Conflict Minerals Disclosure Requirements for Hong Kong IPOs

The Hong Kong Stock Exchange (HKEX) has not, as of mid-2025, introduced a standalone mandatory disclosure regime for conflict minerals equivalent to the U.S. Securities and Exchange Commission’s (SEC) Rule 13p-1 under the Dodd-Frank Act. However, this regulatory vacuum is closing rapidly. A confluence of factors—the HKEX’s 2024 enhancement of its Environmental, Social, and Governance (ESG) reporting framework under Listing Rules Appendix 27, the European Union’s Conflict Minerals Regulation (EU 2017/821) coming into full force in 2021 with cascading supply chain effects, and the increasing scrutiny from institutional investors with HK$4.3 trillion in AUM under the Principles for Responsible Investment (PRI)—now makes conflict minerals a de facto material disclosure risk for Hong Kong IPO applicants. For a company filing an A1 application, failing to map its supply chain for tin, tantalum, tungsten, and gold (3TG) from the Democratic Republic of the Congo (DRC) or adjoining countries is no longer a compliance gap; it is a direct threat to the viability of the sponsor’s due diligence opinion under the SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (SFC Code, paragraph 17.6). This article dissects the current legal obligations, the practical mechanics of supply chain due diligence, and the specific disclosure language required in a Main Board or GEM prospectus.

The Regulatory Framework: From Soft Guidance to Hard Obligation

The HKEX ESG Reporting Code and the “Comply or Explain” Trap

The primary vehicle for conflict minerals disclosure in a Hong Kong IPO is the HKEX’s ESG Reporting Guide, set out in Appendix 27 of the Main Board Listing Rules and Appendix 20 for GEM. Since the 2024 amendments, listed issuers—and by extension, IPO applicants preparing their track record—must report on supply chain management under Aspect B5. The relevant Key Performance Indicator (KPI) is B5.1, which requires disclosure of the “number of suppliers by geographical region.” While this does not explicitly name 3TG, the HKEX’s guidance notes (December 2023) clarify that “environmental and social risks in the supply chain” include “sourcing from conflict-affected and high-risk areas (CAHRAs).”

The trap is in the “comply or explain” mechanism. An IPO applicant that omits any discussion of conflict minerals in its ESG section must provide a reasoned explanation. For a company in the electronics, automotive, aerospace, or jewelry sectors—where 3TG usage is nearly certain—an explanation of “not material” will be met with immediate pushback from the Listing Division. The HKEX’s 2024 review of ESG disclosures found that 68% of issuers in the electronics manufacturing sector had not disclosed any conflict minerals policy, a figure the regulator described as “concerning” in its report. For an IPO applicant, this statistic is a red flag: the Exchange expects a proactive stance, not a post-listing catch-up.

The SFC’s Sponsor Due Diligence Requirements

The more immediate legal risk for an IPO sponsor lies in the SFC’s Code of Conduct. Paragraph 17.6 mandates that a sponsor must exercise “all reasonable due diligence” to ensure the information in the listing document is “true, accurate, and complete.” This obligation extends to the supply chain. If a company’s prospectus claims it has “no exposure to conflict minerals” but the sponsor’s own desktop review of the company’s supplier list reveals a single gold refiner based in the UAE—a known transit point for DRC-origin gold—the sponsor has a duty to investigate further.

The SFC’s enforcement track record is instructive. In 2023, the SFC reprimanded a sponsor for failing to verify a manufacturer’s sourcing claims for rare earth metals (SFC Statement of Disciplinary Action, March 2023). While that case did not involve 3TG, the principle of supply chain materiality was established. For conflict minerals, the SFC expects the sponsor to obtain a Conflict Minerals Report (CMR) prepared in line with the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance, 3rd Edition, 2016). The sponsor must then cross-reference this CMR against the company’s revenue breakdown, supplier contracts, and customs filings. Failure to do so exposes the sponsor to a potential disciplinary fine and, more critically, a refusal by the HKEX to proceed with the listing.

The Due Diligence Process: Mapping the 3TG Supply Chain

Step One: Identifying the “Reasonably Known” Origin

The first practical hurdle for an IPO applicant is determining whether its products contain 3TG. This is not a simple “yes” or “no.” Under the OECD Guidance, a company must conduct a “reasonable country of origin inquiry” (RCOI). For a Hong Kong-based manufacturer that imports raw materials from a trading company in Shenzhen, the chain of custody may be opaque. The RCOI must trace back to the smelter or refiner. The standard tool is the Conflict Minerals Reporting Template (CMRT), developed by the Responsible Minerals Initiative (RMI). The IPO applicant must survey its direct suppliers, requesting CMRT data for the most recent fiscal year.

The HKEX does not prescribe a specific template, but the Listing Division’s informal guidance (as communicated in pre-IPO correspondence with sponsors in 2024) indicates that a CMRT is the “expected standard.” For an applicant with more than 200 direct suppliers, a 100% response rate is unrealistic. The benchmark is a response rate of at least 85% by spend, with a documented escalation plan for non-respondents. This data must be compiled into a draft CMR, which becomes a working document for the sponsor’s due diligence.

Step Two: The Smelter and Refiner Validation

Once the CMRT data is collected, the critical step is identifying the smelters and refiners. The RMI maintains a Conformant Smelter List, which includes facilities that have been audited and found to be compliant with the Responsible Minerals Assurance Process (RMAP). As of June 2025, the list includes 301 smelters for gold, 65 for tantalum, 57 for tin, and 47 for tungsten. An IPO applicant must disclose the percentage of its smelters that are RMAP-conformant. If that percentage is below 80%, the applicant must explain the remediation plan.

This is where the regulatory risk crystallizes. If a smelter is located in the DRC or an adjoining country (Angola, Burundi, Central African Republic, Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda, Zambia) and is not RMAP-conformant, the HKEX will require a detailed narrative in the prospectus’s “Risk Factors” section. The exact language expected was outlined in the HKEX’s 2024 Guidance Letter GL54-24: “The Company may be unable to source conflict-free minerals, which could result in reputational damage, loss of customers, or regulatory penalties.” This is not a generic boilerplate; the HKEX will request a specific quantification of the volume of non-conformant minerals and the countries of origin.

Step Three: Legal Entity and Jurisdictional Nuances

The IPO applicant’s corporate structure matters. A Hong Kong listing vehicle is typically incorporated in the Cayman Islands or Bermuda, with an operating subsidiary in the PRC. The conflict minerals obligation attaches to the entire group, not just the listed entity. This creates a jurisdictional conflict: the PRC does not have a mandatory conflict minerals law, but the HKEX’s Listing Rules apply on a consolidated basis. The sponsor must ensure that the PRC operating subsidiary’s procurement team is trained on the CMRT and that the subsidiary’s supplier contracts include a clause requiring compliance with the OECD Guidance.

For applicants with a VIE structure, the complexity increases. The VIE itself is not a legal entity under PRC law, but its contractual arrangements with the WFOE mean that the supply chain of the VIE’s operating business must be included in the CMR. The HKEX’s Listing Division has, in pre-IPO correspondence, specifically asked for a legal opinion from a PRC law firm confirming that the VIE’s supply chain data can be legally obtained and disclosed. Without this opinion, the sponsor’s due diligence is incomplete.

Drafting the Prospectus Disclosure: What the HKEX Expects

The “Business” Section: Not Just a Footnote

The most common mistake in Hong Kong IPO prospectuses is burying conflict minerals disclosure in the “Risk Factors” section without any substantive discussion in the “Business” section. The HKEX’s Listing Division expects a dedicated sub-section under “Business – Supply Chain Management” that details:

1. The company’s conflict minerals policy, including its commitment to sourcing from RMAP-conformant smelters.
2. The RCOI process, including the number of suppliers surveyed, the response rate, and the percentage of spend covered.
3. The smelter list, including the number of smelters that are RMAP-conformant and those that are not.
4. The countries of origin for all 3TG, with specific mention of the DRC and adjoining countries.
5. The remediation plan for any non-conformant smelters, including timelines for engagement or removal.

The HKEX’s 2024 review of IPO prospectuses in the technology hardware sector found that only 12% of applicants included a dedicated conflict minerals sub-section in the “Business” section. The remaining 88% relied on a single sentence in “Risk Factors.” The Listing Division has since issued informal guidance to sponsors that this approach is “insufficient” for any applicant with more than HKD 500 million in annual revenue.

The “Risk Factors” Section: Specificity Over Generality

When conflict minerals are material, the “Risk Factors” section must move beyond generic language. The HKEX expects a risk factor that quantifies the exposure. For example: “As of 31 December 2024, approximately 15% of the Company’s tin smelters were not RMAP-conformant, and 8% of its gold was sourced from refiners in the UAE, a jurisdiction identified by the OECD as a high-risk transit point for conflict gold.” This level of specificity is required under the HKEX’s principle of “sufficient information” in Listing Rule 2.13(2). A risk factor that simply says “we may be affected by conflict minerals regulations” will be rejected by the Listing Division as inadequate.

The risk factor must also address the potential financial impact. If the company’s largest customer—say, a U.S. automotive OEM—requires RMAP-conformant sourcing under its own supply chain policy, the loss of that customer could represent a material revenue drop. The prospectus must disclose the revenue concentration and the contractual obligation. The SFC’s Code of Conduct paragraph 17.6 effectively requires the sponsor to stress-test this scenario and include the results in the prospectus.

The Cost of Non-Compliance and the Path Forward

Enforcement Trends and Investor Pressure

The HKEX has not yet publicly sanctioned an issuer solely for inadequate conflict minerals disclosure. However, the trend is clear. In its 2024 Enforcement Report, the HKEX noted that it had issued “guidance letters” to 14 listed issuers regarding supply chain disclosures, and that “a significant number” of these letters concerned 3TG. More importantly, institutional investors are acting. In 2024, a group of 27 asset managers with HK$1.2 trillion in Hong Kong equities filed a joint letter to the HKEX demanding mandatory conflict minerals reporting for all listed issuers by 2026. The HKEX has not committed to a timeline, but the pressure is mounting.

For an IPO applicant, the cost of non-compliance is not a fine—it is a delay. The Listing Division has the power to return an A1 application if it deems the due diligence insufficient. A single request for further information on conflict minerals can add 4-8 weeks to the listing timeline. For a company targeting a specific market window, this delay can be existential.

The Practical Checklist for the IPO Team

The following steps should be completed no later than three months before the A1 submission:

1. CMRT Deployment: Send the RMI’s CMRT to all direct suppliers accounting for at least 90% of raw material spend.
2. Smelter Mapping: Use the RMI’s smelter database to identify all smelters and their RMAP status.
3. Gap Analysis: Identify any smelters that are not RMAP-conformant and prepare a remediation plan.
4. Legal Opinion: Obtain a PRC law firm opinion confirming the legality of obtaining supply chain data from PRC subsidiaries and VIE entities.
5. Drafting: Prepare the “Business” section sub-section and the “Risk Factors” section with specific, quantified language.
6. Sponsor Review: The sponsor must conduct an independent review of the CMR and cross-reference it against the company’s financial records and supplier contracts.

Actionable Takeaways

1. Conflict minerals disclosure is now a de facto mandatory requirement for Hong Kong IPO applicants in the electronics, automotive, aerospace, and jewelry sectors, enforced through the HKEX’s ESG Reporting Code under Appendix 27 and the SFC’s sponsor due diligence obligations under paragraph 17.6 of the Code of Conduct.
2. The due diligence process must follow the OECD Guidance and use the RMI’s CMRT, with a target of at least 85% supplier response rate by spend and a full smelter list identifying RMAP-conformant facilities.
3. Prospectus disclosure must include a dedicated sub-section in “Business – Supply Chain Management” with quantified data on smelter conformity and country of origin, not merely a generic risk factor.
4. A failure to complete this due diligence before the A1 submission risks a 4-8 week delay in the listing timeline, as the HKEX’s Listing Division will issue guidance letters requesting further information.
5. For applicants with a VIE structure, a separate PRC law opinion on the legality of data collection from the VIE’s operating business is now a standard expectation from the Listing Division.