HKFRS: Hong Kong’s Big Leap Towards IFRS-based Sustainability Reporting
As countries around the world move towards transparency and accountability in sustainability reporting, IFRS Sustainability Disclosure Standards, namely IFRS S1 and S2, are gaining popularity. The IFRS sustainability standards are preferred by many countries over other ESG frameworks such as TCFD and GRI as it helps tie ESG disclosures to the financial reporting of companies.
These IFRS standards are designed to achieve globally comparable and consistent ESG reporting while focusing on financial materiality of ESG risks and opportunities for companies. As of mid 2025, over 30 countries are in the process of adopting IFRS-based sustainability reporting with nearly half aiming to fully adopt the IFRS S1 (sustainability-related) and IFRS S2 (climate-related) disclosures.
In Asia, Hong Kong is one of the leading countries along with Singapore, Japan and Malaysia planning to adopt IFRS based sustainability reporting. The framework will be addressed as the Hong Kong Financial Reporting Standards – Sustainability Disclosures Standards (HKFRS SDS).
In December 2024, the Hong Kong Institute of Certified Public Accountants (HKICPA) published HKFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and HKFRS S2 Climate-related Disclosures. This aims to provide practical guidance to the issuers and assist them in understanding new standards. HKEX issued an ‘Implementation Guidance for Climate Disclosures under HKEX ESG reporting framework’. It spreads across five main chapters – key concepts, governance, strategy, risk management, metrics and targets.
In the roadmap released by the financial services and the Treasury Bureau of Hong Kong in December 2024, an implementation timeline has been laid to showcase how and when the Hong Kong Sustainability Standards – HKFRS SDS will be applicable to companies. According to this phased implementation approach, large publicly accountable entities are to adopt the ISSB Standards before 2028.
In the following table, HSCLI refers to the Hang Seng Composite LargeCap Index.
Implementation Roadmap for HKFRS SDS
| Issuer Type | Disclosures on Scope 1 & 2 GHG Emissions | Disclosures other than Scope 1 & 2 GHG Emissions |
|---|---|---|
| LargeCap (HSCLI)* Issuers |
Mandatory disclosure: FY commencing on or after January 1, 2025 |
Comply or explain: FY commencing on or after January 1, 2025 Mandatory disclosure: FY commencing on or after January 1, 2026 |
|
Main Board Issuers (other than LargeCap) |
Mandatory disclosure: FY commencing on or after January 1, 2025 |
Comply or explain: FY commencing on or after January 1, 2026 |
| GEM Issuers |
Mandatory disclosure: FY commencing on or after January 1, 2025 |
Voluntary disclosure: FY commencing on or after January 1, 2025 |
The above table shows the mandatory implementation timeline for ‘New Climate Requirements’ namely IFRS S2. HKEX will launch a market consultation on mandating the full HKFRS (S1 & S2) sustainability reporting in 2027. Nonetheless, large listed PAEs and financial institutions carrying significant weight are expected to apply the Hong Kong Standards by January 1, 2028.
HKEX ESG Code vs. HKFRS SDS: What’s New?
The HKEX first introduced the ESG guide in 2012, which has been amended over time to remain relevant to global trends. While the former is principle-based, the latter is standardized and investor-focused. While HKEX’s ESG Code laid the groundwork, HKFRS SDS raise the bar significantly. Here’s how they differ:
| Feature | HKEX ESG Code | HKFRS (IFRS-aligned) |
|---|---|---|
| Regulatory Basis | Comply or explain | Mandatory |
| Scope | Principles-based | Standardized disclosures |
| Assurance | Not required | Expected in future |
| Scenario Analysis | Optional | Required under S2 |
| Scope 3 Emissions | Not mandatory | Phased requirement |
| Investor Focus | Limited | Decision-useful data |
How to get started on HKFRS?
While abiding by New Climate Disclosures may not be mandatory this year for an issuer, it is always better to begin early. For the first attempt at HKFRS-based sustainability reporting, companies should adopt a structured step-by-step approach to tackle this monumental task efficiently.
- Understand the Standards
Before diving into the implementation, understand the requirements of HKFRS S1 and S2. This involves reviewing the official guidance issued by the HKICPA and the ISSB.
- Conduct a baseline assessment
Assess the company’s existing ESG sustainability reporting practices against the new HKFRS requirements by conducting a gap analysis and reviewing the data collection systems.
- Establish accountability within the organization
HKFRS S1 and S2 require strong internal governance structures; therefore, ensure that the board is actively engaged in overseeing the overall strategy, along with a designated ESG committee. Assess the need of training board members and staff in relevant departments to familiarize them with the new standards. Official training materials are available on the HKICPA website.
- Devise sustainability strategy and set targets
Check for the physical and transitional risks associated with climate change and its financial impacts on business. Materiality assessment is necessary as the HKEX doesn’t require companies to disclose information which is not material to the company. HKFRS requires companies to integrate sustainability and climate issues into their corporate strategy.
So, if a company’s ESG goals are not embedded into business goals, now is the time to prioritize by establishing specific measurable targets like carbon-neutrality, circular economy, green investments, etc.
- Establish data collection systems
The next step would be to review the existing data collection systems and upgrade them if necessary for compliance with HKFRS S1 & S2. If possible, integrate sustainability-related data collection systems into existing financial reporting systems.
- Disclose Your Sustainability Information
Companies should publish their sustainability-related and climate-related financial disclosures concurrently with the related financial statements annually, covering the same period as their annual report. The ESG report can be published either separately or as a part of an integrated annual report along with the financials of the company.
- Get third-party assurance
Once the report is published, it will be a continuous process. To gain the trust of investors and stakeholders, companies can also get the report audited by a third-party auditor. Repeat the process annually, monitoring progress and striving to achieve the targets.
- Consult experts and tech-tools
For the initial steps, you can refer to the official training material on the HKEX website and reach out to experts for guidance. Besides consultancy firms, more tools are expected to enter the market soon to help streamline the data collection and reporting process.
Moreover, the issuers can leverage the transition reliefs over the first year of implementing HKFRS SDS, such as not disclosing scope 3 GHG emissions and publishing the ESG report after the financial reports. After the first year, issuers can benefit from the proportionality mechanisms, which allows them to report less than perfect reasonably available at the time of reporting.
FAQs
What is IFRS?
- International Financial Reporting Standards (IFRS) refers to a set of global accounting standards designed to promote transparency, accountability, and efficiency in financial markets worldwide. It is essentially a framework for financial reporting that ensures consistency, comparability, and clarity in the way companies report their financial performance and position. Recently, the IFRS Foundation expanded its scope to include sustainability reporting standards, creating International Sustainability Standards Board (IISB). The new standards IFRS S1, S2 aim to provide consistent and comparable information on Environmental, Social, and Governance (ESG) issues, much like IFRS standardizes financial reporting.
Which countries have adopted sustainability reporting based on IFRS S1 & S2?
- As of mid-2025, 36 countries worldwide have adopted or are in the process of adopting the IFRS Sustainability Disclosure Standards (IFRS S1 and S2), developed by the International Sustainability Standards Board (ISSB). 17 countries have finalized their approach and have published public profiles by the IFRS Foundation. These include Australia, Brazil, Malaysia, Türkiye, and Nigeria. 14 of these jurisdictions aim to fully adopt the ISSB sustainability standards, while others are opting to integrate climate-focused components, such as IFRS S2, into their national frameworks. The remaining 19 countries are in various stages of consultation or preparation for adoption, indicating a growing global consensus on the need for standardized sustainability disclosures.
What is HKFRS SDS?
- HKFRS SDS (S1 and S2) are sustainability disclosure standards issued by the Hong Kong Institute of Certified Public Accountants (HKICPA), aligned with IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) by the ISSB.
Who is affected by the HKFRS SDS?
- All listed companies in HK, including LargeCap constituents, financial institutions, and publicly listed companies.
Does HKFRS replace the existing ESG Code?
- HKEX is currently integrating the IFRS elements into the ESG Code which was enhanced recently to fully align with TCFD. Eventually, HKFRS SDS will coexist or replace the existing ESG guide in the coming years.
When are the companies required to publish HKFRS disclosures?
- Companies should publish their sustainability-related and climate-related financial disclosures concurrently with the related financial statements annually, covering the same period as annual reports. The ESG report can be published either separately or as a part of an integrated annual report along with the financials of the company.
Confused About HKFRS SDS? We’ll Guide You Step-by-Step
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