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Enhancement of Climate-related Disclosures under the Environmental, Social and Governance Framework

Letter to the Hong Kong Stock Exchange, 12 July 2023

We refer to the Hong Kong Stock Exchange’s consultation paper on enhancing climate-related disclosures under the environmental, social and governance framework, published in April 2023. We welcome the opportunity to contribute an investor’s perspective on the climate-related disclosure requirements for Hong Kong listed issuers.

Norges Bank Investment Management (NBIM) is the investment management division of the Norwegian Central Bank and is responsible for investing the Norwegian Government Pension Fund Global. NBIM is a globally diversified investment manager with 12,429 billion Norwegian kroner at year end 2022. Of this total, 67,252 billion HKD was invested in the shares of 133 Hong Kong listed companies at end 2022.

The long-term return of the fund depends on sustainable economic, environmental and social development, as well as well-functioning and efficient markets. Climate risk has long-term and systematic characteristics, and our investments are exposed to both physical and transition risks. We support global principles and standards that underpin an orderly climate transition, and have promoted the development of strong reporting frameworks for corporate climate risk disclosure for over a decade. Limited access to high-quality data on the climate risk faced by companies hampers our ability to take better investment decisions, undertake more purposeful company engagement and develop tailored voting decisions.

As a global investor with holdings in 70 different countries, we have a clear interest in this information being reported in a consistent and comparable manner across markets. We have therefore welcomed the creation of the International Sustainability Standards Board (ISSB) and its mission to deliver a global baseline of sustainability-related disclosure standards that provide decision-useful information to investors. We strongly support the Hong Kong Stock Exchange’s commitment to align with international standards, notably the proposal to enhance its ESG reporting framework in line with the recently finalised ISSB Climate Standard S2. Alignment with international standards meets our investor needs and is important to ensure Hong Kong issuers’ access to global capital markets.

We welcome the Hong Kong Stock Exchange’s intention to align as closely as possible with the wording of the ISSB climate standard. We believe that deviations from global standards should be minimised as far as possible, and allowing temporary reliefs for the interim period would be a preferable option as it would facilitate comparability of information for global investors. We therefore encourage the Hong Kong Stock Exchange to reconsider the permanent modifications from the ISSB standard regarding disclosure of climate-related opportunities and the company response toward them, GHG emission reduction targets, and quantitative disclosures on the anticipated financial effects of climate-related risks and opportunities. Regarding targets, we welcome the requirement for issuers to make alternative disclosures under note 2, paragraph 6 of Part D on climate-related targets, which will give investors information on the progress and timetable for setting climate-related targets in case a company has not yet done so. We note that this relief might not be necessary, as the ISSB standard requires an entity to disclose information on the targets it has set, without requiring entities to set any. However, this alternative disclosure might encourage entities to move towards target setting, which is welcome.

Similarly, we encourage the HKEX not to permanently allow companies to only disclose qualitative information on the anticipated financial effects of climate-related risks, noting that the ISSB climate standard already provides a relief from quantitative disclosures when they are not feasible for a range of reasons. Moreover, we encourage the HKEX to require disclosure of climate-related opportunities alongside risks, to enhance alignment with global standards. Regarding the proposed interim reliefs, we acknowledge that disclosure of scope 3 emissions can be challenging due to data availability, and therefore appreciate the interim relief provided. However, we note that the ISSB climate standard already provides an exemption from scope 3 reporting in the first year of application of the standard; therefore, this additional interim provision might not be necessary.

We encourage the Hong Kong Stock Exchange to implement the full text of the Climate Standard S2, including the implementation guidance for companies. Similarly, we encourage HKEX to implement the relevant requirements that the ISSB has developed for international application, included in the General Requirements Standard IFRS S1, which provides the foundation for applying the topic-specific standards such as S2. These include requiring that sustainability reporting is aligned with financial statements, and that assumptions underlying climate-related disclosures are consistent with the financial statements to the extent possible. More broadly, we suggest HKEX considers a wider amendment of the ESG Code to also mandate sustainability disclosures based on IFRS S1, thus turning the current “comply or explain” regime into a mandatory disclosure regime. This could reduce complexity for issuers, who under the proposals would deal with partially “comply or explain” and partially mandatory disclosures, and enhance the availability of sustainability information for investors.

We thank you for considering our perspective and remain at your disposal should you wish to discuss these matters further.

Yours sincerely,

Carine Smith Ihenacho
Chief Governance and Compliance Officer

Elisa Cencig
Senior ESG Policy Adviser

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