China's reporting requirements
China’s three biggest stock exchanges - the Shanghai Stock Exchange (SSE), Shenzhen Stock Exchange (SZSE), and Beijing Stock Exchange (BSE) - have joined the ranks of the EU, US, Brazil, and Singapore, among others, to establish ESG reporting requirements for companies.
These requirements are stricter than the International Sustainability Standards Board (ISSB) financial requirements and better reflect the recently adopted comprehensive standards of the EU.
The four “core content” topics include (1) governance, (2) strategy, (3) impact, risk and opportunity management, and (4) indicators and goals. This, similar to the new EU legislation on corporate sustainability reporting, employs a “double materiality” approach, where both an inside-out and outside-in perspective are considered. More specifically, the guidelines include requirements on...
- Rural revitalisation
- Supply chain security
- Energy use
- Climate change
- Ecosystems and biodiversity
- Scope 3 emissions
- Circular economy
- Anti-corruption
- Anti-bribery
These requirements will apply to almost 500 companies, or about half of the listed market value and begin in 2026 (for the 2025 reporting year). The obligations apply to companies meeting the following criteria:
on the Shenzhen 100, Shanghai Science & Technology Innovation 50 Index, and SSE 180
dual-listed companies on both domestic and international markets
Roughly 70% of these companies do already publish some form of a sustainability report. In addition to these, Beijing exchange listed companies, mostly SMEs, will see voluntary standards for reporting.
According to Boya Wang, an ESG analyst for Morningstar, these regulations are aimed at standardising reporting across China and in line with Europe, and thus, “by catching up with international standards, the government hopes to attract foreign money-especially from institutional investors”. Foreign investment to China has been decreasing in recent years and direct investment reached a three-year low in 2023. Therefore, by increasing transparency and reducing greenwashing risks, Chinese companies can become more attractive and reliable for investment.
Furthermore, Wang expects that these reporting guidelines and emphasis on sustainability can “broaden the scope of ESG investments” beyond most common industries such as electric vehicles and renewable energy. It can also encourage more environmentally sustainable practices in other sectors.
However, some foreign investors feel that the risk of governmental authoritarian intervention is too high to make the standards effective. For example, Alecta, Sweden’s largest pension company, has recently stated that it will not directly invest in Chinese firms because of these regulatory concerns. Therefore, only time will tell how enforceable and transparent these guidelines will be, particularly in a nation still dependent on coal and non-renewable fuels, but it is seen as a positive step in the right direction for such a large player in the global economy.
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Author: Marie Gomersall, Sustainability Expert at EFF
Sources:
- Mark Segal for ESG Today (12 Feb 24)
- Matt Davies for Impakter (23 Feb 24)
- The Business Times (21 Feb 24)