Green Finance Advisor of Friends of the Earth (HK)
Despite the anti-ESG
movements in the United States, there remains clear and rising demand from
institutional investors for public companies to increase their transparency from
the environmental, social and governance perspective. The reason is simple –
material ESG factors will impact the sustainability of companies and their
returns to investors. Earlier this month (February 8), the three China’s stock
exchanges – Shanghai Stock Exchange, Shenzhen Stock Exchange and Beijing Stock
Exchange – published the consultation paper on sustainability reporting.
According to the
consultation paper, companies in the SSE 180 Index, SSE Science and Technology
Innovation Board 50 Index, Shenzhen Stock Exchange 100 Index, ChiNext Index and
companies with both domestic and overseas listings must publish
sustainability/ESG reports four months after the end of the fiscal year. The
companies’ first sustainability/ESG reports should be published no later than April
30, 2026 for their 2025 financial year. The three exchanges are also
encouraging other companies to publish their sustainability/ESG reports.
In terms of reporting
the reporting framework, the company should disclose in four areas, namely 1)
governance, 2) strategy, 3) management of impact, risk and opportunities, and
4) metrics and targets. This framework is largely aligned with that of the IFRS
Sustainability Standards. The guidance is prescriptive about the content to be
disclosed. The mandatory and recommended topics of environmental disclosure covers
Scope 3 emissions, are compulsory water usage, circularity and other
In addition to
environmental issues, the three stock exchanges also encourage listed companies
to lift their transparency of their social-related information. The companies’
sustainability/ESG reports should include information with respect to their
support of rural revitalization and contributions to the public and society.
Other social-related disclosure mentioned in the consultation report include
employee’s recruitment, welfare, safety, well-being, development and training.
Comparatively, the Hong Kong Exchange is only pushing for mandatory climate
In general, investors
welcome the three exchanges’ initiative to make Chinese public companies’ more
transparency on their ESG matters. The increase in the breadth and depth of ESG
disclosure will enrich investors’ understanding of the long-term risks and
opportunities of Chinese companies. By closing the ESG information gap,
investors who are looking for sustainable outcome in their investments could be
more willing to invest in Chinese public companies.
regulators are important actors for advancing corporate sustainability
reporting. But reporting is a just a tool. What is more important is for
companies to act and change for the good of its businesses and other people.
Investment stewardship can play an effective role in this area. Investors can
exercise their influence through engagement with investee companies’ board and
executives. Their support and concerns can also be expressed through their votes
in shareholders’ meetings.