Exchange Publishes Conclusions on Corporate Governance Code Enhancements

• All proposals to enhance the CG Code and related Listing Rules received majority support
• Finalised approach aims to balance need to progress governance regime with providing issuers with flexibility to make enhancements at appropriate pace
• New requirements will come into effect on 1 July 2025, with transitional arrangements for the caps on “overboarding” and INED tenure
• Exchange will publish updated guidance in the first half of 2025 to assist issuers’ compliance with the new requirements

 

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Thursday) published conclusions to its consultation on Review of the Corporate Governance Code (CG Code) and related Listing Rules (Consultation Conclusions)¹.

CG Consultation Conclusions

The Exchange received 261 responses from a broad range of respondents. All the proposals received support from a majority of respondents. Having considered respondents’ views, the Exchange will adopt the consultation proposals, with certain modifications and clarifications as set out in the Consultation Conclusions, with effect from 1 July 2025.

HKEX Head of Listing, Katherine Ng, said: “The latest enhancements reflect HKEX’s continued focus on, and commitment to, promoting good corporate governance practices among our issuers. The new requirements will bring new and more diverse perspectives to the boardroom, thereby strengthening overall board effectiveness, independence and diversity. We sincerely thank all the stakeholders who have participated in the consultation exercise for their ongoing engagement and support; their feedback have helped us further fine-tune our approach to develop a more effective and targeted plan. We believe that the extended implementation timeline and other modifications to our original proposals strike a proper balance between progressing our governance standards, and giving issuers the flexibility to advance their practices at an appropriate pace. Importantly, these enhancements align with heightened global investor expectations on governance standards, ensuring our markets remain internationally competitive and attractive, supporting the continued vibrancy of Hong Kong’s capital market ecosystem.”

The changes to the CG Code and related Listing Rules include:

1. Board effectiveness –
   • The designation of a lead INED² (where the board chair is not independent) is modified to voluntary (New RBP³), with enhanced disclosures on shareholder engagement (New CP⁴).
   • Annual director training on specific topics, with a minimum of 24 hours of training for first-time directors⁵ within the first 18 months of appointment. The minimum training hours for first time directors with listed issuer directorship experience on other exchanges⁶ will be reduced to 12 hours. (New Rule).
   • Regular board performance reviews and the disclosure of a board skills matrix (New CPs).
   • Cap on “overboarding” - INEDs must not concurrently hold more than six Hong Kong-listed issuer directorships, with a three-year transition period (i.e. compliance by the first AGM⁷ held on or after 1 July 2028) (New Rule).
     
     
2. Board independence – an issuer’s board must not include an INED who has served more than nine years (Long Serving INED) (New Rule), with a new phased implementation over an extended six-year transition period as follows:
   

   Timing	What is required
   Phase one - compliance by the first AGM held on or after 1 July 2028	Majority of INEDs on an issuer’s board must not be Long Serving INEDs
   Phase two - compliance by the first AGM held on or after 1 July 2031	An issuer must not have any Long Serving INED on their board

   
   Illustration for December financial year-end issuers
   
   
   
   
3. Diversity – (i) the nomination committee to comprise directors of different genders (New CP); (ii) annual reviews of board diversity policy (Upgraded to MDR⁸); and (iii) a workforce diversity policy (New Rule).
   
   
4. Risk management and internal controls – conduct a review at least annually and enhanced disclosures of the review and findings (Upgraded to MDR).
   
   
5. Capital management – enhanced disclosures of an issuer’s dividend policy and its board’s dividend decisions (New MDR).

The new requirements will come into effect on 1 July 2025 and apply to corporate governance reports and annual reports for financial years commencing on or after 1 July 2025, with transitional arrangements for the cap on “overboarding” and the cap on INED tenure as set out above.

The Exchange will publish updated guidance in the first half of 2025 to assist issuers’ compliance with the new requirements.

The Consultation Conclusions and copies of the respondents’ submissions are available on the HKEX website. 

Review of issuers’ ESG practice disclosures

The Exchange recently published the findings from its latest review of issuers’ environmental, social and governance (ESG) practice disclosures. The review assessed issuers’ compliance with our ESG reporting framework and LargeCap Issuers’⁹ readiness to report on new climate requirements¹⁰. The use of AI technology enabled the Exchange to expand the scope of its review to all of the most recent ESG reports published by companies listed on HKEX as at 30 June 2024¹¹, representing a 522 per cent increase in the number of reports reviewed, compared to the most recent review.

Key observations:

1. All Aspects¹² achieved a reporting rate of at least 91 per cent (except for B4: Labour Standards).
2. There is an overall improvement in the quality of ESG governance disclosure, with more details being provided on the board’s involvement in overseeing and considering ESG matters.
3. A majority of LargeCap Issuers have developed a general understanding of the forthcoming new climate requirements; and have already started to report on certain new requirements (such as climate-related scenario analysis, scope 3 GHG emissions and quantitative environmental targets).

For more details, please see the report titled “2024 Analysis of ESG Practice Disclosure” available on the HKEX website.

In view of the new climate requirements, which will come into effect in January 2025, the Exchange has updated the “ESG in Practice” section of its ESG Academy, setting out the Exchange’s new regulatory focus areas and recent examples of exemplary ESG practices among its issuers.

 

Notes:

1. The Consultation Paper was published on 14 June 2024. The consultation period ended on 16 August 2024.
2. Independent non-executive directors.
3. Recommended Best Practice under the CG Code, which is voluntary by nature.
4. Code Provision of the CG Code, requiring “comply or explain” disclosure.
   
5. First-time directors are directors (a) who are appointed as a director of an issuer listed on the Exchange for the first time (i.e. have no prior experience as a director of an issuer listed on the Exchange); or (b) have not served as a director of an issuer listed on the Exchange within the three years prior to their appointment (i.e. whose previous directorship of an issuer listed on the Exchange does not fall within the three years prior to their appointment).
6. First time directors with listed issuer directorship experience on other exchanges are directors (a) who are appointed as a director of an issuer listed on the Exchange for the first time and (b) have served as a director of an issuer listed on an exchange other than the Exchange within the three years prior to their appointment.
   
7. Annual general meeting.
8. Mandatory Disclosure Requirement under the CG Code.
9. Issuers that are Hang Seng Composite LargeCap Index constituents.
   
10. Starting from 1 January 2026, it will be mandatory for LargeCap Issuers to report on the new climate requirements as set out in the Consultation Conclusions on Enhancement of Climate-related Disclosures under the ESG Framework published in April 2024.
11. Excluding long suspended issuers, secondary listed issuers and newly listed issuers who have not yet published their first year ESG reports. The Exchange’s previous review was limited to a sample of 400 ESG reports only.
    
12. The ESG Reporting Guide (Appendix C2 to the Listing Rules) requires reporting of certain mandatory disclosure requirements and reporting on 12 Aspects under the “Environmental” Subject Area and “Social” Subject Area on a “comply or explain” basis.

 

 

About HKEX

Hong Kong Exchanges and Clearing Limited (HKEX) is a publicly-traded company (HKEX Stock Code: 388) and one of the world’s leading global exchange groups, offering a range of equity, derivative, commodity, fixed income and other financial markets, products and services, including the London Metal Exchange.

As a superconnector and gateway between East and West, HKEX facilitates the two-way flow of capital, ideas and dialogue between China and the rest of the world, through its pioneering Connect schemes, increasingly diversified product ecosystem and its deep, liquid and international markets.

HKEX is a purpose-led organisation which, across its business and through the work of HKEX Foundation, seeks to connect, promote and progress its markets and the communities it supports for the prosperity of all.

www.hkexgroup.com

 

 

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