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On 16 November 2018, the Stock Exchange of Hong Kong Limited (SEHK) published: (1) the findings of its latest review of listed companies' corporate governance; and (2) updated guidance materials on environmental, social and governance (ESG) reporting. The implications of these materials are twofold.

Firstly, SEHK reminds listed companies that the amendments to the Corporate Governance Code and related Listing Rules (CG Code amendments) will take effect on 1 January 2019. For a summary of the CG Code amendments, please see our client alert titled "CorporateGovernance Code will tighten INED's independence assessment criteria in2019".

Secondly, the updated ESG guidance materials address the increasing demand for ESG information disclosure. SEHK encourages listed companies to develop an ESG strategy to cope with such international trends and provide practical tools to enhance the preparation of ESG reports. Listed companies can follow those steps and procedures voluntarily, or develop their own procedures in view of their specific circumstances.

Implications

The following table has summarized the major implications of the relevant documents:

Document title Implications
1. Analysis of Corporate Governance Practice Disclosure in June and December Year-End 2017 and March Year- End 2018 Annual Reports (CG Report Review)

Regarding non-compliant mandatory disclosure requirements and recommended disclosures, SEHK reminds listed companies not to resort to sweeping statements or use "boiler-plate" language. Instead, listed companies should:

(1) Set out the circumstances that are unique to the company to explain such departure;
(2) Make clear and complete disclosures or provide reasons for any non-disclosures; and
(3) Use cross-referencing links to minimize repeated disclosures.

2. How to prepare an ESG report? A step-by-step guide to ESG reporting (ESG guideline)

SEHK proposes the following steps to prepare an ESG report: 

(1) Establish an ESG working group;
(2) Understand the ESG requirements and identify information gaps;
(3) Determine the geographical or business boundaries for reporting purpose;
(4) Assess stakeholder's engagement;
(5) Conduct internal and external materiality assessments; and
(6) Prepare the ESG report that includes the findings in the above steps.

3. How to prepare an ESG report? Appendix 1: Toolkit (ESG toolkit)

Use the ESG toolkit to determine:

(1) Stakeholder's dependence and influence on the listed company;
(2) Stakeholder group's identity and profile;
(3) Stakeholder engagement plan, action plan and contingency plan;
(4) Post stakeholder engagement action plan and timeline; and
(5) Materiality and relevance of the information for general disclosures and key performance indicators (KPI).

4. How to prepare an ESG report? Appendix 2: Reporting Guidance on Environmental KPIs (ESG KPI guideline) What to report? How to report? Use the methodologies and guidance to collect information and calculate the data called for under each of the KPIs in the environmental section of the ESG Report.
5. Frequently Asked Questions on ESG reporting (ESG FAQ) A listed company with operations in the PRC should consider the potential impact of the Environmental Protection Tax Law, which came into effect in China on 1 January 2018
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