Chinese companies accelerate ESG disclosure: Insights from PRI signatories

In May 2024, the Guidelines on Corporate Sustainability-related Disclosure  issued by the Shanghai, Shenzhen, and Beijing Stock Exchanges, came into effect. The Ministry of Finance (MoF) also issued a consultation on Corporate Sustainability Disclosure Standards  - Basic Standards. These developments mark a significant acceleration in sustainable disclosure by Chinese companies.

PRI invited three signatories to share their views on corporate sustainability disclosure. PRI Communications Specialist Mengnan Jiang spoke to Su Gang, Chief Investment Officer of China Pacific Insurance Group (CPIC), Cheng Jie, Head of ESG Research at E Fund Management, and Guo Peiyuan, Chairman of SynTao Green Finance.

Our analysis shows a positive correlation between ESG rating levels and disclosure levels, which the new guidelines will help raise.

Guo Peiyuan, Chairman of SynTao Green Finance

How do you see the current corporate sustainability disclosure in China?

Su Gang: Companies in China have been improving their disclosure, with state-owned enterprises (SOEs) leading the way. Many companies are aligning their ESG reports with international standards. For example, at CPIC our reports align with TCFD, UN SDGs, and GRI standards. We also report to UNPRI and the UNPSI. However, small and medium-sized enterprises (SMEs) could face challenges in data collection and analysis, limited resources, and ensuring reliable information disclosure.

Cheng Jie: There have been significant improvements in disclosure practices among Chinese companies. Some are implementing innovative methods like intelligent ESG data collection systems. The new guidelines signal the start of mandatory disclosure and better data quality. However, challenges still exist, such as quantifying the financial materiality of ESG issues and the lack of a unified carbon accounting system.

Guo Peiyuan: By June, 2124 companies had released sustainability reports for the 2023 fiscal year, a 21.03% increase from the previous year. Our analysis shows a positive correlation between ESG rating levels and disclosure levels, which the new guidelines will help raise. The main challenges are improving report quality, covering key ESG issues comprehensively, and ensuring the reliability and comparability of disclosed information.

Comprehensive data disclosure supports better investment research and decision-making.

Cheng Jie, Head of ESG Research at E Fund Management

How can more comprehensive data disclosure better support investors?

Su Gang: More comprehensive data disclosure could aid investor engagement. Investors can analyse the data to more accurately assess the companies’ ESG performance. Investors can also decide the priority and topics for engagement by benchmarking against industry standards and best practices.

Cheng Jie: Comprehensive data disclosure supports better investment research and decision-making. For example, at E Fund our ESG team can now build a robust climate risk management system using disclosed carbon emissions and intensity data. This supports better assessments of our investment targets.

Guo Peiyuan: Our analysis shows that in China, the biggest challenge in responsible investing has shifted from the difficulty of obtaining ESG information of investees to the lack of sufficient capacity to analyse the engagement with investees. Beyond disclosure, investor engagement remains limited. Initiatives like the China Climate Engagement Initiative (CCEI) aim to foster broader and deeper dialogues between institutional investors and corporates.

Are the new guidelines enough for investors’ data needs?

Su Gang: The new guidelines will standardise sustainability disclosure for listed companies, covering various ESG topics. As sustainable issues evolve, new topics such as nature issues may emerge, requiring continuous attention and updates.

Cheng Jie: The guidelines draw on international experience while considering local conditions, addressing investors’ basic needs. The area also keeps generating new topics. For example, after the “Kunming-Montreal Global Biodiversity Framework” in 2022, biodiversity has gained attention. Improved carbon accounting capabilities also increase the demand for disclosing Scope 3 emissions.

Guo Peiyuan: The guidelines consider both domestic and international standards and reflect Chinese characteristics. The China Association for Public Companies has conducted comparative analyses of the guidelines with international standards like ISSB, GRI and SEC, aiding investors and market participants. Future standards from the MoF will include more specific requirements and application guidelines.

The improvement of disclosure by Chinese companies will help with the companies’ better governance and competitiveness, as well as a healthier capital market.

Su Gang, Chief Investment Officer of China Pacific Insurance Group (CPIC)

What are the prospects for future corporate sustainability disclosure?

Su Gang: The improvement of disclosure by Chinese companies will help with the companies’ better governance and competitiveness, as well as a healthier capital market. Specific trends include:

• Standardisation: Policies like the Basic Standards by MoF will clarify disclosure scope and improve quality.
• Mandatory Disclosure: Requirements will extend from listed to non-listed companies, large to small enterprises, qualitative to quantitative requirements, and voluntary to mandatory disclosure.
• Internationalisation: Alignment with international standards could attract global investors.
• Technological Advancement: Technologies like big data and AI will enhance the accuracy and efficiency of information collection and reporting.

Cheng Jie: Unified calculation and disclosure standards will continue to improve the quality of ESG information, promoting a healthier capital market. Companies will enhance stakeholder communication, reflecting diverse needs and expectations, while investors will benefit from better information for decision-making and risk management.

Guo Peiyuan: The guidelines adopt a progressive approach, moving from voluntary to mandatory disclosure. A-share companies are expected to voluntarily publish sustainability reports under policy guidance and peer pressure. Climate disclosure will become increasingly important, with companies measuring emissions and conducting climate scenario analysis.

The rapid development of sustainability disclosure frameworks, both internationally and domestically, indicates significant progress. In China, various ministries will continue to promote ESG or environmental information disclosure. Companies should follow specific requirements from relevant departments, and in the medium to long term, establish comprehensive systems for sustainability information management to adapt to evolving disclosure requirements.

The PRI will continue to support investor signatories in advancing responsible investment through multiple resources, including investor tools and guidance, case studies, collaborative engagement opportunities, and the Data Portal.

Link to the full Chinese version of this article.

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