The Stock Exchange of Hong Kong Limited (“HKEX”) has recently published an updated Guidance Letter HKEX-GL86-16 for IPO applicants (“Guidance Letter”) which emphasizes the board of directors of an IPO applicant should ensure necessary corporate governance (CG) and environmental, social and governance (ESG) mechanisms are built into the listing processes in order to promote sustainability, good corporate governance, and diversity. According to the 3.7(a) & (b) under E. “Business” section of updated IPO Guidance, IPO applicants are required to :
Further to the amendment to the Guidance Letter made in May 2019 to require additional disclosure on (i) ESG matters (including material information on applicants’ environmental policies, and details of the process used to identify, evaluate and manage significant ESG risks) and (ii) gender diversity of the board in the listing documents of new applicants, HKEX has taken this as an extra step to strengthen the disclosure obligation of ESG information by IPO applicants. It is a prerequisite for listing applicants to get braced for ESG mechanisms and relevant disclosure in spite of the fact HKEX does not make ESG report as a mandatory disclosure requirement in the listing document for the time being.
It is advisable for pre-IPO companies to establish good corporate governance and enhance board’s oversight of ESG matters including identification and control of material ESG risks in advance not only to cope with the potential queries raised by HKEX but also to echo with the call for ESG information by institutional investors upon their decision-making process.
Click here to read the updated Guidance Letter HKEX-GL86-16 for IPO applicants.
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