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May 19 Legal Update

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HKEX published consultation on “Review of ESG Reporting Guide and related Listing Rules”.

It also updated ESG guidance materials, clarifying how different aspects of ESG relate to the Corporate Governance Code (“CG Code”). (Click: press release; updated FAQ Series 17 and 18; e-training)

For IPOs, enhanced disclosure on gender diversity is now required, reflecting HKEX’s increasing emphasis on this area generally. (Click: updated Guidance Letter HKEX-GL86-16)

It is important to appreciate not only HKEX’s ESG consultation for future direction, but also its current expected disclosure on ESG matters.

What you should know/do:

HKEX expectations on current ESG practices:

  • Principle C.2, CG Code (FAQ 17, no. 24K)
    Board consideration of “risks” to include ESG-related ones
  • Code Provision C.2.2, CG Code (FAQ 17, no. 24L)
    Board annual review of adequacy of resources for accounting functions etc.
    — To include ESG performance and reporting
  • “Governance” structure disclosure in ESG reports (FAQ 18, no. 2A)
    — i.e. board’s roles in ESG

ESG Consultation ─ for future direction or early adoption:

  • Mandatory disclosure of board statement on ESG (para 10, P.2 of paper)
    Board oversight of ESG issues
    — Process used to identify, evaluate, manage ESG issues (including risks)
    Board review of progress made against ESG targets
  • New mandatory disclosure, to explain (paras 11-2, P.3 of paper)
    “Reporting principles”: e.g. “materiality”; how is material ESG factors selected?
    “Reporting boundary” : process used to identify entities
  • (New “Aspect” added) “climate change” disclosure (para 13, P.3 of paper)
    Significant climate-related issues that have impacted/may impact issuer
    Mitigation actions
  • “Social” KPIs upgraded to “comply or explain” (para 15, P.3 of paper)
    — (New) supply chain KPIs
    (New) anti-corruption KPI (training to directors and staff)
  • “Environmental” KPIs revised (paras 14- 15, P 3 of paper)
    — E.g. disclosure on targets, and action steps
  • Shortened timeframe for ESG reporting (para 8, P.2 of paper)
    — Within 4 months of year-end
  • No printed form of ESG reports (para 9, P.2 of paper)
    — Where separate ESG report
    — Save per shareholder special request
  • Encourage independence assurance (para 16, P.3 of paper)
  • Consultation will end on 19 July


Also in this issue


(i)  Competition Tribunal delivered decisions on the first two Hong Kong competition law cases. (Click: press release)

As noted in our previous updates, both cases relate to “cartels”, and breaching the “First Conduct Rule”.

The first case is on “bid rigging”, relating to a YWCA tender regarding the supply and installation of a new IT server system. Certain IT suppliers were found to have submitted “dummy bids”. (Click: our March 17 legal update)

The second is on “market sharing” and “price fixing” by some construction and engineering companies, regarding renovation services at a public rental housing estate. (Click: our Aug 17 legal update).

What you should watch out for:

  • “First Conduct Rule” means — parties acting together with an agreement, and/or engaged in a concerted practice, whose object or effect is “to prevent, restrict or distort” competition in Hong Kong
  • “Cartel actions” i.e. price fixing, market sharing, and bid-rigging, is a priority enforcement area for the First Conduct Rule
  • Both cases were triggered by public complaints, which channel is encouraged by the Competition Commission
  • “Bid rigging” case — one defendant company found not liable, as the employee involved  had no authority to bind his company

(ii)  The Financial Reporting Council (Amendment) Ordinance 2019 will become effective on 1 October, 19, except for provisions relating to the payment of levies under the new regime which will commence on 1 January, 2022.

As noted in previous updates, the Financial Reporting Council (“FRC”), a statutory body, will become HK’s independent regulator with powers of investigation and discipline concerning auditors of listed companies. This will replace the current system of self-regulation by the Hong Kong Institute of Certified Public Accountants.

We shall monitor further developments, including potential impact on listed companies. (Click: press release, our Feb 19 legal update)


HKEX published Consultation Conclusions on proposed suspension for issuers with “disclaimer” or “adverse audit opinion” on their financial statements.

For background, read our Sept 18 legal update. (Click: press release, full report, updated Guidance Letter HKEX-GL-95-18)

The new Listing Rules will apply to issuers’ preliminary annual results announcements for financial years commencing on or after 1 September 2019.

The revisions have significant impact on de-listing. Under current Listing Rules, issuers will be delisted, after suspension for a continuous period of 18 months.

There are some modifications to the original suspension proposals.

What you should know/watch out for:


  • Suspension not to apply
    — disclaimer/ adverse opinion  due solely to “going concern”
    — or underlying issue resolved before the publication of preliminary results announcement
  • Remedial period extended
    — if the underlying issue is “outside the issuer’s control”
    — determined on a case- by- case basis
  • Transitional arrangement
    — remedial period extended to 24 months where suspension caused solely by audit opinion for financial years commencing between 1 Sept 19 and 31 Aug 21

This Update in PDF