Hong Kong Financial Reporting Standards (HKFRS)

What is the HKFRS?

HKFRS stands for Hong Kong Financial Reporting Standards, the accounting and disclosure standards published by the Hong Kong Institute of Certified Public Accountants (HKICPA) for entities operating in Hong Kong. Within that framework are two new sustainability-focused standards: HKFRS S1 and S2, built on the International Sustainability Standards Board’s (ISSB) global standards.

What are HKFRS S1 and S2?

HKFRS S1 and S2 are together referred to as the HKFRS SDS, or Sustainability Disclosure Standards. Both are Hong Kong’s local versions of ISSB’s IFRS S1 and S2, fully aligned. Before the publication in December 2024, HKICPA ran a consultation in 2022 and a technical feasibility study in 2024, both involving more than 80 companies and investors before finalising the drafts that would then align with ISSB.

HKFRS S1: This standard handles the general requirements of sustainability-related financial risks and opportunities, including cash flows and capital costs. HKFRS S1 disclosure sits alongside a company’s financial statements.
HKFRS S2: This second standard focuses on climate disclosures. HKFRS S2 requires the disclosure of physical and transition climate risks, climate-related opportunities, and greenhouse gas (GHG) emissions.

The application became voluntary on August 1, 2025, which is ahead of a mandatory rollout for larger entities.

Which businesses does the HKFRS cover?

Hong Kong’s roadmap targets two large groups of what it calls publicly accountable entities, or PAEs.

Large-Cap Issuers: Listed companies that are Hang Seng Composite large-cap Index constituents
Non-listed PAEs that are financial institutions: Banks, insurers, and other entities carrying significant weight in Hong Kong’s financial system, even without a listing.

The roadmap prioritises these large PAEs for the full adoption of HKFRS S1 and S2 by 2028. The detailed mandatory requirements and implementation arrangements will be introduced through the relevant financial regulators and listing rules.

What are the HKFRS sustainability reporting requirements?

Companies must disclose sustainability- and climate-related risks and opportunities that could significantly affect cash flows, access to finance, and the cost of capital. It focuses on what is financially material rather than on every ESG topic. Both HKFRS S1 and S2 are built around the Task Force on Climate-Related Financial Disclosures, or TCFD’s, four pillars: governance, strategy, risk management, and metrics and targets. These are what the ISSB standards were built to carry forward.

- Governance oversight: Boards and management must take direct responsibility for sustainability and climate-related risks.
- Strategy integration: Companies must explain how these risks shape current and planned business decisions.

Risk management: Companies must describe the processes used to identify, assess, prioritise, and monitor sustainability- and climate-related risks, and how these feed into overall risk management.

Scenario analysis: Companies must test how their strategy holds up against different climate outcomes.
GHG emissions: Companies must disclose Scope 1, 2, and 3 GHG emissions, using industry-based metrics drawn from SASB standards.
Emissions boundary: Scope 1 and 2 emissions must be presented separately for the consolidated group versus other investees.
Remuneration link: Companies must disclose how executive pay ties to climate performance.
Reporting boundary: Disclosures must match the company’s consolidated financial statements, not a separate ESG scope.

HKFRS Sustainability Requirements Implementation Roadmap

HKFRS S1 and S2 are being phased in to gradually move from voluntary use to mandatory adoption for large PAEs.

- August 1, 2025: HKFRS S1 and S2 become available for voluntary adoption by any entity that wants to use them.

2026: The HKFRS S1 and S2 continue to be voluntary.

2027: HKEX will consult the market on transitioning listed PAEs from its interim climate rules under the HKEX ESG Code to the full HKFRS SDS.
January 1, 2028: Large-cap issuers and large non-listed (LNL) financial institutions are expected to fully adopt HKFRS S1 and S2, and HKFRS SDS is expected to be mandatory.

How do the HKFRS sustainability disclosure standards relate to the HKEX’s climate-related disclosure requirements?

Alongside HKFRS, Hong Kong also has a separate set of rules implemented by the Hong Kong Exchanges and Clearing Limited (HKEX), called the ESG Code, which listed companies are already mandated to comply with today. It carries the New Climate Requirements, built directly on IFRS S2. Companies reporting under the current HKEX ESG rules are effectively exercising the HKFRS S2. Once the 2027 consultation concludes, HKEX ESG obligations are expected to be folded into, or replaced by, the full HKFRS SDS for listed companies, starting with financial years beginning on or after 1 January 2028.

FAQs on HKFRS

Is HKFRS SDS mandatory?

It is currently voluntary outside the scope of large-cap issuers, and the standards have been available for use since August 1, 2025. What is already mandatory for Main Board and large-cap issuers is the separate interim set of rules from the HKEX in its New Climate Requirements, which also applies the guidelines of HKFRS S2. The full HKFRS SDS itself is not expected to be mandatory until 2028, following a 2027 market consultation.

Does full alignment with IFRS S1 and S2 mean Hong Kong will automatically adopt future ISSB standards?

The alignment covers only IFRS S1 and S2 as they stand today. Any future ISSB standard would go through separate HKICPA stakeholder engagement before adoption.

How Presgo Supports HKFRS-Compliant Sustainability Reporting

Presgo ESG reporting software helps companies comply with the HKFRS sustainability standards seamlessly while providing support for sustainability impact. The platform is an AI-first, modular ESG platform designed for multi-framework reporting systems and provides ESG reporting solutions. Its modules include: