the number and rate of work-related fatalities occurred for each of the past three years including the reporting year.

(c) Supply chain management

Issuers are recommended to describe practices relating to engaging suppliers, number of suppliers where the practices are being implemented and how they are implemented and monitored.

To introduce new KPIs to require disclosure of the issuer’s:

• practices used to identify environmental and social risks along the supply chain; and

• practices used to promote environmentally preferable products and services when selecting suppliers,

and how they are implemented and monitored.

(d) Anti-corruption

There is currently no KPI requiring disclosure of anti-corruption training provided to directors and staff.

To introduce a new KPI requiring disclosure of anti-corruption training provided to directors and staff.

 (7) Encouraging independent assurance

The current ESG Reporting Guide provides that the issuer may consider obtaining assurance on its ESG report. However, there is no guidance on the information to be disclosed if assurance is obtained, or the benefits of obtaining assurance.

To state in the ESG Reporting Guide that the issuer may seek independent assurance to strengthen the credibility of ESG information disclosed; and where independent assurance is obtained, the issuer should describe the level, scope and processes adopted for assurance clearly in the ESG report.