Hong Kong Stock Exchange (HKEx) is proposing to upgrade some of the recommended disclosures in the ESG Reporting Guide (the Guide) to “comply or explain”. In case you don’t have time to read the 58-page document, below are some of the major proposed amendments to the existing ESG Reporting Guide:
- Upgrading the General Disclosures under each of the Aspects to “comply or explain”
General Disclosures refer to company policies or information on the policies e.g. compliance with relevant laws and regulations that have a significant impact on the company. HKEx stated that disclosing this information is an essential first step for companies to take in order to begin incorporating ESG practices into their business operations. If any particular General Disclosure called upon by the Guide is not relevant, companies should explain this in their ESG report.
- Upgrading all 12 Environmental KPIs (from Emissions, Use of resources and The environment & natural resources) to “comply or explain”
- Including gender disclosure in the existing recommended disclosures
The Corporate Governance Code addresses diversity only at the board level. HKEx considers that it is appropriate to include gender disclosure in the Guide, as it will give companies the opportunity to provide a fuller picture of the diversity of their entire workforce.
HKEx also encourages companies to publish their ESG reports as close as possible to, and in any event no later than three months after, the publication of their annual reports.
The market consultation will be due on 18 September 2015. Subject to responses, HKEx intends to implement the new Guide for financial years commencing on or after 1 January 2016. Companies that have not commenced their ESG reporting would be required to publish their first ESG reports in 2017.
Without imposing an undue regulatory burden on listed companies, it is widely expected that HKEx will only upgrade certain recommended ESG disclosure to “comply or explain”. While still subject to market responses, we welcome the proposed upgrade that will certainly help enhance corporate transparency and strengthen governance in the long run.
The new Guideline, once in place, will drive first-time reporters to kick off their sustainability journey. Our stance is that if companies wish to publish their first ESG report in 2017, they are advised to start early for the preparation phase e.g. communicating to internal stakeholders, so that data collection can begin on time in January 2016.