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Yin Gefei: Insights for guidelines on corporate sustainability disclosure for listed companies in China


On February 8, 2024, the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE) and the Beijing Stock Exchange released their first guidelines on corporate sustainability disclosure (hereinafter referred to as the Guidelines) and started to seek public opinion, which marks a milestone in the sustainability disclosure of listed companies in China.

It can be foreseen that the formal publication of the Guidelines in the near future will serve as reference guidelines on sustainability disclosure of A-share listed companies and solve the problem of no regulations on the issue, which will greatly facilitate listed companies in China to further practice the concept of sustainability, enhance the quality of sustainability disclosure, build a healthy sustainable ecosystem of China's capital market, and accelerate the exploration and development of a valuation system with Chinese characteristics.

Structure and main content

Generally speaking, the Guidelines is fully centered on the needs for sustainability disclosure. With scientific and complete logical connotation, a clear framework structure and rigorous and concise discourses, the Guidelines is of great significance and reference value for listed companies to carry out relevant work.

The Guidelines is structured into six chapters, which can be further divided into four sections: General Provisions, Sustainability Disclosure Framework, Core Content, and Supplementary Provisions and Interpretations.

Chapter One is the General Provisions, which clarifies the guidance basis and the policy concepts, specifies the subject, time, scope and quality requirements of information disclosure, and proposes disclosure principles such as double materiality, comply or explain, stakeholder communication and cost control.

Chapter Two is the Sustainability Disclosure Framework, which is centered on four specific aspects: governance, strategy, risk and opportunity management, and metrics  and targets.

Chapter Three, Four and Five are the core content of the Guidelines, which specifies key topics and requirements for information disclosure from the dimensions of Environmental, Social and Corporate Governance.

Chapter Six is the Supplementary Provisions and Interpretations, which explains and illustrates information on transition and mitigation measures, metrics index, external assurance, and terminologies, and demonstrates that disclosure subjects are required to publish their 2025 sustainability reports before April 30, 2026 for information disclosure in accordance with the requirements of the Guidelines.

On the core content, environmental disclosure can be divided into three sections with a total of 17 articles on tackling climate change, pollution prevention and ecosystem protection, and resource utilization and circular economy, covering such issues as climate adaptation, climate transition plan, carbon accounting and emission reduction measures, biodiversity protection, circular economy, and energy and water use and conservation.

Social disclosure can be divided into three sections: rural vitalization and social contribution, drivers of innovation, as well as suppliers, customers and employees, with a total of 12 articles on rural vitalization services, ethics of science and technology, supply chain security, and equal treatment of small and medium-sized enterprises (SMEs).

Chapter Five is the Corporate Governance Disclosure, which is composed of two sections: sustainability governance mechanisms and prevention of commercial bribery and unfair competition, with a total of four articles on improvement of sustainability governance mechanisms, compliance with business ethics, anti-commercial bribery and anti-corruption, and anti-unfair competition.

Features and highlights

Clear positioning and inclusiveness

1. Cearly guide listed companies to implement the new development concept and pursue high-quality development.

The Guidelines, which is centered on sustainability disclosure, requires listed companies to practice the concept of sustainability, continuously improve the sustainability performance, and bring positive economic, social and environmental impacts, so as to realize the sustainable development of listed companies, the economy and the society.

2. Sustainability reports feature compatibility.

There are mainly three forms of sustainability disclosure for listed companies: sustainability reports, corporate social responsibility (CSR) reports and environmental, social and goverance (ESG) reports.

The Guidelines considers sustainability reports as the mainstream disclosure logic and form that is more compatible and can better guide the preparation of ESG reports or CSR reports. Either ESG or CSR reporting is a key path to sustainability, the performance standard and overall goal of measuring the fulfillment of corporate social responsibility and ESG practices. Sustainability is the common ground of these three forms of reports.

3. International orientation

Both the International Sustainability Standards Board (ISSB) and the EU’s Corporate Sustainability Reporting Directive (CSRD) are benchmarked on sustainability disclosure. Likewise, future reports issued by listed companies in accordance with the Guidelines shall also share a high level of international universality to better facilitate international exchange and communication.

Inclusiveness with Chinese characteristics

1. Fully absorb the latest global sustainability disclosure results.

First, the sustainability disclosure framework draws on the TCFD framework of four core pillars and incorporates impact factors of sustainability, forming a unique sustainability disclosure framework of "Impact + Governance/Strategy/Risk and Opportunity Management/Metrics and Targets".

Second, the Guidelines incorporates the disclosure concept of financial materiality, and requires the disclosure of sustainability topics with great impacts on corporate value.

Third, the Guidelines reflects global trends on the content of sustainability disclosure, such as disclosure of biodiversity and ethics of science and technology.

2. Share Chinese characteristics and reflect the new requirements of China’s path to modernization

The Guidelines covers environmental disclosure of tackling climate change, pollution prevention and control and ecosystem protection, resource utilization and circular economy, which reflects the requirements of building a beautiful China for man-nature harmony. Disclosure of rural vitalization and social contribution, as well as equal treatment of SMEs, reflects the requirements for achieving common prosperity for all. Disclosure of drivers of innovation as well as the impacts of innovation results and their applications on the environment, the society and the stakeholders, concretely reflects corporate support for the national strategy of innovation-driven development.

Double materiality and multiple functions

1. The Guidelines adopts the concept of double materiality.

The Guidelines combines financial materiality impact with its materiality impact on multiple stakeholders and the society, and requires the disclosure subject to identify whether each topic has a significant impact on corporate value and whether the company's performance on each topic will have significant economic, social and environmental impacts and to describe the process of topic analysis.

2. The adoption of double materiality makes the sustainability disclosure of listed companies multi-functional.

First, financial materiality will better meet the investment decision-making needs of investors and financial institutions.

Second, the materiality of sustainability impacts can meet the needs of more stakeholders for sustainability of listed companies and better serve the needs of sustainable capital markets.

Third, the adoption of double materiality can meet the requirements of sustainability disclosure in international trade driven by the growing sustainable economy. For example, the gradual application of the EU’s CSRD requires the sustainability disclosure of Chinese companies that have set up branches and subsidiaries in the EU or have reached a certain scale of exporting to the EU market under relevant standards. The requirements of double materiality in the Guidelines shares sound commonality and interoperability with the requirements of the EU’s CSRD.

Orderly progress features both moderation and strictness.

1. The Guidelines adheres to the principle of seeking truth from facts and emphasizes orderly progress that features both moderation and strictness.

Moderation indicates that the Guidelines, based on the actual situations facing companies in China, adopts an "encouraging" approach to information disclosure with relevant higher requirements in various aspects. For example, the Guidelines stipulates that the capable subject may disclose Scope 3 emissions.

Strictness is reflected by high disclosure requirements. In terms of equal treatment of SMEs, the Guidelines stipulates that listed companies are required to disclose the amounts of overdue payments to SMEs, and those with the balance of accounts payable exceeding CNY 30 billion or more than 50 percent of their total assets shall disclose the unpaid amounts and solutions to be adopted.

2. The implementation of the Guidelines follows a gradual approach.

First, the Guidelines takes the practice capability of listed companies in China into full consideration and adopts a pilot approach for some companies. The first batch of companies required to disclose in accordance with the Guidelines are those included in the SSE 180, STAR 50, SZSE 100 indexes and the ChiNext Index, as well as those listed both at home and abroad.

Second, the Guidelines sets a transition period to buffer the efforts of listed companies to make sure that they can publish their 2025 reports before April 30, 2026, and grants certain disclosure exemptions for reports issued for the first time. It guides and encourages listed companies to make a steady start, pool up back-up strength and pursue continuous optimization.

Concise and comprehensive content

1. The Guidelines offers comprehensive and systematic instructions and guidance on sustainability disclosure for listed companies.

The Guidelines provides listed companies with all-round guidance on sustainability disclosure, which includes the guiding ideology, objectives and policy concepts of information disclosure; the framework structure and logic of sustainability disclosure and the core topics of sustainability disclosure. The Guidelines also clarifies the requirements for the subject of sustainability disclosure and related content such as time, duration, information quality, and related methods and terms.

2. The content of the Guidelines is concise and easy to be understood, reflecting a reading-friendly style.

Sustainability disclosure is complicated. International standard guidelines or codes on sustainability disclosure are a complex aggregation of documents, each of which is highly specialized and requires a certain degree of professionalism to read. With only a total of 58 articles, the Guidelines comprehensively analyzes and interprets the logic of sustainability disclosure requirements for listed companies. In other words, the content is professional but easy to be understood.

Significance and value

1. The quality of listed companies’ sustainability disclosure will take a step forward.

The Guidelines is programmatic documents guiding A-share listed companies in China to carry out sustainability disclosure. It provides a framework for sustainability disclosure in line with global standards and an authoritative reference basis for listed companies to steadily improve the quality of sustainability disclosure.

With their implementation and application, the Guidelines will help listed companies disclose their corporate performance in economic, environmental and social dimensions in a more accurate, systematic and timely manner and better respond to the interests of regulators, investors and the public on the topics of environmental protection, social responsibility and corporate governance.

2. The levels of accountability and sustainability management of listed companies will be enhanced.

There is a consensus that a company's sustainability management level can be improved by regularly reviewing its deficiencies in corporate sustainability through high-quality information disclosure.

Listed companies will regularly release sustainability reports in accordance with the requirements of the Guidelines to sort out their own sustainability practices and performance and timely identify existing problems and deficiencies. This will help them strengthen their sustainability risk and opportunity management, improve their corporate compliance and transparency, and continue to improve their sustainability ability and level.

3. The Guidelines serves as important paths for listed companies to reshape the value of the capital market.

The Guidelines actively connects with internationally accepted standards and draws on international advanced practices and experience. It can guide listed companies in China to carry out high-quality sustainability disclosure, enhance the unity, consistency and comparability of sustainability disclosure, and continuously improve the level of sustainability management.

Based on the uniqueness of the Chinese market and its participants, the Guidelines will help listed companies in China to streamline their internal affairs and level the sustainability disclosure playing field with their international counterparts. It will provide a strong guidance and impetus for standardized development of listed companies, enhance the fairness and transparency of the capital market, and offer a new path for A-share listed companies in China to reshape the value of the capital market.

4. The Guidelines provides new ways for listed companies in China to contribute to high-quality national development.

In December 2023, the Standing Committee of the National People's Congress (NPC) passed the newly amended Company Law of the People's Republic of China (hereinafter referred to as the Company Law), which specifies the requirement of encouraging "companies to take part in public welfare activities and release their social responsibility reports".

The release of the Guidelines timely responds to the urgent requirement of the times for companies to comprehensively and proactively fulfill their social responsibility, which can help strengthen the synergy between listed companies and the capital market and regulators, promote the operation of China's capital market to form the healthy ecology with a virtuous cycle of mutual reinforcement and balanced development. This can further contribute to China’s high-quality economic and social development by guiding listed companies in China to improve China’s path to modernization in a more transparent and sustainable manner.

Areas of improvements

The Guidelines is a pioneering normative document, but the current draft is at the stage of seeking public opinion. Based on the development of international sustainability policies, standards and rules, it is suggested that further exploration and improvement can be made in the following areas in the future. First, the application guidance of industry-specific metrics should be enhanced, for example, featured metrics concerning carbon emissions should be set for traditional industries with high carbon emissions, such as iron and steel smelting and non-ferrous metals industries. Second, the guidance on disclosure of special topics such as biodiversity protection and human and social capital should be continuously deepened. Third, the methodology of application scenarios should also be refined to enhance the guidance value for listed companies in their actual operations.
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