The Guidance for Enterprise ESG Disclosure launched on 1 June 2022 is the first China-focused ESG disclosure standard issued in the country. While its reporting guidelines are not mandatory, it represents a step forward for the private sector and a good foundation in this huge market for further regulatory developments.

The voluntary set of guidelines was published by the China Enterprise Reform and Development Society (CERDS), which is a state backed think tank. CERDS worked alongside large companies in various industries to create a set of metrics, disclosure principles and requirements for all three areas of E, S and G.

A way forward for ESG disclosure

This ESG disclosure standard is the country’s first to be based around Chinese laws, regulation and policies, making them highly relevant, while also seeking to meet international standards where possible. This is a significant step because there are currently no mandatory ESG disclosure requirements for mainland China listed firms and to date there have been no China-focused metrics to reference.

Professor Amin Rajan, Senior Advisor at Paradigm Consulting and CEO of CREATE-Research, shared his thoughts on the role of the new ESG disclosure standard: “These new guidelines are very much a move in the right direction. Though its non-mandatory nature means that the spectre of greenwashing will remain, the guidance is a promising first step. It helps fill the current gaps in ESG disclosure in mainland China and sheds light on relevant interpretations for this market. I hope to see them acting as a reference for further upcoming regulation such as the CSRC guidelines.”

The new guidance comes at a time in which China is focused on enhancing regulation for ESG reporting. On the international front, China’s Securities Regulatory Commission (CSRC) has said the general sustainability and climate disclosure standards being developed by the International Sustainability Standards Board (ISSB) will have a significant impact on Chinese companies listed overseas. It was also stated that the next step for the regulators is to create standards for mandatory disclosure in China.

What do the guidelines cover? 

The Guidance for Enterprise ESG Disclosure is comprehensive and comprised of the following:

• 118 ESG metrics

• Three categories of indicators, including primary, secondary and tertiary indicators that pertain to various areas such as resource consumption, climate change, labour rights and governance mechanisms

• Disclosure principles for companies to follow, including the provision of quantitative and qualitative data. This includes items such as a list of greenhouse gases that the company is emitting, descriptions of the status of supply chains, descriptions of support that the company is offering employees and more.

Implications for companies

Domestic and multinational companies are already beginning to see the implications of the new guidance on their ESG strategies in China. Domestically, the immediate impact will mainly be on larger Chinese companies, which possess the expertise and resources to comply with the disclosure standards that smaller companies may not be able to spare.

As the guidelines were developed in compliance with China’s existing domestic regulation in mind, companies that are operating primarily in the Chinese market may well appreciate the relevance. More global-focused ESG standards may be perceived as less suitable for these companies.

On the other hand, this same point may become an issue for multinational companies. Multinational companies looking at adopting these new disclosure standards may face pressure from external investors. They will have to take internationally recognised ESG frameworks into consideration to ensure there are no clashes from what their stakeholders expect from their disclosures.

We hope you found this article on China’s new ESG disclosure standard insightful. Paradigm can help with your ESG communications and related reporting. Contact us to begin the conversation.