HKFRS S1 and S2: A Boardroom Guide to Hong Kong's Climate Disclosure Rules

Hong Kong is moving climate disclosure onto the same footing as financial reporting, on two parallel tracks. Track one is the HKEX Listing Rules: climate requirements in Part D of the ESG Reporting Code, in force for financial years commencing on or after 1 January 2025. Track two is HKFRS S1 and S2, accounting-standard-level standards targeted to become mandatory for large publicly accountable entities no later than 2028.

Why is Hong Kong positioning itself as an early full-ISSB adopter?

The strategy is explicit. The Government's Roadmap on Sustainability Disclosure, launched by the Financial Services and the Treasury Bureau on 10 December 2024, says Hong Kong intends to remain the region's premier capital-raising and green-finance hub, and comparable, investor-grade sustainability information is now part of the price of that status.^2,3 Roughly forty jurisdictions have adopted or are moving to adopt the ISSB Standards; Hong Kong has chosen to be among the first with a complete, dated pathway rather than a statement of intent.⁸

Four bodies now own the topic between them, and each brings financial-reporting-grade expectations with it.

When the accounting standard-setter writes the disclosure standards and the audit regulator designs the assurance regime, directors should assume the internal-control, evidence and sign-off discipline of the financial statements: controls, an audit trail and board-level ownership, not a consultant-drafted narrative finished the week before print.

There is a listing-competition angle too. LargeCap issuers, the Hang Seng Composite LargeCap Index constituents anchoring the mandatory tier, represented around 64% of Hong Kong's total market capitalisation at end-2023, so global asset owners screening for ISSB-comparable disclosure will find it in Hong Kong before most Asian markets.⁴

What are the two tracks, HKEX Listing Rules and HKFRS S1/S2?

Much of the market's confusion comes from conflating two instruments with different timetables and different legal force.

Track 1 is a listing obligation. In its April 2024 consultation conclusions, HKEX renamed Appendix C2 the Environmental, Social and Governance Reporting Code and inserted Part D: climate disclosure requirements developed from IFRS S2 under a "climate-first" approach.^4,6 Part D applies to financial years commencing on or after 1 January 2025, tiered by issuer category; non-compliance is a listing-rule matter, with comply-or-explain as a documented escape valve while capabilities mature.

Track 2 is an accounting standard. HKFRS S1 and S2, the Hong Kong Sustainability Disclosure Standards, were issued by the HKICPA on 12 December 2024 and took effect on 1 August 2025 for voluntary application.^1,7 HKFRS S1 sets general requirements for sustainability-related risks and opportunities; HKFRS S2 covers climate; both are word-for-word aligned with IFRS S1 and S2. The Government roadmap supplies the mandatory pathway: HKEX is to consult in 2027 on mandatory reporting against the Hong Kong standards for listed publicly accountable entities, expected effective 1 January 2028, while significant non-listed financial institutions are to apply the standards by 2028 under their financial regulators.^2,3

The practical reading for a listed issuer: Part D is what you must satisfy today; HKFRS S1/S2 is what Part D converges into. Work done properly now is the first two-thirds of the 2028 requirement; the deltas are HKFRS S1's coverage beyond climate, and the shift from comply-or-explain to accounting-standard discipline with assurance behind it.

Who must comply with HKFRS S2 and the HKEX climate rules, and when?

Application depends on which register you sit on. The table reflects the position as at July 2026.^4,2

Two definitional points matter in practice. First, LargeCap status is tested by index membership throughout the year preceding the reporting year, promotion into the index starts the readiness clock immediately.⁴ Second, comply-or-explain is not a soft option: an explanation must set out what has not been done and why. With an AFRC baseline study finding 67% of LargeCap constituents already publishing voluntary sustainability assurance reports in 2025, boilerplate explanations signal weakness, not pragmatism.⁸

Part D attaches to financial years, not publication years:

The same logic puts the first fully mandatory LargeCap reports (FY commencing 1 January 2026) in front of investors in 2027.¹²

What are the four core pillars of HKFRS S2 disclosure?

Both Part D and HKFRS S2 use the four-pillar architecture the ISSB inherited from the TCFD, anchored by connectivity with the financial statements, same entity, same period, consistent assumptions. Boards should be able to answer a plain-English question under each pillar.

Governance, who is accountable?

Disclose the board's oversight of climate-related risks and opportunities and management's role: which committee owns the topic, how often it is briefed, how climate competence is maintained, and how climate feeds remuneration and major decisions. The cheapest pillar to fix, and the most embarrassing to fail.

Strategy, what does climate do to the business model?

Identify climate-related risks and opportunities over the short, medium and long term, their effects on the business model and value chain, transition plans, and, the step most issuers find hardest, the current and anticipated financial effects on financial position, performance and cash flows. The narrative must reconcile with what the CFO signs elsewhere in the annual report.

Risk management, how is it wired into ERM?

Describe the processes for identifying, assessing, prioritising and monitoring climate-related risks, and how they are integrated into the overall enterprise risk management framework, not run as a parallel ESG exercise.

Metrics and targets, can you prove it?

Disclose Scope 1, 2 and 3 emissions, industry-relevant metrics, capital deployed against climate risks and opportunities, internal carbon prices where used, and targets with their basis, milestones and progress. This pillar carries the data burden and is first in line for mandatory assurance under the AFRC's proposals.⁸

The practical takeaway: if a disclosure cannot be traced to a named owner, a documented process and a reproducible number, it fails at least one pillar.

What changed from the old ESG Reporting Guide?

Issuers that reported comfortably under the former Appendix 27 ESG Reporting Guide should not assume continuity: the upgrade from "Guide" to "Code" is more than a rename.^4,6

• From KPI checklist to investor-decision framework. The old Guide asked for environmental and social KPIs on a comply-or-explain basis; Part D asks how climate change affects enterprise value, prospects, cash flows, cost of capital.
• Mandatory tiers for the first time. Scope 1 and 2 disclosure is mandatory for every Main Board issuer, and the full Part D package for LargeCap issuers from FY2026; the Guide had no mandatory climate content of this kind.
• Scope 3 enters the frame. The Guide stopped, in practice, at Scopes 1 and 2. Part D requires absolute gross Scope 3 emissions and a statement of which of the fifteen GHG Protocol categories are included.⁴
• Quantified financial effects and scenario analysis. Neither appeared in the Guide; both are core to the IFRS S2 architecture Part D adopts.
• Prescribed methodology. Emissions must follow the GHG Protocol Corporate Standard (2004), with the location-based method for Scope 2, narrowing the methodological cherry-picking that made prior-year ESG data hard to compare.⁴

The rest of the ESG Code, social KPIs and the comply-or-explain general disclosures, continues alongside Part D, but the centre of gravity has moved to climate, and to numbers that can be audited.

What do the Scope 1, 2 and 3 requirements involve, and what reliefs apply?

The baseline first. All Main Board issuers must disclose absolute gross Scope 1 and Scope 2 emissions for financial years commencing on or after 1 January 2025, measured in accordance with the GHG Protocol, with Scope 2 on a location-based method.⁴ Scope 3, emissions across the upstream and downstream value chain, sits in the comply-or-explain tier for the Main Board and the mandatory tier for LargeCap issuers from FY2026, with issuers stating which of the fifteen GHG Protocol categories their measurement includes.

Four proportionality reliefs run through Part D and temper the burden:^4,11

• Reasonable information relief: use information reasonably available at the reporting date without undue cost or effort;
• Capabilities relief: disclosures may reflect the skills, capabilities and resources actually available to the issuer;
• Commercial sensitivity relief: narrowly framed protection where disclosure would seriously prejudice economic benefits;
• Financial effects relief: quantitative financial-effect disclosure is not required where effects are not separately identifiable or measurement uncertainty is too high to be useful; qualitative disclosure is expected instead.

HKFRS S2 carries the ISSB's transition reliefs, unextended: in the first annual reporting period an entity may omit Scope 3 disclosure, may continue using a non-GHG-Protocol measurement method it already used, need not present comparatives, and may report only on climate under the "climate-first" relief in HKFRS S1.⁷

Read these reliefs as ramps, not shelters. The AFRC's proposed assurance sequence, emissions first, means the numbers benefiting from relief today are precisely the numbers an assurance provider will test first tomorrow.⁸ A Scope 3 inventory built hastily in year three, under assurance scrutiny, costs far more than one built deliberately from year one.

What does climate scenario analysis require?

HKFRS S2, like the IFRS S2 text it adopts, requires an entity to assess and disclose its climate resilience using climate-related scenario analysis, with an approach commensurate with its circumstances, its exposure, and the skills, capabilities and resources available to it. Part D carries the equivalent expectation into the Listing Rules, moderated by the reliefs above.^4,5

In practice this does not demand a bespoke macroeconomic model. A defensible first-cycle approach for a mid-market issuer is a structured qualitative analysis against at least two contrasting scenarios, typically an orderly transition and a higher-warming physical-risk scenario, applied to material assets, markets and supply chains, with assumptions, horizons and sources documented. What boards should not accept is a scenario section that could be pasted into any competitor's report: HKEX's implementation guidance is clear that the analysis should inform, and be seen to inform, strategy and risk management.⁵

Directors should ask management three questions: which scenarios, why those, and what decision changed as a result.

How do Hong Kong's rules interact with mainland China's standards?

Most large Hong Kong issuers are, economically, mainland groups: so the mainland's parallel trajectory matters for data architecture even where it does not bind the listed entity directly.

The Ministry of Finance, jointly with eight other ministries, issued the Chinese Sustainability Disclosure Standards for Business Enterprises, Basic Standard (Trial) on 20 November 2024, followed by a Climate Standard (Trial) on 19 December 2025, with a unified national disclosure system targeted for basic establishment by 2030. The standards are ISSB-informed while reflecting Chinese circumstances, and application is currently voluntary pending formal scoping.⁹ The mainland exchanges have separately issued sustainability disclosure guidelines for their listed companies.⁹

For a Hong Kong-listed group with mainland subsidiaries, three consequences follow. First, dual-reporting is coming: A+H issuers should map the two regimes early rather than run parallel data collections. Second, the direction of travel is convergent, so a group data model organised around the four pillars and GHG Protocol categories serves both. Third, data residency matters: emissions and operational data originating in the mainland may be subject to data-transfer considerations, which argues for a reporting architecture in which the group controls where its data sits.

When will sustainability assurance become mandatory in Hong Kong?

Assurance is the piece that converts disclosure into discipline, and Hong Kong has moved quickly. On 29 December 2025 the AFRC published a consultation paper proposing a regulatory framework for sustainability assurance.^8,10 The headline proposals:

• Mandatory limited assurance for entities subject to mandatory reporting under the HKFRS Sustainability Disclosure Standards;
• Phase 1: Scope 1 and Scope 2 emissions assured from the third year of mandatory reporting;
• Phase 2: all remaining mandatory disclosures assured from the fifth year;
• Assurance performed under the Hong Kong Standard on Sustainability Assurance 5000 (the local adoption of ISSA 5000), by Registered Sustainability Assurance Providers: registered local PIE auditors or accredited non-CPA firms, under a single AFRC registration and oversight structure.

The consultation closed on 30 March 2026; as at July 2026 the AFRC had not published its conclusions, so the above remain proposals. The strategic message is unambiguous, though: if mandatory HKFRS reporting begins in 2028, assured emissions numbers arrive around 2030 on the proposed phasing, and the systems producing them are being built now. An emissions figure without a traceable calculation, source evidence and change history will not survive limited assurance.

How should boards prepare? A practical readiness sequence

For an issuer starting from a conventional ESG Guide report, an eighteen-month sequence looks like this, and doubles as a preview of what an assurance provider will actually check.

• Assign ownership and gap-assess (months 1–3). Put Part D and HKFRS S2 on the audit or a dedicated committee's agenda, with executive ownership shared between the CFO and the sustainability lead. Map the current report against Part D paragraph by paragraph; every comply-or-explain gap needs a closure plan or a defensible explanation.
• Fix the emissions baseline (months 2–6). Re-perform Scope 1 and 2 to GHG Protocol standards with location-based Scope 2, and document the organisational boundary, a frequent weak point for conglomerates with joint ventures and minority-held mainland entities. Screen all fifteen Scope 3 categories for materiality and start with the three or four that dominate.
• Build the evidence layer (months 4–9). Treat every disclosed number like a financial-statement line item: source document, calculation, reviewer, sign-off. Given the AFRC's proposed assurance sequence, this is the highest-return investment.
• Run scenario analysis that changes a decision (months 6–12). Two scenarios, material assets and markets, documented assumptions, board discussion minuted.
• Rehearse the HKFRS S1/S2 report (months 12–18). Draft a full ISSB-architecture report internally before it is mandatory, and let internal audit or an assurance provider perform a readiness review.

The recurring failure mode is data logistics, not concepts: group entities on different ERPs, mainland subsidiaries on different cycles, spreadsheets with no version control, a consultant-drafted narrative nobody can reproduce the following year. The remedy is a single controlled repository for sustainability data, standard calculation methods and workflows that force evidence capture at source, the financial-grade infrastructure purpose-built platforms such as EcoLedger provide, including the evidence trail an assurance provider expects.

Frequently asked questions

Who must comply with HKFRS S1 and S2?

HKFRS S1 and S2 took effect on 1 August 2025 for voluntary application. Under the Government's roadmap, large publicly accountable entities, Main Board listed companies and significant non-listed financial institutions, are on a pathway to mandatory application no later than 2028, with HKEX expected to consult in 2027 on the mechanism for listed companies.

What are the HKEX climate disclosure requirements from 1 January 2025?

Part D of the ESG Reporting Code (Appendix C2 to the Listing Rules) applies to financial years commencing on or after 1 January 2025. Scope 1 and 2 emissions disclosure is mandatory for all Main Board issuers; the other climate disclosures, governance, strategy, scenario analysis, risk management, Scope 3 and climate targets, are comply-or-explain for Main Board issuers, mandatory for Hang Seng Composite LargeCap Index constituents from financial years commencing 1 January 2026, and voluntary for GEM issuers.

Are the HKEX climate disclosure rules mandatory or comply-or-explain?

Both, by tier. Scope 1 and 2 emissions disclosure is mandatory for all Main Board issuers from financial years commencing on or after 1 January 2025. The remaining Part D disclosures are comply-or-explain for Main Board issuers, mandatory for LargeCap issuers from financial years commencing on or after 1 January 2026 (first reports published in 2027), and voluntary for GEM issuers.

Is Scope 3 disclosure mandatory in Hong Kong?

Scope 3 sits within the comply-or-explain climate disclosures for Main Board issuers from financial years commencing 1 January 2025, and becomes mandatory for LargeCap issuers from financial years commencing 1 January 2026. Issuers must state which of the fifteen GHG Protocol Scope 3 categories are included in their measurement; HKFRS S2 itself provides relief from Scope 3 disclosure in an entity's first annual reporting period.

What is the difference between HKFRS S1/S2 and the HKEX ESG Reporting Code?

They are two separate tracks. The ESG Reporting Code (Appendix C2, Part D) is a listing-rule obligation administered by HKEX, in force since 1 January 2025 and modelled on IFRS S2. HKFRS S1 and S2 are accounting-standard-level standards issued by the HKICPA, fully aligned with the ISSB's IFRS S1 and S2, effective 1 August 2025 for voluntary application and targeted for mandatory application by large publicly accountable entities no later than 2028.

Is HKFRS S2 identical to IFRS S2?

Yes, the HKICPA issued HKFRS S1 and S2 on a full-alignment basis with the ISSB standards, without local modifications and without extending the ISSB's transition reliefs. Reports prepared under HKFRS S1/S2 should therefore be comparable with ISSB-based reports in other jurisdictions.

Does HKFRS S2 require climate scenario analysis?

Yes. Like IFRS S2, HKFRS S2 requires an entity to assess its climate resilience using climate-related scenario analysis, with an approach commensurate with its circumstances, skills and resources. The HKEX Part D requirements, developed from IFRS S2, carry an equivalent expectation, subject to the Code's proportionality reliefs.

Will sustainability reports in Hong Kong need independent assurance?

The AFRC's 29 December 2025 consultation proposes mandatory limited assurance for entities subject to mandatory HKFRS Sustainability Disclosure Standards reporting: Scope 1 and 2 emissions from the third year of mandatory reporting, and remaining mandatory disclosures from the fifth year, performed by Registered Sustainability Assurance Providers under Hong Kong Standard on Sustainability Assurance 5000. The consultation closed on 30 March 2026 and conclusions were pending as of July 2026.

We report against the old ESG Reporting Guide, how big is the jump?

Significant. The renamed ESG Code adds a climate part built on IFRS S2: quantified financial effects, scenario analysis, Scope 3, GHG Protocol methodology and mandatory tiers, none of which the old Guide required. The four-pillar structure will feel familiar to TCFD reporters; the evidential rigour will not.

How do Hong Kong's rules interact with mainland China's sustainability standards?

Mainland China is building its own ISSB-informed system: the Ministry of Finance issued a Basic Standard (Trial) on 20 November 2024 and a Climate Standard (Trial) on 19 December 2025, with a unified national system targeted for 2030 and application currently voluntary. Hong Kong-listed groups with mainland operations should design one data architecture capable of serving both HKFRS S1/S2 and emerging mainland requirements.

References

1. HKICPA, "HKICPA publishes HKFRS Sustainability Disclosure Standards", news release, 12 December 2024, accessed July 2026.
2. Hong Kong SAR Government, "Government launches roadmap on sustainability disclosure in Hong Kong", press release, 10 December 2024, accessed July 2026.
3. Financial Services and the Treasury Bureau, Roadmap on Sustainability Disclosure in Hong Kong, December 2024, accessed July 2026.
4. HKEX, Consultation Conclusions: Enhancement of Climate-related Disclosures under the Environmental, Social and Governance Framework, April 2024, accessed July 2026.
5. HKEX, Implementation Guidance for Climate Disclosures under HKEX ESG Reporting Framework, April 2024, accessed July 2026.
6. HKEX Rulebook, Appendix C2: Environmental, Social and Governance Reporting Code, accessed July 2026.
7. IFRS Foundation, "Jurisdictional profile: Hong Kong SAR, IFRS Sustainability Disclosure Standards", accessed July 2026.
8. AFRC, "AFRC Proposes Mandatory Sustainability Assurance to Strengthen Hong Kong's Role as a Leading Green Finance Hub", press release, 29 December 2025, accessed July 2026.
9. IFRS Foundation, "Jurisdictional snapshot: People's Republic of China", accessed July 2026.
10. AFRC, Consultation Paper on the Proposed Regulatory Framework for Sustainability Assurance in Hong Kong, December 2025, accessed July 2026.
11. Charltons, "HKEX New Climate Disclosure Requirements from 1 January 2025", accessed July 2026.
12. Linklaters Sustainable Futures, "ESG Quick Guide: Hong Kong SAR, Climate disclosure rules under Hong Kong Listing Rules", accessed July 2026.