Asia Pacific markets strengthen their climate-related disclosure expectations and requirements
Only a quarter of Hong Kong-listed companies have made any disclosure of their Scope 3 greenhouse-gas emissions, as per findings of recent research by PwC. This means that listed companies are under-prepared for the upcoming plans by Hong Kong Stock Exchange (HKEX) to introduce an updated set of climate and sustainability rules adopting a tougher and more internationally aligned approach.
HKEX has continually nudged listed companies over the last few years, however, low uptake of previously released guidelines has resulted in many finding themselves surprised by the coming change and in need of strategy and programs review.
The situation Hong Kong listed companies find themselves in is not unique. Leading stock exchanges around Asia have been updating their expectations to strive for greater sustainability and climate-related disclosure in the region. Singapore, Malaysia, Australia and New Zealand stock exchanges all plan to update their requirements. These changes are driven by an increased demand for transparency from investors, increased international sentiment and more ambitious Nationally Disclosed Contributions. The majority of these exchanges are considering a requirement to report against the IFRS S1 and S2 reporting standards and they all plan on a phased approach to adoption, with some requirements already in force.
Hong Kong – HKEX expectations, according to the HKEX consultation paper released in April 2023, are to disclose on an annual basis:
- GHG Emissions covering Scopes 1, 2, and Scope 3 with respect to supply chain and customers
- Any climate-related targets already in place
- Adaptation and mitigation efforts in place
- Resilience of business models to climate change impacts, including financial impacts (performance and cash flows)
Singapore – Sustainability Reporting Advisory Council (SRAC) is recommending all listed issuers to report climate-related disclosures (CRDs) in FY2025 with large non-listed companies (annual revenue of ≥ $1B) starting FY2027.
- Companies in three sectors are already required to report CRDs and by FY2024 CRD will be made mandatory for companies in two other sectors.
- Listed companies are encouraged to obtained external assurance on Scope 1 and 2 GHG emissions by ACRA-registered third-parties.
Malaysia – Bursa Malaysia mainboard companies, from 31 December onwards, must:
- Produce an annual sustainability report that covers 11 common Sustainability Issues with performance data and targets for each
- Include climate change-related disclosures aligned to TCFD
- Disclose a basic transition plan to a low-carbon economy
Australia – Australia’s Federal Government released a consultation paper in June 2023 on Climate-related financial disclosures. This indicates that companies will be subject to:
- Mandatory reporting from 1 July 2024 for largest listed and unlisted companies and financial institutions
- Following a proposed phased approach based on group categories
- Proposed reporting requirements will follow those stipulated in IFRS S1 and IFRS S2
New Zealand – The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 has been enacted, requiring all eligible market participants to conduct Climate-related Disclosures.
- Entities subject to the requirements are large financial institutions
- Entities are required to report against the three Aotearoa New Zealand Climate Standards (NZ CS1, NZ CS2 and NZ CS3) which are based on the TCFD framework.
With the coming changes, many companies have already started identifying approaches and actions they will need to take to comply. This will require focus both on strategy as well as on tactical aspects of strategy implementation. The following steps should help those and other aspiring companies:
1. Understand the requirements
Although stock exchanges are moving in the same direction, each of them plans to introduce their own guidelines and reporting requirements. It is critical for companies to clearly understand specific requirements they are facing (or will be facing soon). Following international guidelines such as IFRS and TCFD will mean that you are well on the way to aligning with local regulations.
2. Review your sustainability and climate-strategy
Developing a climate strategy, as well as being a requirement of IFRS and TCFD, will help you to ensure that your climate initiatives are relevant, proportional and manageable. Many companies are generating a knee-jerk reaction to new requirements and simply making net-zero commitments without knowing how they will achieve them. A well-thought-out strategy and action plan will mean that your efforts are beneficial and complementary to other business and sustainability priorities, not contrary to them.
3. Enable effective strategy implementation
Having a strategy or a commitment statement alone will not help companies to move far enough to align with increasing expectations. Internal processes will need to be reviewed, necessary tools will need to be developed and put in place and teams will need to build capacity to enable effective strategy implementation.
4. Continuous disclosure
To cement your ability to comply with emerging requirements, companies should put a comprehensive reporting framework for sustainability reporting in place. Companies should plan for sufficient and relevant information while avoiding pitfalls of communicating statements that could be considered “greenwashing”.
Please reach out to LRQA for support on any aspects of your climate journey.