ESG in Practice

ESG has been, and will continue to be, an evolutionary journey. Issuers have to continuously learn and improve in order to meet stakeholders' increasing expectations. To encourage peer learning and modelling, we sought to highlight good ESG practices adopted by some of our issuers in this section. The focus areas, namely (i) board and governance, (ii) materiality assessment, (iii) climate change, (iv) social issues, (v) review of ESG progress, and (vi) adoption of international ESG reporting framework, align with the focus in our 2024 ESG enhancements, and are selected with reference to feedback from stakeholders.

Not all of the examples are relevant for all companies and all circumstances, and issuers should not “copy and paste” the language in their reports to avoid boilerplate language and ineffective reporting that lacks substance and meaningful information. Each example provides an illustration of where the company has thought about and demonstrates how to enhance the value of their disclosures. Highlighting aspects of good reporting by a particular entity should not be considered as an evaluation of that entity's report as a whole. The examples are intended to serve as a conduit to highlight good practice, and push for further improvements in the quality and usefulness of disclosures.

We will update the focus areas and examples from time to time to reflect the latest ESG regulatory concerns and developments, as well as potential improvement areas for our issuers' ESG practices.

Board and governance

Integrating material ESG issues into a company's strategy can contribute to better risk management, leading to long-term resilience and sustainability of the business. Strong board oversight and management of ESG issues boosts investors' confidence in the company and improve the company's access to capital. Investors have increasing demand on information about the systems, governance structure and company culture that lies beneath how the company manages material ESG issues. The ESG Reporting Code requires issuers to disclose the issuer's ESG governance, including the board's oversight of ESG issues; its ESG management approach and strategy; and how the board reviews progress made against ESG-related goals and targets.

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Materiality assessment

Materiality is the threshold at which ESG issues determined by the board are sufficiently important to investors and other stakeholders that they should be reported. A comprehensive description of a company's processes for identifying and assessing material ESG risks demonstrates the legitimacy and genuineness of the company's efforts in addressing investors' concerns with ESG issues. The ESG Reporting Code requires issuers to outline the process and criteria adopted to identify and assess material ESG issues (including climate-related risks and opportunities), and the process and results of stakeholder engagement conducted (if any).

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Climate change

With climate change being a global concern and focus, investors are demanding more information on how climate issues and related policy change could impact an issuer's assets, business operations and financials. With effect from 1 January 2025, all Main Board issuers have to report on the climate-related disclosures as set out in Part D of the ESG Reporting Code (New Climate Requirements), which reflect the IFRS S2 Climate-related Disclosures published by the International Sustainability Standards Board (ISSB) closely. As contemplated in the Hong Kong sustainability disclosure roadmap, listed companies will ultimately be expected to conduct sustainability reporting in accordance with standards aligned with the ISSB standards (i.e. IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures). As such, we encourage early adoption of the ISSB Standards. Issuers are further reminded that ESG reports prepared in accordance with the ISSB Standards will be considered to have complied with the New Climate Requirements. Issuers may refer to this e-learning on preparing ISSB sustainability disclosures for further guidance.

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Social issues

Impacts of social issues on a company's operation can be of no less importance than environmental risks. Under the ESG Reporting Code, aspects under both “Social” and “Environmental” are subject to the same “comply-or-explain” basis. Issuers should consider their own business value chain and identify social aspects that are material to them for disclosure. In this section, we have chosen practices in relation to supply chain (see Aspect B5 of the ESG Reporting Code) and product quality control (Aspect B6 of the ESG Reporting Code) for illustrative purposes.

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Review of ESG progress

ESG issues are dynamic and constantly evolving. Policy or socioeconomic changes may affect the feasibility and effectiveness of measures put in place to address ESG-related issues. Periodic reviews of the progress against targets set keeps the management informed as to whether the company is on track to achieve its ESG-related targets and goals, and to evaluate the effectiveness of such measures.

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Adoption of international ESG reporting framework

The ESG Reporting Code sets out minimum parameters for reporting with a view to facilitating listed issuers’ communication with investors and other stakeholders, and is not intended to be comprehensive. When preparing ESG reports, issuers may refer to or adopt international reporting standards or guidelines that are relevant to the issuers’ industry or sector, so long as comparable disclosures to those required under the ESG Reporting Code are included in the ESG reports. Issuers should clearly indicate where the comparable disclosures are located – for example, by way of a reference table directing readers to the relevant section of the ESG report.

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