[Monthly Report] Consultation Paper on the Proposed Regulatory Framework for Sustainability Assurance in Hong Kong Released: Enhancing Credibility of Green Finance and Aligning with New International Standards

In December 2025, the Accounting and Financial Reporting Council (AFRC) issued the Consultation Paper on the Proposed Regulatory Framework for Sustainability Assurance in Hong Kong[1] (hereinafter referred to as the “Consultation Paper”). Its core proposal is that eligible entities must conduct third-party assurance on their disclosed sustainability information in phases. This initiative is regarded as a crucial step to enhance the credibility of sustainability information in Hong Kong and improve the sustainability disclosure ecosystem.

I. Update to Assurance Standards

The Consultation Paper proposes that mandatory assurance must be carried out in compliance with the Hong Kong Standard on Sustainability Assurance (HKSSA) 5000. This new standard is a professional framework tailored for sustainability information assurance and will fully replace the currently widely adopted International Standard on Assurance Engagements (ISAE) 3000 for sustainability-related assurance purposes.

In accordance with guidelines from the International Auditing and Assurance Standards Board (IAASB), once the International Standard on Sustainability Assurance (ISSA) 5000 takes effect on 15 December 2026, the existing ISAE 3000 will no longer apply to sustainability-related assurance engagements. Instead, its local equivalent—HKSSA 5000—will be adopted to facilitate a smooth transition from the old standard to the new one.

Key Features of HKSSA 5000:

•           Unlike ISAE 3000, HKSSA 5000 is specifically designed for "sustainability assurance" rather than serving as a general assurance standard;
•            HKSSA 5000 is fully aligned with ISSA 5000, helping enterprises operating across jurisdictions manage group-level assurance more efficiently;
•            As indicated in the Consultation Paper, the application of HKSSA 5000 for mandatory assurance requires the concurrent implementation of the Hong Kong Standard on Quality Management (HKSQM) 1 and the Hong Kong Ethics Standards for Sustainability Assurance (HKESSA) to strengthen quality control and independence/objectivity.

II. Entities Required to Obtain Assurance

Under the proposals in the Consultation Paper, all enterprises required by regulators to mandatorily adopt the Hong Kong Financial Reporting Standards (HKFRS) Sustainability Disclosure Standards (HKSDS) for ESG information disclosure must obtain independent sustainability assurance. This is expected to primarily cover large Publicly Accountable Entities (PAEs), such as listed companies in Hong Kong and large financial institutions, as the Hong Kong Exchanges and Clearing Limited (HKEX) and relevant regulators (including the Securities and Futures Commission, Hong Kong Monetary Authority, Insurance Authority, and Mandatory Provident Fund Authority) plan to promote the mandatory adoption of sustainability disclosure standards developed by the International Sustainability Standards Board (ISSB) for such entities in the near future (no later than 2028 for large PAEs).

This step will transform the current voluntary ESG information assurance practice among large enterprises (67% of Hang Seng Composite LargeCap Index (HSCLI) constituents already published assured sustainability disclosures in 2025) into a mandatory requirement, covering more enterprises and making assurance a regular process.

III. Scope and Timing of Assurance

Subject to further consultations by HKEX and relevant financial regulators regarding Mandatory HKSDS Reporting, the Consultation Paper proposes that all entities subject to such reporting must obtain limited assurance in phases:

•         Limited assurance over Scope 1 and Scope 2 greenhouse gas (GHG) emission disclosures from the third financial year of the Mandatory HKSDS Reporting; and
•             Limited assurance over all remaining disclosures mandated under HKSDS from the fifth financial year of the Mandatory HKSDS Reporting.

For example, if an enterprise is required to issue sustainability reports in accordance with HKSDS starting from the 2028 financial year, its disclosed Scope 1 (direct emissions from owned or controlled sources) and Scope 2 (indirect emissions from purchased energy) GHG data must be assured from the 2030 financial year, and all other mandatory indicators disclosed must be assured from the 2032 financial year.

IV. Market Impact

If the Regulatory Framework for Sustainability Assurance in Hong Kong is successfully implemented, it is expected to have a profound positive impact on the market. Firstly, mandatory assurance will significantly enhance the transparency and credibility of sustainability information disclosure, helping to create a more transparent market environment and thereby boosting the overall trust in the market. When investors can access high-quality, comparable, and reliable ESG information, they will be more willing to channel capital into relevant sustainable development projects and enterprises, promoting the further prosperity of the sustainable finance market.

Secondly, the new policy will urge enterprises to improve their ESG performance. The pressure of mandatory assurance will "force" enterprises to enhance their actual ESG performance—To pass independent assurance and demonstrate good results to the market, enterprises will invest more resources in sustainable initiatives such as carbon reduction, energy efficiency improvement, and strengthening employee and community management. Companies that excel in sustainable development and have their performance verified through assurance will be more attractive to investors, thereby enjoying market rewards such as lower cost of capital and enhanced brand reputation.

Finally, the mandatory sustainability assurance policy will further consolidate Hong Kong's position as an international green finance center. By aligning with international standards and ensuring the high quality of local practices, the competitiveness of Hong Kong's sustainable finance market will be safeguarded.

If you wish to learn more about the Proposed Regulatory Framework for Sustainability Assurance in Hong Kong, please feel free to contact Lianhe Green. We are committed to providing you with professional assistance to help your enterprise seize the development opportunities in green finance!