Measures on Corporate Environmental Information Disclosure Published in China (ESG)

On February 8, 2022, China’s Measures for Enterprise Environmental Information Disclosure in Accordance with Law, issued by the Ministry of Ecology and Environment of China, entered into force.

The Measures are intended to regulate environmental information disclosure requirements for five types of enterprises:

1. Enterprises that discharge pollutants;
2. Enterprises subject to mandatory clean production audits;
3. Listed companies and their subsidiaries at all levels;
4. Enterprises issuing corporate bonds, enterprise bonds and debt financing instruments for non-financial enterprises;
5. Other enterprises required to disclose environmental information under applicable laws and regulations.

A brief timeline of ESG development in China is presented in the image below.
Driven by government incentives and regulatory measures, as well as the need to adapt to the opening of the capital market, many Chinese companies are already voluntarily disclosing ESG-related information.

By mid-2020, 1,021 Chinese A-share companies — companies whose shares are denominated in renminbi and listed on the Shenzhen and Shanghai stock exchanges — had published annual ESG reports, including reports described as “sustainability,” “corporate social responsibility (CSR),” and similar reports, compared with 371 companies in 2009.

Of these, around 130 A-share companies were also dual-listed in Hong Kong, where ESG reporting is mandatory. The Hong Kong Stock Exchange (HKEX) has required listed companies to issue ESG reports since 2016.

In 2020, 86% of CSI 300 constituents — the 300 largest and most liquid A-shares included in the index — published ESG reports, compared with 49% in 2010.

During the first three quarters of 2021, the number of state ESG funds in China increased sharply, with 48 new ESG products launched, close to the total number launched during the previous five years.

As of September 2021, total assets under management of state ESG funds had risen to nearly RMB 250 billion ($39.3 billion), almost double the level recorded during the same period a year earlier.

As of September 2021, a total of 74 institutions in China had signed the PRI, representing an increase of approximately 37% compared with 2020.

For China, sustainability reporting remains an important starting point for achieving its carbon-peaking and carbon-neutrality goals and improving social equality.

At present, the Chinese government is rapidly improving its corporate reporting framework and seeking to help companies transform their businesses toward a low-carbon model.

However, China has not yet issued comprehensive ESG legislation. Instead, it has introduced a number of relevant laws and regulations focused primarily on environmental protection and social responsibility — in other words, mainly on the E and S components of ESG. This is quite logical for a number of reasons.

China has also developed its own ESG rating systems, including Wind, SynTao Green Finance, RANKINS CSR Ratings, and others.

Chinese companies are approaching a certain “tipping point” in ESG measurement and reporting.

As pressure from regulators and investors increases, more Chinese companies can be expected to disclose larger volumes of higher-quality ESG data over time.

In the near term, clearer guidelines and greater regulatory clarity can also be expected, as China has established three major carbon-related milestones for 2025, 2030 and 2060.