China’s stock exchanges unveil disclosure rules for big companies

February 23, 2024|Written by |China Securities Regulatory Commission

Mainland China’s stock exchanges have proposed sweeping environmental disclosure rules for large listed companies, in response to growing investor demand for ESG-related information in the world’s number two economy.

The Shanghai, Shenzhen and Beijing exchanges are taking a double materiality approach, requiring companies to report on the impact their activities have on the environment as well as the risks and impact of environmental factors on their business.

Around half of China’s listed companies will be obliged to carry out the reporting, including the biggest 180 listed in Shanghai (the SSE 180) along with the top 50 firms on the exchange’s Star 50 science and technology board.

On the Shenzhen exchange, which is focused on smaller and medium-sized companies, the reporting will be obligatory for the top 100 listed firms as well as the top 100 on its hi-tech subsidiary ChiNext.

Companies listed on the Beijing exchange, which was only launched in 2021, will be able to choose whether or not to adhere to the rules voluntarily, along with smaller firms listed in Shanghai and Shenzhen.

The Shanghai Stock Exchange (SSE) said this reflected China’s “relatively weak foundation in climate disclosures” and the need for gradual progress.

“We are focusing on promoting behavioural change,” the SSE said in a statement. “We are deliberately not pursuing perfect information disclosure, in order to achieve a stable start and to gradually encourage companies to strengthen their disclosures.”

Revealed earlier this month, the proposed regulations are under consultation until 29 February. They are set to apply to company activities from 2025 onwards, with the first reports due at the end of April 2026.

The new rules will require companies to reveal a wide array of information, including scope 1 and 2 greenhouse gas emissions. Scope 1 emissions are produced directly as a result of business activities, while scope 2 covers emissions from energy companies have purchased. A smaller subset of firms will report scope 3 emissions – those indirectly linked to the company via other actors in its value chain.

Companies’ transition plans and decarbonisation targets are also set to be revealed along with their use of carbon offsets and the processes they have in place to manage climate risks.

The guidelines encourage companies to carry out climate scenario analysis. Other ESG-related information to be disclosed under the new rules includes details of the companies’ anti-corruption and anti-bribery measures.

An analysis by China Dialogue, a site covering environmental news in China, found that Chinese firms “consistently lag behind their peers in both developed and emerging markets” when it comes to the quality of their disclosures.

“But rising ESG scores in recent years indicate that – among large Chinese firms at least – awareness of sustainability reporting issues is deepening,” it added.

China’s environment ministry announced limited disclosure rules in 2021 for companies with a track record of pollution or environmental violations. The new regulations from the three stock exchanges also build on voluntary ESG disclosure frameworks unveiled in 2022.

The China Securities Regulatory Commission indicated in 2022 that China was set to adopt the disclosure rules set by the International Sustainability Standards Board (ISSB), which has an office in Beijing.

There is no explicit reference to the ISSB in the stock exchange proposal, although it does state that companies should use “the terms, units and measurement methods required by recognised international, national, industry or local standards” in their disclosures.

In Hong Kong, ESG reports have been obligatory for all listed companies since 2020. Mandatory climate disclosures, including transition plans and scope 1, 2 and 3 emissions, are due to come into force on 1 January next year.

This page was last updated February 23, 2024

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