In a landmark move for mainland China, three of the country’s leading stock exchanges in Beijing, Shanghai and Shenzhen have introduced their first guidelines for Environmental, Social and Governance (ESG) disclosure by businesses.
As one of the globe's most robust economies and a critical sourcing hub for supply chains, China has embedded environmental laws, however western economies have typically led in rolling out broader ESG-related requirements for organisations. China’s inaugural ESG reporting guidelines therefore mark a watershed moment in the nation's – and the world's – approach to sustainable capitalism.
Global implications
Whilst other geographies have developed regulations, such as the Corporate Sustainability Reporting Directive (CSRD) in Europe, China now also joins the United States, United Kingdom, Australia, Singapore and Brazil in introducing defined criteria for sustainability requirements. The Chinese government has expressed commitments and ambitions on energy, carbon disclosure, climate and ESG before, but the introduction of formal ESG disclosure requirements marks a new dawn for environmental regulations, alongside penalties for non-compliance.
The immediate implications of China's guidelines are significant for the domestic economy, with up to 450 listed companies falling within scope. Not only has the bar therefore been raised, but the ripple effects will also reverberate throughout the global business community given China’s fundamental role in global supply chains. Chinese companies, as well as international organisations with a presence in the country, will need to acclimate to what is becoming the new norm.
The immediate implications of China's guidelines are significant for the domestic economy, with up to 450 listed companies falling within scope.
Proactivity and partnership
China remains one of the largest economies and export powerhouses, meaning these guidelines are an unmistakable clarion call to the global marketplace: adapt or be left behind. A harmonised approach to ESG standards is no longer just a utopian aspiration, it's a strategic imperative dictated by the crucial interconnectivity of our markets.
For enterprises navigating this new ESG terrain, proactive preparation will be key. It demands an internal reassessment of operational impact, a thorough review of supply chain dynamics, and a realignment of strategic priorities. Companies that opt for a negligible compliance will find themselves ill-prepared in the eyes of investors and consumers alike, for whom ESG performance is rapidly becoming a litmus test for legitimacy and trust.
China remains one of the largest economies and export powerhouses, meaning these guidelines are an unmistakable clarion call to the global marketplace: adapt or be left behind.
Data-driven risk management
The ESG regulations set out by China encourages companies to disclose their sustainability-related information across four core areas – governance, strategy, risk management, and metrics and targets. China is therefore not only making it clear that businesses must prioritise accountability and transparency for long-term success and societal advancement, but also highlighting the value of data.
Digital assurance – including supply chain intelligence platforms such as LRQA’s EiQ, plus data verification services – marks the new, digitally enabled approach needed to navigate the new era of risk, which China has clearly recognised. As industries across the globe digitise, leading assurance partner, LRQA, is primed to continue helping businesses capture and harness their data to improve visibility, manage risk and protect performance across their operations.
Driving value
Today, in the era of Assurance 4.0, there is a clear expectation that business performance must be aligned with the needs of the planet and our communities, with the focus on social and environmental performance remaining vital for shareholders, who know that it is a key value driver. China’s move to prioritise ESG disclosure demonstrates an understanding of that concept and a commitment to managing the risks and opportunities within the new risk landscape.
Nonetheless, the journey towards ESG excellence is not a solitary one. Organisations require partners who can negotiate this new landscape with acumen, guide them through the intricacies of sustainability reporting, and, ultimately, demonstrate that good risk management is just good business. For businesses worldwide, it is an indication that the ESG journey is not only unavoidable but intertwined with the very essence of their commercial ventures.
