ESG reporting in Hong Kong: Appendix C2 climate and environmental disclosure rules

ESG Reporting Hong Kong: Handbook for Listed Issuers

ESG reporting in Hong Kong is moving faster than any other listed-company compliance area. The driver is the HKEX December 2024 consultation conclusions, effective 1 January 2025. The HKEX ESG Reporting Code, Appendix C2 to the Main Board and GEM Listing Rules, governs what must be disclosed, when, and by whom. The staggered timeline, the large-cap issuer definition, and the line between mandatory and voluntary disclosure decide the question, so the ESG manager can determine the company’s exact obligations.

All references are to Appendix C2, titled “Environmental, Social and Governance Reporting Code”. A company that prepares its ESG report in compliance with IFRS S1 and IFRS S2 is deemed to have complied with Part D of Appendix C2 (paragraph 8).

The Two HKEX Codes: Appendix C1 and Appendix C2

The Corporate Governance Code is Appendix C1 to the Main Board Listing Rules and Appendix C1 to the GEM Listing Rules. The ESG Reporting Code is Appendix C2. The December 2024 consultation conclusions package took effect on 1 July 2025, applying to corporate governance reports and annual reports for financial years commencing on or after that date.

Appendix C1 contains Mandatory Disclosure Requirements, Code Provisions on a comply-or-explain basis, and Recommended Best Practices. A Code Provision is not a Listing Rule: an issuer may depart from it if it says so and explains why. A Listing Rule must be complied with.

Appendix C2 operates differently. Its Part D contains climate-related disclosure requirements modelled on IFRS S2, effective 1 January 2025. An issuer may elect to follow IFRS S1 and IFRS S2 in full instead of Part D. If it does, Part D is deemed satisfied.

Hong Kong Climate Disclosure Rules IFRS S2

The disclosure framework for climate under Appendix C2 Part D is built on the IFRS S2 standard issued by the International Sustainability Standards Board. An issuer reporting under IFRS S2 is automatically compliant with Part D. The HKEX has not created a separate Hong Kong standard; it has adopted IFRS S2 as the substantive content.

Scope 1 and Scope 2 Emissions Reporting Hong Kong: Mandatory for All

Part D of Appendix C2 requires disclosure of greenhouse gas emissions. Scope 1 and 2 emissions reporting is mandatory from financial years commencing on or after 1 January 2025.

• Scope 1 emissions: direct emissions from sources owned or controlled by the issuer.
• Scope 2 emissions: indirect emissions from the generation of purchased energy.

This requirement applies to all Main Board issuers and all GEM issuers. There is no comply-or-explain option. The disclosure must be made. Issuers that have never measured Scope 1 or Scope 2 emissions before must begin data collection for the reporting year starting on or after 1 January 2025. The first ESG report containing the data is due at the same time as the annual report for that year.

The HKEX has allowed no phase-in period for the Scope 1 and 2 data. The requirement is effective immediately for the first financial year commencing on or after 1 January 2025.

LargeCap Issuer ESG Requirements Hong Kong: Three Tiers of Obligation

The large-cap issuer ESG requirements divide issuers into three groups. The key term is LargeCap Issuer.

A LargeCap Issuer is a constituent of the Hang Seng Composite LargeCap Index throughout the year immediately before the reporting year. Once in scope, an issuer stays in scope even if it later leaves the index. The HKEX has confirmed this “once in, always in” rule to prevent an issuer from dropping out of scope by falling off the index.

The three tiers are:

Issuer type	Part D requirements other than Scope 1 and 2	Effective date
LargeCap Issuer	Comply-or-explain for financial years commencing on or after 1 January 2025; mandatory for financial years commencing on or after 1 January 2026	Staggered
Other Main Board issuer	Comply-or-explain for financial years commencing on or after 1 January 2025	No mandatory date
GEM issuer	Voluntary for financial years commencing on or after 1 January 2025	Voluntary

A LargeCap Issuer must prepare for mandatory climate-related disclosure from financial year 2026. The year 2025 serves as a transition year in which the issuer must report on a comply-or-explain basis but cannot simply omit the disclosures. A missing disclosure must be accompanied by an explanation of why it was not made.

For other Main Board issuers, the comply-or-explain basis continues indefinitely unless the HKEX introduces further rule changes. For GEM issuers, Part D (other than Scope 1 and 2 mandatory emissions) is entirely voluntary. GEM issuers should weigh investor expectations against the cost of voluntary compliance.

Hong Kong ESG Reporting Code Appendix C2: What Part D Covers

Part D includes climate-related disclosures covering:

• Governance of climate-related risks and opportunities.
• Strategy, including the impact of climate risks and opportunities on the business model, strategy and financial planning.
• Risk management, including how the issuer identifies, assesses and manages climate risks.
• Metrics and targets, including greenhouse gas emissions (Scope 1, 2 and Scope 3 where applicable), climate-related transition risks and physical risks, and climate-related targets.

An issuer reporting under IFRS S1 and IFRS S2 is deemed to have complied with Part D. The HKEX has stated that a full IFRS S1 and S2 report will satisfy the Part D requirements without needing to map disclosures back to each Part D paragraph.

Part D: The Distinction Between Mandatory and Comply-or-Explain

The phrase “Part D” appears throughout the ESG Reporting Code and the HKEX guidance. The key distinction is:

• Scope 1 and Scope 2 emissions: mandatory for all Main Board and GEM issuers from financial year 2025.
• Every other Part D requirement: LargeCap Issuers report on a comply-or-explain basis in 2025 and on a mandatory basis from 2026; other Main Board issuers report on a comply-or-explain basis indefinitely; GEM issuers report voluntarily.

A LargeCap Issuer facing mandatory Part D reporting from 2026 must begin preparing the climate governance framework, strategy assessment and risk management processes well before the 2026 reporting year. Use the 2025 comply-or-explain year as a dry run for full compliance.

For any issuer that is not a LargeCap Issuer, the comply-or-explain requirement means that a gap in disclosure is permitted only if the issuer explains why the disclosure has not been made and describes any steps being taken to address the gap. A bare omission without explanation does not comply with the Listing Rules.

IFRS S1 and S2: The Compliance Route

An ESG report prepared in compliance with IFRS S1 and IFRS S2 is considered to have complied with Part D. Many LargeCap Issuers already report on a recognised global framework. The HKEX has designed Part D to be interoperable with IFRS S2. An issuer that publishes an IFRS S2-aligned climate report need not produce a separate mapping to Part D. The HKEX has confirmed this in consultation concluding documents.

For issuers not ready for full IFRS S1 and S2 reporting, Part D provides a structured alternative. If an issuer chooses to comply with Part D rather than with the ISSB standards, it should be prepared to answer the same substantive questions about governance, strategy, risk management and metrics, albeit in the format prescribed by Appendix C2.

Timing: Which Financial Year Are You In?

The effective date of 1 January 2025 refers to financial years commencing on or after that date. An issuer with a financial year ending 31 December 2025 is in its first year of compliance. An issuer with a financial year ending 30 June 2025 (commenced 1 July 2024) is not yet subject to the new requirements. It must be ready for the following financial year commencing 1 July 2025.

The 2026 mandatory date for LargeCap Issuers also refers to financial years commencing on or after 1 January 2026. An issuer with a 30 June 2026 year end (commenced 1 July 2025) must report on a mandatory basis for the financial year starting 1 July 2025, not the one starting 1 July 2026, because the 2025 year commenced before 1 January 2025.

Practical Checklist for the ESG Manager

1. Confirm your status. Check whether your issuer is a constituent of the Hang Seng Composite LargeCap Index in the year immediately before the current reporting year. Remember the once-in rule: if you were in scope last year, you are still in scope.
2. Measure Scope 1 and Scope 2 emissions. If you have never measured greenhouse gas emissions, begin immediately. The data must be disclosed in the ESG report for the first financial year commencing on or after 1 January 2025.
3. Determine your Part D tier. LargeCap Issuers must be on a mandatory basis from 2026. Other Main Board issuers comply-or-explain. GEM issuers voluntary.
4. Prepare for Part D. Even if you are not a LargeCap Issuer, consider whether investor expectations or peer practice will drive you toward full compliance sooner than the rules require.
5. Decide on IFRS S2. If your issuer already reports under ISSB standards, the ESG report can be the same document. If not, assess whether adopting IFRS S1 and S2 is simpler than building a separate Part D response.

What the ESG Reporting Code Does Not Cover

• Board composition and governance: these are covered under the Corporate Governance Code Appendix C1, not the ESG Reporting Code. See the article on the Corporate Governance Code for those requirements.
• Board evaluation, diversity, risk management, whistleblowing and anti-bribery: each is addressed in separate governance articles. The ESG Reporting Code does not impose board structure or policy requirements.