Companies in China may need to adhere to more ESG regulations

As part of efforts to transition to a lower-carbon economy, China is working on making environmental, social, and governance (ESG) disclosures mandatory for listed companies in the country.

Regulators in the country are reportedly collaborating with advisory bodies and rating agencies to create a framework for compulsory ESG disclosures in China. The plan is to design a standard that will be recognised by the international community and applicable to the local market, before introducing the requirements on a “comply or explain” basis. State-owned enterprises are expected to take the lead on compliance by the end of 2023.

As one of the world’s largest polluters, China is seeking to catch up with global peers on reporting standards and meet its net zero target by 2060. Chinese regulators have expressed concerns about the “inclusiveness” of International Sustainability Standards Board requirements for developing countries, but Fang Xinghai, Vice Chairman of the China Securities Regulatory Commission, said that mandatory ESG reporting requirements were the “next step”.

READ: Foster a sustainable future: Reflecting ESG values in the workplace

Although some 89% of the top 100 Chinese organisations issued ESG reports in 2022, up from 78% in 2020, according to a KPMG report, there were gaps, with more than a third of organisations making disclosures without performing materiality assessments. To address this, the country rolled out a set of voluntary guidelines for Chinese organisations to report ESG metrics in 2021. These standards listed more than 100 points that generally align with global designs but with “Chinese characteristics” that measure areas like corporate charity, reported Bloomberg.