Background
In 2022, more than 2,700 companies listed in Shenzhen shared their social responsibility performance in their annual reports. Over 800 companies released independent social responsibility reports or ESG reports. In 2023, a total of 1,023 companies listed in Shanghai disclosed their social responsibility, ESG, or sustainable development reports for the year 2022. The new disclosure rate has reached a high of 47%. Companies listed on the SSE 50 and STAR 50 index, and those listed both domestically and abroad, had an ESG reporting disclosure rate close to 100%. Additionally, the report disclosure rate of the companies listed in the SSE 180 index sample exceeded 90% in 2023.
The SSE and CSI indices have jointly released a total of 138 ESG sustainable development indices. Out of these, 104 are stock indices, 31 are bond indices, and 3 are multi-asset indices. 86 fund products are tracking these sustainable development indices, with a scale of over CN¥100 billion yuan. Additionally, there are 43 ESG and other sustainable development ETFs listed on the Shanghai Stock Exchange, with a scale of over 60 billion yuan.
Key Takeaways from the Official Guidelines of the New Sustainability Reporting Requirements:
(The consultation period will last until February 29, 2024.)
Reporting Scope: Companies in SSE 180, STAR 50, SZSE 100, and ChiNext indices must make mandatory and voluntary disclosures. Dual-listed firms must disclose their "Sustainability Report". All listed companies are encouraged to disclose voluntarily. Small and medium-sized firms listed on the Beijing Stock Exchange need not release a "Sustainability Report" due to their developmental stage. However, it is strongly recommended that companies disclose as much sustainability information as possible.
Reporting Framework: The three exchanges' guidelines require listed companies to disclose information on governance, strategy, impact, risk and opportunity management related to sustainable development under the principle of double materiality. This framework helps investors and stakeholders understand companies' actions to manage risks and opportunities in sustainable development.
Climate Change Disclosure: The proposed guidelines require companies to disclose their climate adaptability, transition plan, and total greenhouse gas emissions. This includes Scope 1 and 2 emissions, with Scope 3 being optional depending on their capacity. Additionally, they should provide information on measures taken to reduce carbon emissions, opportunities related to carbon emissions, and any other relevant details.
Environmental and Social Disclosure: The section on environmental information disclosure highlights crucial issues such as ecosystem and biodiversity, as well as the circular economy. Similarly, the section on social information disclosure addresses multiple important topics such as rural revitalization, innovation-driven approaches, scientific and technological ethics, supply chain security, and equal treatment of small and medium-sized enterprises.
Governance Disclosure: The Guidelines suggest that listed companies integrate sustainable development into corporate governance, focus on improving their mechanism and internal control level, and establish sustainable development governance practices. They should address issues such as anti-corruption, anti-bribery, and anti-unfair competition in their governance structure, internal system, control measures, and procedures.
Transitional Period: Companies listed on the Shanghai and Shenzhen Stock Exchanges that fall under the scope of this regulation are required to release their Sustainability Report for the financial year 2025 by April 30th, 2026. During the first reporting period, companies may provide qualitative disclosure for indicators that are difficult to quantify. If a company is unable to quantify an indicator, they are allowed to disclose qualitative content only for reports in 2025 and 2026.
Disclosure Timeline: Companies listed on the Shanghai and Shenzhen Stock Exchanges that fall under the scope of this regulation are required to prepare a Sustainability Report following these Guidelines. The Sustainability Report must be completed within 4 months after the end of each accounting year. Once the report has been approved by the board of directors, it should be disclosed together with the company’s annual report. The reporting subject and reporting period covered in the Sustainability Report must be consistent with the company’s annual report.