In recent years, sustainability reporting has become a central pillar of corporate governance and accountability. This shift is particularly evident in Hong Kong, a leading international financial hub that has recognized the critical role of sustainability in building resilient and responsible businesses.
The latest developments in Hong Kong's sustainability reporting standards can boost efforts to enhance transparency and address the evolving expectations of stakeholders while being up-to-date with global standards. Recently, the Hong Kong Institute of Certified Public Accountants (HKICPA) released its new sustainability and climate-related reporting standards to further support Hong Kong’s reporting initiatives. In this new sustainability reporting standard, reporting companies will have to disclose sustainability and ESG-related matters in alignment with the IFRS Foundation’s International Sustainability Standards Board (ISSB) standards.
This new addition to reporting represents not only a regulatory requirement but also a strategic opportunity for businesses. Robust sustainability reporting can create long-term value through identifying and addressing sustainability- and climate-related risks and opportunities. Communicating sustainability initiatives and efforts can also enhance a company's reputation, attracting consumers and investors that value sustainability. As global demand for transparent and credible ESG information continues to grow, Hong Kong’s forward-looking approach ensures that its listed companies remain competitive on the international stage.
The Hong Kong Financial Reporting Standards Sustainability Disclosure Standards (HKFRS SDS) is an ISSB-aligned standard. The HKFRS SDS was issued last December 2024 and is set to be effective by August 2025. However, climate reporting in Hong Kong through the IFRS S2 Climate-related Disclosures is mandatory for all Main Board issuers starting January 2025. By aligning reporting standards in Hong Kong with the ISSB standards, companies can properly transition to new changes while maintaining competitiveness in an evolving sustainability landscape.
Following the Roadmap on Sustainability Disclosure in Hong Kong published last December 2024, reporting in Hong Kong observes a phased approach. As mentioned before, all Main Board issuers must report using the New Climate Requirements aligned with the IFRS S2 Climate-related Disclosures starting January 2025. This is done through a “comply or explain” basis. Afterwards, starting January 2026, large cap issuers are then required to disclose using the New Climate Requirements.
By 2027, the Hong Kong Exchanges and Clearing Limited (HKEX) will consult the market regarding mandating sustainability reporting for listed PAEs. This mandated sustainability reporting will use the HKFRS SDS and is expected to be effective as of January 2028 under a proportionate approach.
For financial institutions, financial regulators may require them to apply the HKFRS SDS by 2028.
The HKFRS SDS is a standard fully aligned with the IFRS S1 and S2. However, for future changes and additions to the current ISSB standards, HKICPA will still engage with stakeholders regarding the potential adoption of new standards in Hong Kong.
The ISSB standards were adopted into the HKFRS SDS in order to remain competitive and clearly display Hong Kong’s status as an international center for finance. Through the ISSB, they will be able to maintain and uphold today’s standards for sustainability reporting and properly communicate their sustainability performance to potential investors and relevant stakeholders.
The IFRS S1 standard, known as the General Requirements for Disclosure of Sustainability-related Financial Information, acts as a foundation for sustainability reporting, detailing key information on sustainability-related risks and opportunities, strategies, and performance. This is designed to meet the needs of investors and other capital market participants by providing clear, consistent, and comparable sustainability disclosures across industries and jurisdictions.
At its core, the IFRS S1 emphasizes the importance of materiality, requiring companies to identify and report on sustainability-related risks and opportunities that could affect their financial position, performance, or prospects. In addition, the IFRS S1 also emphasizes the need for integrated reporting, requiring companies to connect their sustainability disclosures with their broader financial statements. This ensures that sustainability information is not presented in isolation but is directly tied to the organization’s overall strategy and financial health.
Complementing IFRS S1, the IFRS S2 focuses on climate-related disclosures, reflecting the need for transparent reporting on climate-related risks and opportunities. IFRS S2 is also based on the Task Force on Climate-related Financial Disclosures (TCFD). This standard requires companies to disclose information on four key areas: governance, strategy, risk management, and metrics and targets related to climate change.
In addition, the IFRS S2 also includes a scenario analysis to help companies evaluate the potential impact of different climate-related scenarios, including those aligned with global temperature goals. Furthermore, the IFRS S2 includes reporting on Scopes 1, 2, and 3 emissions.
By integrating these disclosures with financial information, the standard provides a comprehensive view of how climate risks and opportunities are likely to affect an organization’s value creation over time.
Together, these standards empower companies to provide investors with the information they need to make informed decisions while fostering accountability and trust in the transition to a more sustainable global economy.
Looking to the future, Hong Kong’s sustainability reporting framework is likely to evolve further, with an increased focus on mandatory climate-related disclosures and a possible integration of natural capital considerations. For companies seeking to enhance their sustainability reporting strategies, advancements in technology and working with sustainability experts could improve data collection and analysis, making the process more efficient and reliable.
The latest sustainability reporting standards in Hong Kong reflect a robust and progressive framework designed to promote transparency, accountability, and alignment with global ESG benchmarks. By embracing these standards, companies in Hong Kong can not only comply with regulatory requirements but also position themselves as leaders in sustainability.
At Keslio, we are deeply passionate about sustainability reporting, having the expertise and extensive network needed to guide clients through their sustainability journey effectively and efficiently. Our expertise is particularly valuable for companies looking to embed sustainability practices into their businesses and investors looking to integrate ESG and impact into investment portfolios.
To learn more about how Keslio can assist your organization in its sustainability journey, reach out to us here or through hello@keslio.com
