SEHK’s New Corporate Governance Code on ESG and Gender Diversity: Clyde & Co


The 10and In December 2021, the Stock Exchange of Hong Kong Ltd (“SEHK”) published its findings on a “Consultation Paper on the Review of the Corporate Governance Code and Related Listing Rules” (published April 2021). As a result, as of January 1, 2022, listed issuers and IPO candidates are required to comply with new requirements relating to Board composition in terms of gender diversity as well as ESG. These changes have been incorporated into a new Corporate Governance Code. The SEHK stressed the need to change the corporate culture and that “Implementing effective corporate governance practices and ESG measures is more than just a ticking exercise. Change must start with a change of mindset at the top of organizations.

Gender diversity

In 2020, only 12.7% of women were represented on the boards of Hong Kong-listed companies. SEHK has recognized the need for better representation to broaden perspective, experience and skills on the board. Nevertheless, the SEHK stated that “Gender diversity is a good starting point…….Issuers are encouraged to include a wider range of diversity perspectives in their policies, recruitment approach and in their corporate reporting, as appropriate.”

As a result, the following changes have been made:

  1. Eliminate and ban unisex boards

    1. Existing issuers with single-sex boards should appoint a director of a different gender as soon as an existing director is required to retire under rotation requirements. In any case, a transitional period of 3 years has been provided for issuers with a unisex board of directors to appoint a director of a different gender before 31st December 2024 .
    2. Issuers that have committed in a listing document to implementing gender diversity on their board are required to appoint a director of a different sex in accordance with this commitment.
    3. IPO applicants with unisex boards have a 6-month transition period; the new requirement must be met for any A1 submission filed on or after July 1, 2022.

  2. Mandatory Disclosure Requirements

Issuers must include in their corporate governance reports the following information:

  1. At the board level, issuers are required to set and disclose measurable goals and timelines for achieving gender diversity.
  2. At the labor level, issuers are required to disclose the following:
    • Gender ratios in the workforce (including senior management);
    • Plans or measurable goals to achieve gender diversity;
    • Any mitigating factors or circumstances that make achieving gender diversity more difficult or less relevant;

  1. Issuers must review their board diversity policy annually

SEHK’s “Corporate Governance Guide for Boards and Directors” sets out a skills matrix to help issuers assess whether their board composition reflects the necessary balance of skills, experience and diversity. The board is required to annually review the implementation and effectiveness of its diversity policy.

  1. Listing requests must include gender information for administrators

Board diversity information is now published on the Hong Kong stock exchanges and clearing market (HKEX) website. The obligation to publish this information aims to induce and encourage issuers to promote diversity within the board of directors and also to ensure transparency on this issue to its investors and potential investors.

Environment, Social and Governance (ESG)

SEHK’s view on the link between ESG and good corporate governance is expressed in its statement that “Corporate governance and ESG are complementary, with corporate governance being inextricably linked to good governance of environmental and social issues. Issuers must identify the risks likely to have a material impact on the business and operations, assess and take appropriate measures to manage these risks. The board should consider ESG risks in the same way as other risks. »

Boards of directors are required to assess and determine the nature and extent of ESG risks and to ensure that there is an effective system of risk management and internal control. The ESG Reporting Guide as set out in Appendix 27 of the Listing Rules provides a framework on how to address ESG issues that are or may be material to them.

In terms of ESG reporting, issuers are now required to publish ESG reports at the same time as the publication of their annual report from 1st January 2022.

The SEHK also refers to climate-related risks and the adoption of TCFD recommendations as a top priority on the global agenda. In this regard, issuers and IPO candidates should also refer to the SEHK’s “Corporate Governance and ESG (Climate Disclosures) Guidance” issued on November 5, 2021. The Guidance (on the HKEX website) helps companies assess their climate change response and carbon reduction initiatives as well as guidance on climate-related financial disclosures (and aligns with TCFD’s climate change reporting).

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