HKEX's New Sustainability Reporting Requirements and Implementation Timeline

Hong Kong Exchanges and Clearing Limited (HKEX) published its consultation conclusions on the enhancement of climate-related disclosures under the Environmental, Social and Governance (ESG) reporting framework on 16 April 2025, mandating that all listed issuers report in alignment with the International Sustainability Standards Board (ISSB) IFRS S2 Climate-related Disclosures for financial years commencing on or after 1 January 2026. This regulatory shift, codified in amendments to Appendix C2 of the HKEX Listing Rules, represents the most significant expansion of mandatory reporting obligations since the introduction of the ESG reporting mandate in 2016, and it directly impacts the compliance calculus for every company currently pursuing or planning a listing on the Main Board or GEM. For issuers in the pipeline, the timeline is compressed: a company listing in the second half of 2025 with a December financial year-end will need to prepare its first ESG report under the current rules, but must simultaneously build the data infrastructure to meet the ISSB-aligned requirements for its 2026 annual report, creating a dual-compliance burden that sponsors and legal advisers must address in the prospectus disclosure strategy.

The Regulatory Architecture: From Voluntary Guidance to Mandatory ISSB Alignment

The Genesis of HKEX’s Climate Mandate

HKEX’s journey toward mandatory climate reporting began with its 2021 consultation on the Review of the ESG Framework, which introduced mandatory disclosure requirements for board-level governance of ESG matters and climate-related risks. The 2025 consultation conclusions, however, mark a definitive pivot from the Task Force on Climate-related Financial Disclosures (TCFD) framework to the ISSB’s IFRS S2 standard, reflecting the global consolidation of sustainability reporting standards under the International Financial Reporting Standards (IFRS) Foundation. The SFC endorsed this transition in its 2024-2026 strategic plan, signaling that Hong Kong would not maintain a parallel reporting regime.

The amended Listing Rules, effective for financial years beginning on or after 1 January 2026, require all issuers to disclose:

• Governance processes for managing climate-related risks and opportunities
• The actual and potential impacts of climate-related risks and opportunities on the issuer’s business, strategy, and financial planning
• The processes for identifying, assessing, and managing climate-related risks
• Metrics and targets used to measure and monitor climate-related risks and opportunities, including Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions

Scope 3 emissions disclosure, which covers indirect emissions across the value chain, is mandated on a “comply or explain” basis for the first two reporting years (FY2026 and FY2027), becoming fully mandatory from FY2028. This phased approach gives issuers 24 months to establish the necessary data collection systems, but for companies with complex supply chains—particularly those in manufacturing, retail, and logistics—the practical challenge of tracing emissions from Tier 1 through Tier N suppliers remains substantial.

The Safe Harbour Provisions and Liability Considerations

HKEX has introduced a safe harbour provision for forward-looking climate-related statements, mirroring the approach taken by the US Securities and Exchange Commission (SEC) in its 2024 climate disclosure rules. Under the amended Listing Rules, issuers will not be held liable for forward-looking statements that are based on reasonable assumptions and accompanied by appropriate qualifications, provided the issuer has disclosed the key assumptions and the inherent uncertainties. This provision is critical for IPO sponsors drafting risk factors in the prospectus, as climate scenario analysis—required under IFRS S2—necessarily involves projections that may not materialise.

The SFC’s enforcement approach, articulated in its 2025 Enforcement Priorities statement, indicates that the regulator will focus on material misstatements and omissions rather than on the accuracy of forward-looking projections. However, issuers must ensure that their climate-related disclosures are consistent with the information provided in the prospectus, particularly in the “Business” and “Risk Factors” sections. A mismatch between the ESG report’s climate narrative and the prospectus’s description of operational risks could trigger SFC inquiries under the Securities and Futures Ordinance (Cap. 571), Section 277, which addresses false or misleading statements in listing documents.

Implementation Timeline and Phased Compliance for Listed and Listing Candidates

The 2025-2026 Transition Period for Existing Issuers

For issuers with a December 31 financial year-end, the reporting calendar is as follows:

• FY2025 (reporting in 2026): Comply with the current ESG reporting requirements under Appendix C2, which include mandatory disclosure of board governance, reporting boundaries, and climate-related risks on a “comply or explain” basis.
• FY2026 (reporting in 2027): Full compliance with the ISSB-aligned requirements, including Scope 1 and Scope 2 GHG emissions disclosure, with Scope 3 on a “comply or explain” basis.
• FY2027 (reporting in 2028): Scope 3 remains on “comply or explain.”
• FY2028 onwards: Scope 3 becomes fully mandatory.

Issuers with non-December year-ends face a staggered timeline. A company with a March 31 year-end, for example, will begin reporting under the new rules for FY2026 (ending 31 March 2027), with its first full ISSB-aligned ESG report due by 31 July 2027. This creates a 12-month window from the effective date (1 January 2026) to the reporting deadline, which may be insufficient for issuers that have not yet initiated climate data collection.

The Impact on IPO Candidates and Reverse Takeovers

For companies preparing for a listing on the Main Board or GEM in 2025 or 2026, the new requirements impose a pre-listing compliance burden that must be factored into the timeline. Under the current Listing Rules, an IPO applicant must include in its prospectus a statement on its ESG approach and compliance with the ESG reporting rules for the three most recent financial years. With the new rules taking effect for FY2026, a company listing in Q1 2026 with a December 31 year-end will need to:

• Include in its prospectus ESG disclosures for FY2023, FY2024, and FY2025 under the current rules.
• Commit in the prospectus to comply with the new ISSB-aligned rules for FY2026, which will be the first reporting period after listing.

The sponsor and legal team must therefore draft the prospectus’s ESG section to address both the historical compliance record and the forward-looking commitment to the new regime. This dual disclosure requirement increases the prospectus length by an estimated 8-12 pages, based on HKEX’s own impact assessment published alongside the consultation conclusions. For reverse takeovers (RTOs) under Rule 14.06B, the listed issuer must ensure that its ESG reporting framework is upgraded to ISSB standards within the same timeline, and that any material climate risks identified during the due diligence process are disclosed in the circular.

The Data Infrastructure Mandate: GHG Accounting, Scenario Analysis, and Assurance

Scope 1, 2, and 3 Emissions: Measurement and Verification

The most operationally demanding requirement is the mandatory disclosure of GHG emissions. Scope 1 (direct emissions from owned or controlled sources) and Scope 2 (indirect emissions from purchased energy) are relatively straightforward for most issuers, as they can be calculated using established methodologies such as the GHG Protocol Corporate Standard. However, Scope 3 emissions—which include 15 categories ranging from purchased goods and services to investments and franchises—require engagement with suppliers, customers, and other value chain partners.

HKEX’s implementation guidance, published in May 2025, recommends that issuers begin Scope 3 data collection in FY2025, even though the disclosure is not mandatory until FY2026 on a “comply or explain” basis. The guidance specifically references the Partnership for Carbon Accounting Financials (PCAF) standard for financial institutions, which is relevant for the 40% of Main Board issuers classified under the financials sector. For these issuers, Scope 3 Category 15 (investments) represents the largest emissions source, and the PCAF methodology requires data on portfolio companies’ emissions, which may not be readily available.

Climate Scenario Analysis and Financial Impact Quantification

IFRS S2 requires issuers to use climate-related scenario analysis to assess the resilience of their strategy and business model to climate-related risks and opportunities. This analysis must cover both a physical risk scenario (e.g., a 2°C or 4°C warming pathway) and a transition risk scenario (e.g., a net-zero 2050 pathway). The scenarios must be disclosed in the ESG report, including the key assumptions, time horizons, and the resulting financial impacts.

For issuers in climate-exposed sectors—such as property development, transportation, energy, and agriculture—the financial impact quantification is the most contentious aspect. The amended Listing Rules require disclosure of the “actual and potential financial effects” of climate-related risks, which may include impairment of assets, changes in valuation of investment properties, increased insurance premiums, and revenue loss from disrupted operations. The HKEX guidance notes that issuers may use qualitative descriptions for the first reporting year (FY2026) if quantitative data is not available, but must provide a clear explanation of why quantification is not possible and a timeline for when it will be provided.

Assurance Requirements: From Voluntary to Mandatory

The consultation conclusions introduce a phased assurance mandate for GHG emissions data. For FY2026, issuers must obtain limited assurance (review-level engagement) on Scope 1 and Scope 2 emissions. For FY2028, the assurance requirement expands to Scope 3 emissions. By FY2030, HKEX plans to mandate reasonable assurance (audit-level engagement) for all GHG emissions disclosures, aligning with the International Auditing and Assurance Standards Board (IAASB) ISSA 5000 standard.

This timeline creates a significant capacity constraint for the Hong Kong assurance market. As of June 2025, only 12 accounting firms in Hong Kong are accredited to provide ISSA 5000-compliant assurance, according to the Hong Kong Institute of Certified Public Accountants (HKICPA). The SFC and HKEX have jointly launched a capacity-building initiative, but issuers are advised to engage assurance providers at least 12 months before the first mandatory assurance deadline.

Cross-Border Implications and Jurisdictional Overlap

The VIE Structure and PRC Reporting Requirements

For issuers using Variable Interest Entity (VIE) structures—predominantly PRC-based companies listing in Hong Kong—the new climate reporting requirements intersect with the PRC’s own sustainability disclosure regime. The Ministry of Finance (MoF) and the China Securities Regulatory Commission (CSRC) jointly published the “Guidelines for Corporate Sustainability Disclosure” in April 2024, which mandate ISSB-aligned reporting for listed companies on the Shanghai, Shenzhen, and Beijing stock exchanges, with a phased timeline starting in 2026.

The overlap creates a dual-reporting burden for VIE issuers: they must comply with both HKEX’s Listing Rules and the PRC guidelines. However, the two regimes are not identical. The PRC guidelines require disclosure of “social contribution” metrics, including rural revitalisation and poverty alleviation expenditures, which are not required under IFRS S2. Conversely, HKEX’s Scope 3 emissions mandate is more stringent than the PRC’s current requirements, which only recommend Scope 3 disclosure on a voluntary basis.

Sponsors and legal advisers must therefore advise VIE issuers on which regime takes precedence in the event of a conflict. The HKEX consultation conclusions explicitly state that issuers may use the PRC guidelines as an alternative reporting framework if they are “equivalent to or more stringent than” the HKEX requirements, but the issuer must provide a reconciliation statement explaining any material differences. This equivalence assessment will require detailed legal analysis and may delay the prospectus approval process.

The US SEC and EU CSRD Interface

Hong Kong-listed issuers with a dual listing on the New York Stock Exchange (NYSE) or Nasdaq, or with significant operations in the European Union, face an additional layer of complexity. The SEC’s climate disclosure rules, which took effect in March 2024 for FY2025, require Scope 1 and Scope 2 emissions disclosure with limited assurance, but the SEC has stayed the Scope 3 requirement pending judicial review. The EU’s Corporate Sustainability Reporting Directive (CSRD), effective from FY2024 for large public-interest entities, requires double materiality assessment—covering both financial materiality and impact materiality—which is a different concept from the single materiality approach under IFRS S2.

For a Hong Kong-listed company that is also an EU-domiciled entity or has an EU-listed parent, the CSRD’s double materiality requirement will necessitate a separate reporting process. The HKEX guidance acknowledges this overlap and permits issuers to use CSRD-compliant data to satisfy the IFRS S2 requirements, provided the issuer discloses which framework was used and explains any material differences in the reported information.

Actionable Takeaways for Issuers and Listing Candidates

1. Start Scope 3 data collection in Q3 2025 — even though disclosure is on a “comply or explain” basis for FY2026, the 24-month runway to FY2028 is insufficient for issuers with complex supply chains, and early data collection reduces the risk of a “comply or explain” disclosure that may be viewed negatively by institutional investors.

2. Engage an ISSA 5000-accredited assurance provider by Q1 2026 — the limited assurance mandate for Scope 1 and Scope 2 emissions in FY2026 requires a provider that is accredited before the reporting period begins, and the current market capacity of 12 firms means early booking is essential.

3. Draft the prospectus ESG section to address both the current and new regimes — for IPO candidates with a FY2026 reporting period, the prospectus must include a forward-looking statement on ISSB compliance, and the sponsor should prepare a reconciliation table between the current Appendix C2 requirements and the new IFRS S2-aligned rules.

4. Conduct a climate scenario analysis in FY2025 as a dry run — the qualitative disclosure option for FY2026 is available only if the issuer can demonstrate a good-faith effort to quantify, and a dry run in FY2025 allows the issuer to identify data gaps and refine assumptions before the mandatory reporting year.

5. Assess jurisdictional equivalence for VIE and dual-listed issuers — the HKEX’s equivalence provision allows use of the PRC guidelines or CSRD as alternative frameworks, but the reconciliation statement requires a detailed legal and accounting analysis that should be completed before the prospectus is filed.