China's State Council-backed think tank, China Enterprise Reform and Development Society ("CERDS"), alongside a number of major Chinese companies including Ping An Insurance Company, issued "The Guidance for Enterprise ESG Disclosure" effective on 1 June 2022 ("Guidance"). The Guidance is China's first ESG disclosure guideline, and covers all companies and industries. It follows the environmental disclosure rules issued by China's Ministry of Ecology and Environment (MEE) which came into effect earlier in February 2022 (which we reported here).
The Guidance sets out a framework for Chinese companies to report under 3 primary indicators of environmental, social and governance metrics, which are further divided into 10 secondary indicators, 35 tertiary indicators and 118 total metrics. The Guidance is applicable to voluntary or mandatory disclosure requirements (if any), that may apply to Chinese companies. Each Chinese company can choose the applicable time cycle for making its disclosures. The final deliverable, if disclosure is made in accordance with the Guidance, is an official ESG report that is made available on a platform designated by the regulatory authority (if any) or chosen by the Chinese company. This official ESG report is for use by various bodies including regulators, investors, media, and the general public.
The most notable quality of the Guidance is that it adapts ESG standards to fit the Chinese business landscape and the requirements of domestic laws and regulations. This includes references to unique features of China's social welfare system, such as social security (社保) and the housing provident fund (公积金).
While compliance with the Guidance is currently voluntary, it serves as a good starting point for Chinese companies to begin exploring the application of ESG standards adapted for and developed in a local context. This approach has been applied in other jurisdictions in Asia, such as Hong Kong and Singapore, that adopted a flexible "comply or explain" approach initially before moving to more prescriptive or mandatory regimes. It is likely that broader, mandatory reporting for ESG is on the horizon in China.
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