What we do
As a corporate finance law firm, we advise on all aspects of company and securities law and regulation to both listed and non-listed companies. We are the trusted adviser at board level of a number of our listed company clients many of which we have advised since their initial listing.
We provide continuing on-going advice to companies listed on both the main board and GEM market of the Hong Kong Stock Exchange regarding compliance with their continuing obligations under the Listing Rules and relevant laws including disclosure obligations, insider dealing, disclosure of interests, share buy-backs and the Takeovers Code.
Charltons corporate finance law firm provides both initial and ongoing directors’ training to directors of listed companies as an informational tool for directors and in order to enable directors to comply with their Listing Rules requirements and as part of the Hong Kong Stock Exchange’s requirements for ongoing education for directors.
We also update our clients on changes and proposed changes to Hong Kong laws and regulations and Listing Rules which may affect them.
ESG Reporting for Companies Listing on the Hong Kong Stock Exchange
The Hong Kong Stock Exchange (the HKEX) published its Environmental, Social and Governance Reporting Guide (the ESG Guide) in August 2012 following a public consultation and the ESG Guide is now incorporated in the HKEX’s Listing Rules as Appendix 27 of the Main Board Listing Rules and Appendix 20 to the GEM Listing Rules.
The rationale for the introduction of the ESG Guide was to introduce ESG issues to HKEX listed companies, raise ESG awareness, encourage HKEX listed companies to start ESG reporting and bring ESG disclosure of HKEX listed companies closer to international practices.
The ESG regime for HKEX listed companies
HKEX Listing Rule 13.91 provides:
“The Environmental, Social and Governance (“ESG”) reporting guide in Appendix 27 comprises two levels of disclosure obligations: (a) mandatory disclosure requirements; and (b) “comply or explain” provisions.”
In addition, HKEX Listing Rule 13.92 requires that HKEX listed companies disclose in either their annual reports or in a separate ESG report in respect of each financial year, the following:
- the information required under the “Mandatory Disclosure Requirements” set out in Part B of the ESG Guide; and
- state whether the HKEX listed company has complied with the “comply or explain” provisions set out in Part C of the ESG Guide.
HKEX listed companies must publish their ESG reports on an annual basis and regarding the same period covered by their annual reports. An ESG report of a HKEX listed company may be presented as information in the HKEX listed company’s annual report or in a separate report. In addition, the ESG report, regardless of its format, must also be published on the HKEX’s website as well as the website of the HKEX listed company.
Hong Kong incorporated companies (Hong Kong companies) are also subject to ESG disclosure requirements under the Companies Ordinance (Cap. 622) (the “Companies Ordinance“). This requires Hong Kong companies to disclose certain ESG matters in a “Business Review” section of their Directors’ Report. Schedule 5 of the Companies Ordinance sets out the information that Hong Kong incorporated companies must disclose in their Business Review section of the Directors’ Report.
Part C of the ESG Guide contains the “comply or explain” provisions. A HKEX listed company must report on the “comply and explain” provisions of the ESG Guide. Where a HKEX listed company does not report on one or more of these provisions, it must provide reasons in its ESG report.
ESG disclosure can be included in the annual report for the same period covered by the annual report. Alternatively, issuers can include the information in a separate report which need not be issued at the same time. Where a separate ESG report is issued, the HKEX listed company must publish the ESG report as close as possible to, and no later than five months after, the end of the financial year. HKEX listed companies are encouraged to publish their ESG report at the same time as the publication of its annual report.
Preparing the ESG Guide
The board of directors of the HKEX listed company should be primarily responsible for the preparation of ESG reports, although the compilation of the report may be delegated to employees or a committee that reports to the board.
General steps in preparing an ESG report include establishing a working team, engaging stakeholders, conducting a materiality assessment, defining the desired reporting boundary, collecting data internally and externally and writing the ESG report.
Key ESG Subject Areas
The ESG Guide is organised into two ESG subject areas (Subject Areas) being (i) Environmental (Subject Area A) and (ii) Social (Subject Area B) while corporate governance is addressed separately in the HKEX Corporate Governance Code.
Each of the Subject Areas is further broken down into various aspects (Aspects). Each Aspect sets out general disclosures and key performance indicators (KPIs) for HKEX listed companies to report on in order to demonstrate how they have performed.
HKEX listed companies are required to follow four reporting principles in preparing their ESG report which are:
- materiality – the ESG report should disclose: (i) the process 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 HKEX listed company’s stakeholder engagement;
- quantitative – 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) should be disclosed;
- consistency – the HKEX listed company should disclose in the ESG report any changes to the methods or KPIs used, or any other relevant factors affecting a meaningful comparison; and
The HKEX listed company is required to disclose how they have applied principles (a) – (c) above, in the ESG report. The application of the ‘balance’ may be evident from the HKEX listed company’s ESG report itself.
Thee ESG Guide does not prescribe which entities in a HKEX listed company’s group and/or which operations should be included in the ESG report. The board of directors of the HKEX listed company should use its own criteria for determining the scope of the ESG report in respect of its business and circumstances. For example, HKEX listed companies may follow the scope used in its annual report, or apply a financial threshold (e.g. inclusion of the subsidiaries or operations contributing to a certain percentage of the HKEX listed company group’s total revenue or more) or risk level (e.g. inclusion of operations exceeding a certain risk level despite being a non-major business sector of the HKEX listed company’s group) in determining the scope of the ESG report. In some instances, a HKEX listed company may adopt different scopes for different Aspects/provisions.
Comply or explain Part C of the ESG Guide
Part C of the ESG Guide as explained contains the “comply or explain” provisions. Under the environmental Subject Areas, there are four Aspects:
- use of resources;
- the environment and natural resources; and
- climate change.
The Social Subject Area has eights Aspects, namely:
- employment and labour which includes, employment, health and safety, development and training, labour standards; and
- operating practices which includes supply chain management, product responsibility, anti-corruption and community investment.
This Part C of the ESG Guide sets out the general disclosures as well as the KPIs for each of the aforementioned Aspects. These general disclosures and the KPIs are “comply or explain” provisions for the HKEX listed company’s ESG report.
HKEX listed companies with the capability are also encouraged to go beyond the ESG Guide to adopt international reporting guidelines and make additional disclosures.
The HKEX has also published FAQs on ESG reporting which are available on its website at https://www.hkex.com.hk/Listing/Rules-and-Guidance/Environmental-Social-and-Governance/ESG-Reporting-Guide-and-FAQs?sc_lang=en