China has introduced its first set of Standards for Corporate Sustainability (ESG) Disclosure.
Launched this month, the Standards aim to guide businesses in aligning their sustainability practices with global ESG mandates.
The release of the Standards is part of a broader initiative to establish a unified national framework for corporate sustainability reporting in China.
The standards:
China’s ESG disclosure system is structured in three main components: Basic Standards, Specific Standards, and Application Guidelines.
The Basic Standards outline the objectives, principles, and general requirements for reporting, providing clarity on how companies should approach sustainability disclosures.
Specific Standards build upon the Basic Standards by detailing the requirements for disclosing specific sustainability themes, such as environmental impact, social responsibility, and governance practices.
The Application Guidelines provide further clarity, offering case studies and detailed explanations to help businesses navigate the complexities of sustainability reporting.
According to reports, the final version of China’s ESG Standards for corporate sustainability disclosures introduces several notable changes, including a shift in focus regarding the primary users of sustainability disclosures.
The final version narrows the focus to investors and creditors, emphasizing market-driven accountability over regulatory oversight.
Additionally, the final standards allow businesses to select methodologies for assessing the financial impact of sustainability risks and opportunities based on their specific capabilities, reducing the compliance burden for smaller firms while encouraging meaningful participation in ESG reporting.
The significance:
This also marks a critical milestone in hormonizing corporate sustainability disclosures across the country and integrating global best practices.
The standards are poised to transform how Chinese companies approach sustainability reporting, driving greater corporate responsibility and aligning China’s corporate sector with global ESG benchmarks.
This marks a significant step towards a unified national ESG reporting system, with full implementation expected
by 2030.
The Basic Standards are voluntary and can be adopted by enterprises before implementation requirements are stipulated.
Backdrop:
In May 2024, the Chinese Ministry of Finance released a draft of the Corporate Sustainability Disclosure Standards General Standards, aiming to enhance corporate transparency and support China’s sustainable development goals.
The guidelines sought to balance global ESG integration with China’s local priorities, such as climate change, pollution, and rural development.
The ESG guidelines adopted a “double materiality” approach, requiring companies to report on both the financial impact of ESG factors on their business and the broader social and environmental impacts of their operations.
The final standards represent a more focused and flexible approach to sustainability disclosures, focusing on the needs of investors and creditors, ensuring transparency, and aligning with recent policy developments mandating sustainability reporting for large listed companies.
