Interpreting HKEX’s ESG reporting disclosure requirements

16 December 2023
Global regulators, capital markets and stakeholders have started scrutinising and evaluating the corporate sustainability and social contribution of listed companies. Considerations have shifted from solely focusing on traditional financial indicators to the inclusion of environmental, social and corporate governance (ESG) factors for a more comprehensive evaluation of performance.

By applying ESG framework thinking, listed companies can systematically identify and analyse various risks. By reviewing corporate strategy, management and operations from a higher level, companies can ensure business resilience and sustainable growth. Publishing an ESG report is an opportunity to demonstrate to shareholders, capital markets and stakeholders the company’s commitment to sustainable business development, risk management, and seizing opportunities. It is an effective way to enhance corporate influence and build mutual trust.

ESG disclosure obligations for listed companies are rapidly increasing around the world, and the Hong Kong Stock Exchange (HKEX) is no exception. The ESG reporting requirements for Main Board listed companies are indicated in the “Main Board Listing Rules” (Chapter 13 of "Environment and Social Matters"; Appendix 27 "Environmental, Social and Governance Reporting Guide"). ESG reports must be published at the same time as annual reports, i.e. within four months after the end of the relevant financial year. (Listed companies on GEM are also required to publish ESG reports in tandem with their annual reports, i.e., within three months after the end of the relevant financial year).

ESG reporting guidelines

The ESG reporting guidelines comprise two levels of disclosure obligations: (A) mandatory disclosure requirements; and (B) “comply or explain” provisions.

(A) Mandatory disclosure requirements

  1. Board governance structure

A statement from the board must contain:  

  • Disclosure of the board’s oversight of ESG issues;
  • The board’s ESG management policies and strategy, including the process used to evaluate, prioritise and manage material ESG-related issues (including risks to the issuer’s businesses); and 
  • How the board tracks progress made against ESG-related goals and targets with an explanation of how they relate to the issuer’s business.

2. Reporting principles

Describe how the reporting principles have been applied in preparation of the report:

  • Materiality: The ESG report should disclose: (i) the process used to identify and the criteria for the selection of material ESG factors; (ii) if a stakeholder engagement is conducted, a description of significant stakeholders identified, and the process and results of the issuer’s stakeholder engagement.
  • Quantitative: Issuers should disclose information on the standards, methodologies, assumptions and/or calculation tools used, and source of conversion factors used, for the reporting of emissions/energy consumption (where applicable).
  • Consistency: Issuers should disclose any changes to the methods or KPIs used, or any other relevant factors affecting a meaningful comparison.

3. Reporting scope

Explain the reporting scope of the ESG report and describe the process used to identify which entities or operations are included in the ESG report. Should there be a change in scope, the issuer should explain the difference and reason for the change. 

(B) “Comply or explain” provisions

1. Disclosure areas and aspects

Environmental aspects include emissions, use of resources, the environment, natural resources and climate change aspects.

Social aspects include employment and labour practices, operating procedures and community:

  • Employment and labour practices include four aspects: employment, health & safety, development & training, and labour standards.
  • Operating practices include three aspects: supply chain management, product responsibility and anti-corruption.
  • Community refers to the level of community investment.

2. General disclosure information

  • Policies
  • Compliance with relevant laws and regulations that have a significant impact on the issuer
  • Key performance indicators (KPIs)

3. Definition of KPIs

Under each disclosure level, relevant KPIs to be disclosed are set up. Taking emission levels as an example, the following performance indicators must be disclosed:

  • Types of emissions and respective emissions data.
  • Direct (Scope 1) and energy indirect (Scope 2) greenhouse gas (GHG) emissions and intensity 
    (Direct GHG emissions are emissions from sources owned or controlled by the company; indirect GHG emissions are emissions that result from the company's activities but occur from sources owned or controlled by other companies. Source: "Greenhouse Gas Protocol”) 
  • Total hazardous waste produced and intensity. 
  • Total non-hazardous waste produced and intensity. 
  • Description of emissions targets set, and steps to be taken to achieve them. 

Description of how hazardous and non-hazardous wastes are handled, and a description of reduction targets set, and steps to be taken to achieve them.

4. What are “comply or explain” provisions?

If the issuer does not disclose a "comply or explain" provision, it must provide a carefully considered reason for not doing so. Failure to comply without explanation would be considered a breach of the Listing Rules. The issuer must provide reasons for non-disclosure, such as immateriality, confidentiality restrictions, specific legal prohibitions, and unavailability of relevant information. The explanation is not a second-best option.

This is a revised version of an article that was originally published on September 21, 2022.