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ESG series group standards to drive the sustainable development of automotive industry in China


The improvement of ESG governance is a necessity for automotive industry in this new era.

Guest speaker
Li Shaohua, professor-level senior engineer, Deputy Secretary General of the China Association of Automobile Manufacturers (CAAM) and Director of Industry Development Department of CAAM, engaged in long-term research on policies, regulations, standards, and planning in the automotive industry.

It’s a necessity to deepen the implementation of the concept of social responsibility and improve ESG governance for the automotive industry in this new era, as well as an objective need for the industry to integrate into the international mainstream and be in line with international rules.

To further promote ESG in the China automotive industry, in December 2023, the CAAM officially released the first set of ESG series group standards for the industry "Guidance on ESG information disclosure for China automotive industry", "Evaluation guidance on ESG of China automotive industry", "Evaluation guidance on ESG of China automotive industry—Requirements with guidance for use", providing guiding and normative value for automotive enterprises ESG governance. Accordingly, our correspondence conducted a special interview with Mr. Li Shaohua, to learn about his insights into the development of ESG in the China automotive industry and his experience in formulating industry ESG standards.

Q | China Sustainability Tribune (CST)
A | Li Shaohua


ESG has become the brand new benchmark for the value of automotive enterprises
CST: Could you please introduce the overall development of ESG in the global automotive industry?
Li Shaohua: ESG has been under spotlight for global co-governance. Overall, the global automotive industry's ESG has gradually entered a stage of systematic and standardized development, which can be summarized in the following four aspects.
Firstly, there's growing demand for ESG information disclosure. In recent years, the international ESG disclosure framework has become increasingly sophisticated. For example, the International Sustainability Standards Board (ISSB) officially released two documents "IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information" and "IFRS S2 Climate-related Disclosures" in 2023, which account a lot in promoting globally consistent sustainable disclosure benchmarks. Additionally, the requirements for ESG disclosures by securities exchanges and regulatory agencies worldwide are constantly strengthening, with an overall trend from voluntary to mandatory, and from information disclosure to balancing information disclosure and ESG governance.

Secondly, ESG is going through stricter related legal regulations. To implement a series of ESG governance measures are required for companies followed by frequent ESG-related directives and regulations. The global automotive industry is facing stricter ESG regulation. Taking the European Union as an example, on August 17, 2023, the EU Batteries Regulation under the EU Green Deal came into effect, imposing stricter requirements on the carbon footprint, pollutant emissions, user data privacy, and human rights due diligence in the supply chain of battery products from Chinese automotive manufacturers and suppliers entering the European market.

Thirdly, ESG is integrated into the investment decision-making process. Currently, the international capital market is gradually incorporating ESG factors into the investment decision-making system. A new ESG-oriented investment decision-making system is taking shape. China has also sought to rely on ESG value accounting methods, using new indicators such as ESG net value and ESG risk opportunity value to evaluate A-share listed companies. In the future, as the methodology of ESG value accounting system matures, the importance of ESG in capital decision-making will continue to improve.

Fourthly, the ESG rating system gradually matures. With ESG investment scale expanding, ESG evaluation systems and ESG rating companies come into being in the capital market in order to unify the quantifiable benchmark for measuring ESG of listed companies. Nowadays, the ESG rating system is becoming more sophisticated, with well-established and highly recognized ESG evaluation systems such as MSCI in the international market, and ESG evaluation standards for the automotive industry are also available.

CST: What is the development background for the release of ESG series group standards in the automotive industry by the CAAM?

Li Shaohua: After years of development, China's automotive industry has gained remarkable achievements and has already equipped itself with basic conditions to move towards higher levels and more sustainable development. In terms of ESG field specifically, China's automotive industry is currently in a period of rapid development.

The core concepts of "sustainable development" and "green" involved in ESG coincide with China's long-term development strategy. In recent years, the promotion of ESG work has also been accelerating in China. For example, the construction of ESG system has been introduced as a key task by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC).

In 2022, the SASAC established the Bureau of Scientific and Technological Innovation and the Bureau of Social Responsibility to promote enterprises to actively practice the ESG concept, adapting to and leading the formulation of international rules and standards. In the same year, the Work Plan for Improving the Quality of Listed Companies Controlled by Central Enterprises came out, proposing to accelerate the improvement of ESG governance capabilities and strive for "full coverage" of relevant special reports by 2030.

In addition, the Shenzhen Stock Exchange has officially launched ESG evaluation methods and ESG indices. Highly related to environmental protection and social safety, under policy support and market requirements, the Chinese automotive industry shares the idea of strengthening the construction of ESG system and promoting ESG disclosures, which has gradually penetrated into the management of Chinese automotive enterprises, becoming a new form of competitiveness for enterprises.

It is worth noting that there is still significant room for improvement in the ESG development in this industry. The proposal of ESG and the "Carbon Peak and Carbon Neutrality (dual carbon)" goal actually presents a higher dimensional and quantifiable management framework for industry management, which requires macro design at the national level. Relatively isolated, the current various standard requirements for the automotive industry in China are managed separately by different management functional departments, thus calling for further improvement and adjustment in the overall framework. 

At the same time, there are issues of unclear requirements for ESG information disclosure, performance evaluation, and management system construction in the automotive industry, as well as a lack of professional guidance due to numerous and nationally or regionally-inconsistent global ESG related standards.the current. In addition, the complexity of automotive industry chain has made it worse. Although ESG or social responsibility management mechanisms have gradually taken form in some leading companies, the vast majority of automotive companies are still in their infancy.

It's one of the essential tasks of the CAAM to pay attention to the development trends of ESG in the international automotive industry and benchmark against the latest international ESG concepts, standards, frameworks, etc. We believe that the goal of advocating the ESG concept in China is to combine the internal and external demands of industry development, help automotive companies better adapt to international development, meet market demands, reduce operational risks, and form a virtuous development cycle based on compliance and sustainability. In response, the CAAM has approved the official establishment of three group standards for the China automotive industry, establishing a integrated, targeted, and highly actionable series of standards to guide the domestic automotive industry in ESG work and dedicated management of emerging issues.


Establishing ESG standards suitable for the Chinese automotive industry
CST: What are the foundations, methods, and additional considerations for the development of ESG standards in the Chinese automotive industry?
Li Shaohua: During the standard formulation period, the standard drafting group conducted thorough research on domestic and foreign policies, ESG literature in the automotive industry, ESG reports and ratings for domestic and foreign vehicle and component enterprises, as well as domestic and foreign ESG special standards and rating indicators. Among them, the ESG disclosure, evaluation, and management standards referred to mainly include the the ESG Guidelines from Hong Kong Stock Exchange, two IFRS Sustainability Disclosure Standard from ISSB, indicators of the automotive industry and component enterprises from the SASB, as well as international mainstream ESG rating indicator requirements such as MSCI and S&P Global.
On the basis of fully conducting theoretical and practical research, we explore key indicators that are in line with the automotive industry, providing theoretical basis for the formulation of a series of ESG standards in the automotive industry. Meanwhile, emphasis is placed on considering the characteristics of the Chinese automotive industry, conducting feasibility and industry characteristic analysis of standards to ensure their practicality and suitability for the model of China's industrial manufacturing system.

In addition, the development of ESG standards in the automotive industry requires additional attention to the following four aspects.

Firstly, ESG construction concerning the automotive industry can be driving force for other industries, and the formulation of ESG standards in the automotive industry should also presents its industry-leading features.

Secondly, as an industry that accounts for nearly a quarter of global carbon emissions, the development of ESG standards in the automotive industry should focus on environmental issues such as climate change, energy conservation, and environmental protection, etc.

Thirdly, in recent years, represented by the European Union, major economies around the world have proposed a series of ESG regulatory requirements such as data security, sustainable supply chains, waste battery bills, Carbon Border Adjustment Mechanism, etc. ESG compliance management should be regarded as an important issue for Chinese exporting automobile companies.

Fourthly, complexity and globalization are prominent features of automotive industry's industrial chain. More attention should be paid to upstream and downstream value chain partners, except for whole-vehicle manufacturers during the development of ESG standards for the industry. 

CST: What are the main challenges encountered in developing ESG group standards, and what measures have the association taken to address these challenges?

Li Shaohua: Firstly, standard formulation mainly aims to guide ESG management and practice for companies in the future. However, due to the fast updating speed of the automotive industry, possible lag may exist in the standards. Accordingly, we extensively refer to the latest domestic and international standards and leading enterprise practices in the process of standard formulation, attempting for a certain degree of leadership and foresight of the standards. In the future, we will carry out publicity and training, on-site research, evaluation and other work to enable enterprises to receive timely feedback on the implementation of standards, accelerating the implementation and transformation of standards, and thus achieve continuous revision and improvement.

Secondly, the ESG development of automotive enterprises varies in speed. It’s an essential challenge to balance the ESG management and practical needs of different enterprises in formulating a series of standards. To this end, we classify indicators based on their level of difficulty or compulsion, making it flexible references for enterprises at different stages of development.

Thirdly, different stakeholders may have varying demands due to their own positions and perspectives. Therefore, we pay close attention to their opinions and suggestions throughout the entire process of standard formulation. In the stage of enterprise discussion and expert review, we conduct differentiated reporting and opinion solicitation based on the focus and professional abilities of enterprise representatives and standard setting experts, allowing all parties to contribute together for their targeted feedback, all of which promoted the standard drafting group to fully assimilate multiple suggestions and further improve the overall quality of standard formulation.


Boost high-quality development of automotive industry through standardized language

CST:What do you think about the meaning of ESG series group standards for Chinese automotive industry development?

Li Shaohua: From the perspective of automotive industry, as a whole pack of series standards concerning "how to manage", "how to appraise" and "how to state" for Chinese automotive industry, the three group standards of the industry can partner "Guidance on ESG information disclosure for China automotive industry" and "Evaluation guidance on ESG of China automotive industry", jointly normalizing the industry's ESG and social responsibility standard system. Promote the high-quality development of China's automotive industry in technology, products, and overall industry capabilities, assisting the Powerful Nation Strategy with stronger globalized core competitiveness.

From a more macro perspective, ESG is reshaping the value of the existing national socio-economic management system and promoting fair and healthy competition in the industry through economic approach. The automotive industry is one of the fastest industries concerning internationalization process. We hope to establish a relatively fair and objective ESG standard for the automotive industry, while also allowing more industry enterprises to quickly understand its concepts in standardized language.

In the future, work of 4 aspects are on the agenda: firstly, continue to deepen policy research and regulatory research; secondly, build a cooperation and display platform for the industry, and take on standard promotion, case mining, government and recommendations, etc.; thirdly, collaborate with professional institutions to promote the application and evaluation of standards, providing more empowerment training tailored to the actual situation of automotive enterprises and strengthening the sustainable development capabilities of stakeholders in the automotive industry's supply chain; fourthly, support national higher-level ESG and "dual carbon" standard system establishment with the achievements of the automotive industry.

CST: What are the expectations of the CAAM for the future development trend of Chinese automotive industry in the ESG field?

Li Shaohua: High quality development of digital intelligence has become the norm. With the continuous penetration of "electrification", "networking", "intelligence", "sharing", and "Connected Autonomous Sharing Electric, CASE" in the automotive industry, Intelligent Connected Vehicle (ICV) will become anupper land of technological competition in the automotive industry of various countries, and a key area where Chinese automotive industry can "overtake on bends".

Decarbonization throughout the entire lifecycle. In the next stage, Chinese automotive companies will initialize carbon neutrality action throughout their entire lifecycle, providing innovative solutions for research and development, production, supply chain, logistics, sales, recycling and reuse to reducing carbon footprint of the entire value chain. What's more, the focus of green development for automotive industry enterprises will shift from energy conservation and environmental protection to more diverse and cutting-edge topic such as resource recycling, climate change, and biodiversity, reaching deeper and broader.

Standardize ESG practices. With the gradual improvement of ESG information disclosure mechanisms, standard systems, and management systems for automotive industry companies, the transparency and data quality of ESG information disclosure in China's automotive industry will gradually approach the international level of the industry in the future. Companies can better identify, manage, and communicate ESG related risks and opportunities related to financial performance. At the same time, the society will pay attention beyond initial actions concerning ESG to automotive enterprises. Perspectives of systematic ESG governance, comprehensive ESG practice, scientific ESG evaluation will be preferred in the seek of the aggregation of social resources to high-quality enterprises in multiple aspects.

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