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INTRODUCTION

This Corporate Governance Code sets out: (a) the mandatory requirements for disclosure in an issuer’s Corporate Governance Report; and (b) the principles of good corporate governance, the code provisions on a “comply or explain” basis and certain recommended best practices. Issuers are encouraged to adopt the recommended best practices on a voluntary basis.
 
Part 1 – Mandatory disclosure requirements
 
Issuers must include a corporate governance report prepared by the board of directors in their annual reports and summary financial reports (if any) under rules 18.44 and 18.81 (“Corporate Governance Report”). The Corporate Governance Report must contain all the information set out in the section headed “Part 1 - Mandatory disclosure requirements” below. Any failure to do so will be regarded as a breach of the GEM Listing Rules.

To the extent reasonable and appropriate, the Corporate Governance Report included in an issuer’s summary financial report may be a summary of the Corporate Governance Report contained in the annual report, and may also incorporate information by reference to its annual report. The references must be clear and unambiguous, and the summary must not contain only a cross-reference without any discussion of the matter. The summary must contain, as a minimum, a narrative statement indicating overall compliance with and highlighting any deviation from the code provisions set out in the section headed “Part 2 - Principles of good corporate governance, code provisions and recommended best practices” below.
 
Part 2 – Principles of good corporate governance (“Principles”), code provisions and recommended best practices
 
The Principles set the overarching direction to achieving good corporate governance. The code provisions are aimed to help issuers apply the Principles.

The Exchange does not envisage a “one size fits all” approach, and appreciates that effective application of the Principles may be achieved by means other than strict compliance with the code provisions depending on a range of factors, including the issuer’s own individual circumstances, the size and complexity of its operations and the nature of the risks and challenges it faces. Issuers are expected to comply with, but may choose to deviate from, the code provisions in order to achieve the spirit of the Principles.

The recommended best practices are for guidance only. The voluntary nature of the recommended best practices does not mean that they are not important, but rather, they are practices which should be adhered to support issuer’s application of the Principles. Issuers are encouraged to state whether they have complied with the recommended best practices and give considered reasons for any deviation.
 
What is “comply or explain”?
 
1.    Issuers must state whether they have complied with the code provisions for the relevant accounting period in their annual reports (and summary financial reports, if any) and half-year reports (and summary half-year reports, if any).
 
2. If an issuer considers that it can adopt the Principles without applying the code provisions, it may deviate from the code provisions (i.e. adopt action(s) or step(s) other than those set out in the code provisions) provided that the issuer sets out:
 
(a)    in the Corporate Governance Report in the annual reports (and summary financial reports, if any) the considered reasons for the deviation and explain how good corporate governance was achieved by means other than strict compliance with the code provision (the ‘’Considered Reasons and Explanation’’). The explanation should provide a clear rationale for the alternative actions and steps taken by the issuer and their impacts and outcome; and
 
(b) in the half-year reports (and summary half-year reports, if any) either:
 
(i)    the Considered Reasons and Explanation in respect of the deviation, or
 
(ii) to the extent reasonable and appropriate, by referring to the Corporate Governance Report in the preceding annual report, and providing details of any changes for any deviation not reported in that annual report with Considered Reasons and Explanation. The references must be clear and unambiguous, and the half-year report (or summary half-year report) must not contain only a cross-reference without any discussion of the matter.
 
The Considered Reasons and Explanation are helpful in fostering an informed, constructive dialogue between issuers and shareholders with a view to improving corporate governance continuously. Shareholders are encouraged to engage constructively and discuss with the issuer any deviation from the code provisions. In evaluating the Considered Reasons and Explanation given by the issuer, shareholders should pay due regard to the issuer’s individual circumstances.
 
3. An issuer would be in breach of the GEM Listing Rules if it deviates from a code provision but does not provide Considered Reasons and Explanation in the manner as set out above.
 
Linkage between Corporate Governance and Environmental, Social and Governance (“ESG”)
 
Corporate governance provides the framework within which the board forms their decisions and build their businesses. The entire board should be focusing on creating long-term sustainable growth for shareholders and delivering long-term values to all stakeholders. An effective corporate governance structure allows issuers to have a better understanding of, evaluate and manage, risks and opportunities (including environmental and social risks and opportunities). The ESG Reporting Guide set out in Appendix 20 to the GEM Listing Rules provides a framework for issuers to, among other things, identify and consider what environmental risks and social risks may be material to them. The board should be responsible for effective governance and oversight of it, as well as assessment and management of material environmental and social risks. Issuers are required to disclose environmental and social matters in ESG reports in accordance with the ESG Reporting Guide.