Rules and Regulations

Listed issuers are required to disclose their ESG governance by including a statement from the board containing the following elements:

1. A disclosure of the board’s oversight of ESG issues;
2. The board’s ESG management approach and strategy, including the process used to evaluate, prioritise and manage material ESG-related issues (including risks to the listed issuer’s businesses); and
3. How the board reviews progress made against ESG-related goals and targets with an explanation of how they relate to the listed issuer’s businesses.

There is no specific requirement in the ESG Code as to the form or location of the board statement on ESG governance, and listed issuers may decide on the appropriate presentation of such statement, so long as the presentation is clear for readers to understand the board’s governance of ESG issues.

“Materiality” is defined in the Code as “the threshold at which ESG issues determined by the board are sufficiently important to investors and other stakeholders that they should be reported”. The definition is sufficiently wide to encompass a range of materiality considerations, including but not limited to financial materiality.

Whether a particular ESG issue is material is a matter of judgment for the board. The board may determine that an ESG issue is material based on different considerations, for example, the facts involved, the circumstances of the specific listed issuer with reference to the views of its key stakeholders and/or the impact of the ESG issue on the listed issuer’s financial performance or financial position. Listed issuers should bear in mind that materiality can have different meanings for different stakeholder groups, and should disclose the board’s involvement, the identification process and the criteria for the selection of material ESG factors in the ESG report.

The description of, or explanation on, the application of the materiality principle should focus on the identification process and selection criteria of material ESG factors. Stakeholder engagement only serves as one of the tools enabling a listed issuer to understand the reasonable expectations and interests of stakeholders, as well as their information needs. Since stakeholder engagement should be part of a listed issuer’s everyday operations, it is not necessary to conduct a stakeholder engagement specifically for the purpose of preparing an ESG report; thus the absence of a specific stakeholder engagement need not be disclosed in the ESG report.

A stakeholder engagement may take different forms and does not necessarily mean a large-scale exercise. For example, it may be conducted through daily contact with clients/ suppliers/ employees.

If a stakeholder engagement was conducted, listed issuers should disclose a description of the significant stakeholder identified as well as the process and results of the stakeholder engagement.

While listed issuers may set targets for all KPIs that are material to them, the Code only expressly requires disclosure of emission targets (KPIs A1.5), waste reduction targets (KPI A1.6), energy use efficiency targets (KPI A2.3) and water efficiency targets (KPI A2.4) on a “comply or explain” basis.

The targets may be actual numerical figures or directional, forward-looking statements.