What are the Guidelines?
In a groundbreaking development on February 8, 2024, China’s three major stock exchanges in Shanghai, Shenzhen, and Beijing made a united effort by unveiling preliminary guidelines for listed companies to disclose their sustainability practices. This significant step forward showcases China’s commitment to establishing a sustainable economy and embracing the worldwide surge in environmental, social, and governance (ESG) initiatives.
Who Needs to Follow the Guidelines and What Do They Need to Report?
As per the guidelines, constituent companies of the SSE 180, STAR 50, SZSE 100, and ChiNext indices, along with those listed domestically and internationally, are obligated to submit mandatory reports on sustainability. On the other hand, other listed companies are encouraged to voluntarily report on their sustainability efforts. Even small and medium-sized enterprises listed on the Beijing Stock Exchange are encouraged to submit sustainability reports voluntarily, rather than being compelled to do so.
The guidelines urge publicly traded companies to assess and reveal their sustainability-related data using a comprehensive framework that encompasses four fundamental areas – governance, strategy, risk management, and metrics and targets. This approach aims to provide investors and key stakeholders with a complete understanding of their efforts towards sustainable development.
How Do the Guidelines Address Environmental and Social Issues?
The guidelines have introduced important aspects like biodiversity and circular economy, reinforcing the need for listed companies to disclose their carbon emissions. Alongside revealing their governance and climate change strategies, companies must also share their efforts in climate adaptation, transition plans, total greenhouse gas emissions, emission reduction measures, and opportunities associated with carbon neutrality.
Furthermore, the guidelines mandate companies to disclose their contributions towards China’s national development strategies, including rural revitalization and innovation-driven development, in their sustainability reports.
The guidelines adopt the ‘double materiality’ principle, which means that companies should consider not only how sustainability issues affect their financial performance, but also how their activities impact the environment and society. This is a market-first endorsement of the double materiality concept in China, which aligns with the global best practices and standards.
When and How Will the Guidelines Be Implemented and Reviewed?
The draft guidelines are open for public comment until February 29, 2024. They are expected to be finalized and implemented in 2026. The guidelines are currently only available in Chinese, but an English translation may be released in the future.
What are the Implications and Benefits of the Guidelines for China and the World?
The release of the guidelines has been welcomed by the ESG community, as it signals China’s determination to improve its sustainability performance and transparency and to attract more responsible investors. The guidelines are also expected to create positive spillover effects for other markets and regions, as China is a major player in the global economy and a leader in green finance.
The guidelines are a significant step for China’s stock exchanges, which have been actively promoting ESG integration and disclosure in recent years. The Shanghai Stock Exchange launched its ESG index in 2019, and the Shenzhen Stock Exchange followed suit in 2020. The Beijing Stock Exchange, which was established in 2021, also has a strong focus on ESG and innovation.
With the guidelines, China’s stock exchanges have shown their ambition and vision to become more sustainable and responsible, and to contribute to the global efforts to achieve the United Nations Sustainable Development Goals and the Paris Agreement. The guidelines are expected to bring more benefits and opportunities for listed companies, investors, and society as a whole.
