The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), has decided to strengthen the Environmental, Social and Governance Reporting Guide (the ESG Guide or Guide)1 in its Listing Rules (Rules) after its consultation on proposed changes to upgrade the disclosure obligation of the ESG Guide met with strong support from a broad range of respondents.
"We are encouraged by the overwhelming support for our proposals to strengthen issuers' environmental, social and governance disclosure obligations," said David Graham, HKEx's Chief Regulatory Officer and Head of Listing. "Issuers starting to report on their ESG performance may reap the benefits of better risk management, improved access to capital, greater capacity to meet supply chain demands and lower operational costs, to name but a few of the advantages that ESG reporting could bring to issuers' businesses."
In summary, the main changes to the Guide and related Rules include:
- amending the Rules to require issuers to state in their annual reports or ESG reports whether they have complied with the "comply or explain" provisions set out in the ESG Guide for the relevant financial year; and if they have not, to give considered reasons in their ESG reports;
- revising the introductory section of the Guide to provide more guidance on reporting and to bring it more in line with international standards;
- re-arranging the Guide into two Subject Areas: A. Environmental and B. Social;
- upgrading the General Disclosures under each Aspect of the Guide to "comply or explain";
- revising the wording of the General Disclosures (where relevant) to be consistent with the directors’ report requirements under the Companies Ordinance (Cap. 622 of the Laws of Hong Kong)2;
- upgrading the Key Performance Indicators, or KPIs, in the "Environmental" Subject Area to "comply or explain"; and
- revising the wording of the voluntary provisions of the Guide (ie, the recommended disclosures) to bring it more in line with international standards of ESG reporting by incorporating disclosure of gender diversity.
The amendments to the Guide and related Rules will come into effect in two phases:
- the Rule amendments and the upgrade of the General Disclosures in the Guide from recommended to "comply or explain", as well as the revised recommended disclosures, will be effective for issuers' financial years commencing on or after 1 January 2016. So, for issuers with a financial year commencing 1 January, these amendments will first affect their financial year ending on 31 December 2016; and
- the upgrade of the KPIs in the "Environmental" Subject Area of the Guide from recommended to "comply or explain" will be effective for issuers' financial years commencing on or after 1 January 2017. So, for issuers with a financial year commencing 1 January, this amendment will first affect their financial year ending on 31 December 2017.
Consultation paper and consultation conclusions
The Exchange published a consultation paper in July 2015 to seek comments on proposed amendments to the ESG Guide and related Rules. The Exchange received a total of 203 submissions from a broad range of respondents. The Exchange published its consultation conclusions today (Monday).
Further details are available in the consultation conclusions.
Frequently Asked Questions are available under the "Rules & Regulations – Rules and Guidance on Listing Matters – The Rules, Interpretation and Guidance – Frequently Asked Questions" section of the HKEx website.
||The ESG Guide is set out in Appendix 27 to the Main Board Listing Rules (Appendix 20 to the Listing Rules for the Growth Enterprise Market, or GEM).
||The directors' report requirements in the Companies Ordinance (Cap. 622 of the Laws of Hong Kong) will be incorporated in the Rules for financial years ending on or after 31 December 2015.