The Hong Kong Stock Exchange (HKEX) updated its guidance material on ESG-related listing rules in November 2018, including the “How to prepare an ESG report?” and Frequently Asked Questions (FAQs) pages. One of these changes was aligning Appendix 27 disclosures with disclosure recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). No changes have been made to Appendix 27 itself though.

What is the TCFD?

The TCFD is an organization creating a set of comparable and consistent disclosures that help companies identify decision-useful information, and that demonstrate sustainable practices to their capital providers (e.g. shareholders). These disclosures are voluntary and serve to enhance existing reporting practices. Since its inception, TCFD has been widely supported by industry leaders.

What is TCFD recommending?

TCFD recommends companies to disclose information in four key areas of a business within their annual financial accounts. These are:

  • Governance – the company’s governance around climate-related risks and opportunities.
  • Strategy – the actual and potential impacts of climate-related risks and opportunities on the company‘s businesses, strategy, and financial planning where such information is material.
  • Risk Management – how the company identifies, assesses, and manages climate-related risks.
  • Metrics and Targets – the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.

The recommended disclosures within these four areas are shown in the table below:

Source: Final Report – Recommendations of the Task Force on Climate-related Financial Disclosures, P.14

In the “How to prepare an ESG report” document, HKEX highlights that companies may refer to TCFD Recommendations for guidance on identifying and disclosing the potential financial impacts of climate-related risks and opportunities when disclosing KPIs related to climate change. For instance, one recommended disclosure centers on the climate-resiliency of a company’s strategy, and their consideration of various climate-related scenarios. Disclosing strategies as to how a company may act in climate-related situations will help investors understand possible implications of climate change on the company.

Alaya Consulting is supporting TCFD recommendations.

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