China Soliciting Opinions for Self-Regulatory Guidelines for Listed Companies on Sustainability
- Date: 16 February 2024
- Tags: China, ESG, Sustainability
- Reading time: 5 minutes
On February 8, 2024, the Shanghai Stock Exchange (SSE) released a significant announcement that has the potential to reshape how listed companies on the exchange approach sustainability. The SSE has drafted the “Self-Regulatory Guidelines for Listed Companies on the Shanghai Stock Exchange No. 14 – Sustainability Report (Trial) (Consultation Draft)” (hereafter referred to as the “Guidelines”) and is now seeking public input on the proposal. This move reflects a broader commitment by the Chinese financial authorities to embed sustainability at the heart of corporate governance, aligning with national strategies for low-carbon economic development and green finance.
The Strategic Context
The introduction of these Guidelines comes as part of the broader strategic objectives set out by the 20th National Congress of the Communist Party of China. This event placed a strong emphasis on promoting economic and social transformation towards a low-carbon future. The Guidelines are also part of the Central Financial Work Conference’s directive to enhance green finance, reflecting the growing importance of environmental, social, and governance (ESG) factors in China’s financial markets.
Moreover, this initiative aligns with the China Securities Regulatory Commission’s (CSRC) “Three-Year Action Plan for Promoting the Quality of Listed Companies (2022-2025).” The plan emphasizes the need for higher quality, value-driven investments in listed companies, with a focus on sustainability as a key driver of long-term growth and investor returns.
The Evolution of Sustainability Reporting on the SSE
In recent years, sustainability reporting has gained considerable traction on the SSE. By 2023, nearly half of the listed companies on the exchange had disclosed some form of sustainability report, with 1,023 companies participating. Particularly noteworthy is the near-universal disclosure among the top-performing companies on the SSE 50, STAR 50, and SSE 180 Indexes.
This increasing focus on sustainability is not limited to reporting alone. The SSE has actively supported companies in the new energy, energy conservation, and environmental protection sectors through initial public offerings (IPOs) and other financing mechanisms. Over the past three years, these efforts have raised substantial capital for companies operating in low-carbon and sustainable industries, demonstrating the SSE’s commitment to fostering a green economy.
Key Features of the New Guidelines
The Guidelines are built on three core principles: embodying Chinese characteristics, adhering to factual accuracy, and employing systematic thinking. These principles are designed to ensure that the sustainability reporting framework is both relevant to the Chinese market and effective in promoting genuine sustainable practices among listed companies.
- Chinese Characteristics: The Guidelines incorporate topics that are uniquely important to China, such as rural revitalization, innovation-driven growth, and the equitable treatment of small and medium-sized enterprises (SMEs). These topics reflect the broader national priorities in sustainable development and aim to align corporate practices with these goals.
- Fact-Based Approach: Recognizing that not all companies are at the same stage of development, the Guidelines allow for a combination of mandatory and voluntary disclosures. This flexibility ensures that companies can match their reporting efforts to their capabilities, fostering a more inclusive approach to sustainability reporting.
- Systematic Thinking: The Guidelines encourage companies to build robust governance mechanisms around sustainability. The proposed reporting framework focuses on four core areas: governance, strategy, impact, and risk and opportunity management, alongside key indicators and targets. This structure is intended to help companies improve their internal processes and provide clearer, more actionable information to investors.
Detailed Disclosure Requirements
The Guidelines propose a comprehensive framework for sustainability reporting, divided into several key areas:
- Environmental, Social, and Governance (ESG) Issues: The Guidelines specify important topics that companies should address in their reports. Environmental topics include climate change, biodiversity, and energy use. Social topics cover areas such as rural revitalization, supply chain security, and the treatment of SMEs. Governance topics focus on anti-corruption, anti-bribery, and competition practices.
- Balanced Disclosure Standards: To accommodate the varying capabilities of listed companies, the Guidelines propose a tiered approach to disclosure, ranging from mandatory to voluntary topics. For example, while large companies on key indexes must report on most aspects, smaller companies may focus on fewer topics or provide qualitative rather than quantitative data.
- Transition Periods and Flexibility: Understanding that the transition to comprehensive sustainability reporting may take time, the Guidelines offer transitional arrangements. Companies required to report can begin with their 2025 Sustainability Reports, due in 2026, with allowances for qualitative disclosures if quantitative data is not yet available.
The Path Forward
The SSE’s move to solicit public feedback on these Guidelines marks an important step towards finalizing a robust sustainability reporting framework. This period of public consultation will allow market participants to share their views and contribute to refining the Guidelines, ensuring they are both practical and effective.
As China continues its journey towards a low-carbon, sustainable future, the SSE’s Guidelines for sustainability reporting will likely play a crucial role in shaping corporate behavior and investment strategies. By setting clear expectations and providing a framework for disclosure, the SSE is helping to create a capital market that supports sustainable development and long-term value creation.
For companies listed on the SSE, these Guidelines represent not just a regulatory requirement, but an opportunity to align with global best practices, enhance their sustainability credentials, and contribute to China’s broader environmental and social goals. The SSE’s leadership in this area is a testament to the growing importance of sustainability in the financial markets and the critical role that exchanges can play in driving positive change.
Conclusion
The SSE’s draft Guidelines for sustainability reporting are a significant development in China’s capital markets, reflecting the country’s commitment to sustainable growth and the integration of ESG principles into corporate governance. As these Guidelines move from draft to final implementation, they will likely set a new standard for sustainability reporting in China, driving greater transparency, accountability, and long-term value creation across the market.