Climate and sustainability: Hong Kong bourse says one-size-fits-all approach not desirable when it comes to disclosure standards

It would be irresponsible to force firms to prepare disclosures that they don’t have bandwidth for, HKEX executive says
Impact of ESG often hard to translate into financial figures, CLP Holdings executive tells conference

Business of climate change

Eric Ng

Published: 7:01pm, 6 Oct 2022

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Hong Kong’s bourse will take into account smaller firms’ capacities when deciding on how it will require listed companies to meet more onerous international disclosure requirements, an exchange official said at the ReThink HK conference on Thursday.

The International Sustainability Standards Board (ISSB), created last November during the global climate talks in Glasgow, published a set of proposed global baseline standards for the disclosure of climate-related risks and opportunities, and another set for other sustainability issues. It aims to consolidate various standards launched by different organisations over the years, to enhance comparability of corporate performance and to give businesses a more effective push to meet global climate and sustainability goals.

In March, ISSB launched an international consultation, which closed in late July. It aims to issue by year-end disclosure standards that are expected to be adopted by securities regulators globally.

Hong Kong Exchanges and Clearing (HKEX), the local bourse operator, is of the view that a one-size-fits-all approach is not desirable, said Katherine Ng, head of policy and secretariat services at HKEX’s listing division.

“There is no doubt the ISSB standards are coming and they will be adopted internationally,” Ng said. “It is a matter of when, and it is not a matter of … [just] partially adopting it.”

The bourse operator canvassed more than 50 large and small listed companies operating in different locations and industries, on what they needed in terms of capacity building to meet the proposed ISSB requirements, before reaching its conclusions, she said.

“As a regulator, it would be irresponsible for us to force companies to prepare disclosures that they don’t have the bandwidth or support to do,” Ng said. “Not all companies are blue-chips. We need to cater for the range of companies, range of scenarios and different industries.”

Ng was referring to the so-called Scope 3 greenhouse gas emissions. These are emitted by a company’s suppliers and customers, which are much harder to trace, report and audit. Scope 3 emissions reporting will be required under the proposed ISSB standards.

All of the around 2,500 Hong Kong-listed companies are already required to publish annual sustainability reports on their environment, social and corporate governance (ESG) performance, alongside mandatory periodic financial reports.

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In 2020, HKEX included core elements of the internationally-adopted Task Force on Climate-Related Financial Disclosures (TCFD) reporting framework as part of mandatory requirements in Hong Kong. These include Scope 1 and 2 emissions, which are generated directly by companies’ own facilities, or indirectly through externally bought energy, respectively.

More than 90 per cent of Hong Kong-listed firms have been reporting their Scope 1 and 2 emissions, Ng added.

The proposed ISSB standards, which adopt core elements of the TCFD framework, also require scenario analysis and reporting of the estimated financial impact on companies from climate change, besides plans and strategies for transitioning to low-carbon business models.

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Such forward-looking analysis is hard to standardise, because several models can be used and they give different financial outcomes, said Pat Woo, head of ESG Hong Kong at audit and accounting firm KPMG China.

The impact of ESG is often hard to translate into financial figures, said Hendrik Rosenthal, group sustainability director of blue-chip power utility CLP Holdings, which has incorporated core elements of ISSB’s requirements in its latest ESG report.

“[We are] looking to the accountants to provide us with guidance – how to put the financial statements side by side with ESG risks and opportunities,” he said. “Are we really going to put dollar figures [on them] and convey that to the market? There is a big question mark [for all listed firms].”

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