Sustainable disclosure requirements and taxonomy
A mix of mandatory and comply or explain disclosure requirements exists in Hong Kong.
The HKEX's ESG reporting guide (within the listing rules) contains two disclosure obligations for both listed companies on the Main Board and on the Growth Enterprise Market. First, there are mandatory board governance disclosure requirements, such as disclosure of the board's oversight of ESG issues, the board's ESG management approach and how progress is made against ESG-related goals with an explanation of how they relate to the issuer's business. Secondly, the comply or explain requirements relate to key performance indicators across 12 areas of environmental and social issues ranging from emissions to supply chain management.29
The SFC's FMCC was amended in 2022 to require fund managers of collective investment schemes to take climate-related risks into consideration in their investment and risk management processes and make the appropriate disclosures such as ensuring board and management-level oversight of climate-related issues; identifying climate-related risks relevant to their investment strategies; considering climate-related risks in risk management procedures; and publicly disclosing how they manage climate-related risks. At a minimum, annual disclosures should be made regarding climate-related governance, risk management and investment management.30
The HKMA's Supervisory Policy Manual GS-1 on Climate Risk Management requires financial institutions to incorporate climate risk considerations into their strategic frameworks. The manual requires banks to make climate-related disclosures aligned with the TCFD recommendations as soon as reasonably practicable and no later than mid-2023.31
With regard to investment products, the SFC issued guidance on 29 June 2021 on the disclosure standards of ESG funds through a circular to management companies of SFC-authorised unit trusts and mutual funds involving ESG factors. It requires a fund's offering documents to provide information necessary for investors to make an informed judgment about the investment. This includes the fund's ESG focus, ESG investment strategy, expected proportion of ESG investment (in terms of net asset value), any reference benchmark and related risks.32 The guidelines require ESG fund managers to conduct periodic assessments of the attainment of their ESG focus and to disclose the results through effective means such as annual reports.
With regards to the MPFA, the MPFA Principles require MPF trustees to disclose ESG integration strategies and report implementation progress regularly and disclose metrics; describe how ESG factors are factored into the relevant investment strategies; and disclose metrics and targets adopted by investment managers where possible.
Hong Kong has committed to align itself with TCFD recommendations by 2025.33 The Cross-Agency Steering Group has announced plans for mandatory TCFD-aligned climate-related disclosures by 2025.
The SFC, HKEX and HKMA regularly refer to TCFD recommendations in their guidance materials. In November 2021, the HKEX published the Reporting on TCFD Recommendations: Guidance on Climate Disclosures. This guidance provides practical advice to assist listed companies in complying with TCFD-aligned reporting requirements.34
Hong Kong regulators may soon require companies to follow the global baseline for sustainability reporting, expected to be finalised by the International Sustainability Standards Board (ISSB) by early 2023. The SFC and the HKEX are evaluating the implementation of the ISSB standards for Hong Kong listed companies. An SFC–HKEX joint working group is further looking into the challenges faced by listed companies and their readiness to report under the ISSB's proposed disclosure requirements.35
Hong Kong does not have a local green finance taxonomy. Local issuers and underwriters mostly rely on international standards and taxonomies. Following the publication of the updated Common Ground Taxonomy (CGT) report by the International Platform on Sustainable Finance, the Cross-Agency Steering Group will work towards proposing the structure and core elements of the local green classification framework for consultation.36