According to Zhituo Finance APP, on December 19, HKEX (00388) wholly-owned subsidiary Hong Kong Stock Exchange published a consultation summary regarding the review of the "Corporate Governance Code" and related "Listing Rules". The Hong Kong Stock Exchange received a total of 261 responses from various sectors of the market. All suggestions received support from more than half of the respondents. After considering the opinions of the respondents, the Hong Kong Stock Exchange will adopt the consultation suggestions with some modifications or clarifications. The new regulations will take effect on July 1, 2025.

It is reported that the new regulations will take effect on July 1, 2025, applicable to corporate governance reports and annual reports for financial years starting on or after July 1, 2025, while the limits on excessive appointments and independent director terms will have the aforementioned transition period. The Hong Kong Stock Exchange will publish updated guidelines in the first half of 2025 to assist issuers in complying with the new regulations.

HKEX's Listing Director Wu Jiexuan stated: "This optimization of the 'Corporate Governance Code' reflects HKEX's continuous commitment to promoting the corporate governance standards of Hong Kong issuers. The new regulations will bring diverse new perspectives to the boards of directors of issuers, overall enhancing the effectiveness, independence, and diversity of the boards. Special thanks to all stakeholders for actively participating in this market consultation; this feedback helps us formulate more effective and targeted policies. We believe that providing a longer implementation timeline and revising the original proposals will balance the need to enhance the level of corporate governance in the market while providing issuers with the flexibility to gradually meet compliance standards. Importantly, these improvements align with the higher expectations of global investors for corporate governance, ensuring that our market remains internationally competitive and attractive, supporting the robust development of Hong Kong's capital markets."

The revisions to the 'Corporate Governance Code' and related 'Listing Rules' include:

1. Board of Directors Effectiveness

The requirement to appoint a chief independent director when the board chairman is not an independent person has changed to a voluntary basis (new suggested best practice), and enhanced disclosure of interaction with shareholders (new code provision 3).

Directors are required to complete training on specific topics each year, with newly appointed directors needing to complete at least 24 hours of training within 18 months of their first appointment. If newly appointed directors have experience as directors of other listed issuers on the Exchange, the training hours can be reduced to 12 hours (new regulation under the Listing Rules).

Regularly evaluate the performance of the Board of Directors and disclose the skills matrix of the Board of Directors (new code provisions).

Set a cap on 'excessive directorships' - independent directors may not serve as directors of more than six Hong Kong listed issuers, with a three-year transition period (i.e., compliance is required at the first annual general meeting of shareholders held on or after July 1, 2028) (new regulation under the Listing Rules).

2. Board Independence - The issuer's Board of Directors may not have independent directors who have served more than nine years (i.e., reappointed independent directors) (new regulation under the Listing Rules), and will adopt a new phased implementation approach during the extended transition period of six years, as follows:

3. Diversity - (i) The nomination committee must have directors of different genders (new code provisions); (ii) Review the board's diversity policy annually (elevated to mandatory disclosure requirement); and (iii) Develop an employee diversity policy (new regulation under the Listing Rules).

4. Risk Management and Internal Control - Review relevant systems (at least annually) and enhance the disclosure of the review process and results (elevated to mandatory disclosure requirement).

5. Capital Management - Enhance the disclosure of the issuer's dividend policy and the board's decisions on dividends (new mandatory disclosure requirement).

Review of the issuer's regular ESG disclosure.

The Exchange recently published the results of the review of issuers' Environmental, Social, and Governance (ESG) disclosure, aimed at assessing issuers' compliance with our ESG reporting framework and whether large cap issuers are ready to report on new climate regulations. The application of AI technology allows the Exchange to expand the scope of its review, covering all latest ESG reports published by companies listed on HKEX up to June 30, 2024, with the number of reviewed reports increasing by 522% compared to the last review.

Main review results:

1. The reporting rate for all areas (except for 'B4: Labor Standards') is at least 91%.

2. The quality of ESG governance disclosure has generally improved, with issuers providing more details about the participation of their Directors in regulatory matters and ESG considerations.

3. Most large cap issuers have a certain understanding of the upcoming new climate regulations and have begun reporting on several new requirements (such as climate-related scenario analysis, Scope 3 greenhouse gas emissions, and quantifying environmental targets).