China's Carbon Neutrality (01372): Clarification of relevant matters in media reports and the Stock Exchange's disciplinary action announcement

Zhitong Finance App News, China Carbon Neutrality (01372) issued an announcement. This announcement was made voluntarily by the board of directors of China Carbon Neutrality and Development Group Limited (the Company, together with its subsidiaries, the “Group”) to provide shareholders and potential investors with additional factual background and clarification on the two core issues involved in the disciplinary action notice (the announcement) issued by the Hong Kong Stock Exchange Limited (the Exchange) on November 3, 2026.

1. Matters relating to the “overvaluation” of carbon credit assets - not deliberate overvaluation, but due to differences in the timing of VCS issuance

According to the Stock Exchange announcement, the Company's second interim results and second interim report for the 12 months ended 31 December 2023 overestimated carbon credit assets by approximately HK$58.7 million. The Board wishes to clarify that the difference is not due to artificially inflated asset values, but rather that there is a mismatch between the certified emission reductions (VCUs) of the relevant carbon credit assets between the time the Verra Registry was issued and the time the financial report was confirmed.

The Group's carbon credit assets are mainly projects under the Certified Carbon Standard (VCS). The relevant projects have been developed and officially submitted to Verra in accordance with the requirements of the Verra mechanism. However, during the 2023 fiscal year, Verra initiated additional review and suspension procedures for several methodologies and project types, which led to a significant slowdown in project review and VCUS issuance progress across the Verra platform. As a result, VCS certified emission reductions for the Group's related projects could not be issued and entered into the Group's Verra Registry account before the end of the 2023 financial reporting period.

When preparing the second interim financial data for 2023, the management confirmed the relevant carbon credit assets according to the expected amount of VCUs and fair value based on the judgment that the project has submitted a Verra declaration and is expected to be issued within a short period of time under normal circumstances. The starting point of this judgment is the development progress and commercial nature of the project under the Verra mechanism, rather than the intention to inflate assets. However, in the end, due to Verra's approval cycle exceeding expectations, the relevant VCUs failed to “arrive” before the end of the financial reporting period, resulting in a difference between the confirmed asset amount and the carbon credit assets actually held at the end of the reporting period. The Stock Exchange Listing Committee later determined that the difference was overestimated in accordance with the strict standards of financial reporting.

The Board acknowledged that the relevant assets are recorded when the confirmation conditions for the relevant assets have not been fully met, and there are improvements that can be made in the compliance review of financial reports. The board of directors has urged management to strictly use the actual issuance of VCUS and entry into the Group's Registry account as the point in time of asset confirmation in subsequent financial reports to prevent similar timing differences from once again affecting the accuracy of financial disclosure.

2. Matters relating to the acquisition of mainland companies that were not promptly announced - the acquisition has been completed, and the disclosure schedule was negligent

The Stock Exchange announcement also stated that the Company acquired a mainland Chinese company for HK$30 million in March 2024, but did not promptly disclose it in accordance with the provisions of Chapter 13 and Chapter 14 of the Listing Rules (Listing Rules). The Board confirmed the completion of the acquisition and provided the following explanation for the omission of disclosure timing.

The intention for the acquisition was formed in the company's internal decision-making process. The management had initiated a corresponding internal evaluation and authorization process for the acquisition intention at the time, but after the acquisition was completed, the team responsible for handling disclosure matters was unable to promptly submit the completion of the acquisition to the board of directors and publish an announcement due to insufficient understanding of the trigger point and announcement time limit requirements for transactions to be announced under the listing rules. This omission is unintentional and unintentional, and is not intended to conceal transaction information. Upon learning of the relevant situation, the Board immediately took remedial action, including prompting the Company to publish relevant announcements in accordance with the Exchange's requirements to restore compliance with the disclosure status.

The Board of Directors deeply regrets this delay in disclosure and has ordered the Internal Control and Compliance Department to establish a more careful verification mechanism for the identification, scale testing and announcement timelines of transactions subject to publication.

III. Remedies

To prevent similar matters from happening again, the Board has resolved and is implementing the following remedies:

(1) Strengthen the financial verification mechanism for carbon asset confirmation: In terms of accounting confirmation of carbon credit assets, establish a confirmation policy that presupposes actual receipt of accounts in the Verra Registry. At the end of each reporting period, the financial department shall obtain the actual position records of the Registry account, and an external auditor shall conduct a special inspection at the time of confirmation to ensure that the financial disclosure is consistent with the actual asset status.

(2) Improve internal control of transactions subject to publication: Revise the Group's “Notifiable Transactions Management Policy” to make it clear that any foreign investment or acquisition triggers a scale test and disclosure time limit assessment by the compliance department at the stage of signing the intended documents. The compliance department has the right to suspend the transaction settlement process before the announcement is published.

(3) Mandatory compliance training and external advisory pre-mechanism: All directors and senior management relating to Chapter 13, Chapter 14 and Chapter 14A of the Listing Rules must complete compliance training courses approved by the Stock Exchange; any subsequent project involving transactions subject to disclosure must obtain written opinions from external legal advisors on disclosure obligations before submitting to the Board of Directors for consideration.

(4) Internal reporting system for continuous disclosure: Compliance departments must submit accounts requiring disclosure of significant developments in transactions and carbon assets to the Board of Directors review committee on a monthly basis to ensure that any matter triggering disclosure obligations enters the announcement process within the shortest time reasonably practicable.

The Board of Directors wishes to emphasize that the Group's carbon asset development business continues to advance, and the application and issuance of related VCS projects has not been interrupted. The company will continue to maintain communication with Verra, track the progress of approval of unissued projects, and carry out corresponding accounting processing and disclosure in accordance with applicable standards after VCUS actually arrives. The Company will also carefully evaluate the impact of the Exchange's disciplinary action and issue separate announcements on any significant developments in due course.