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 environmental information.

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 disclosure.

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.

Exchanges and 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.