ISSB-aligned disclosure rules ‘a big milestone for China’s green finance development’

June 11, 2024|Written by

China’s finance ministry has published a draft framework for corporate sustainability disclosures that is broadly in line with the International Sustainability Standards Board (ISSB), in a step forward for efforts to harmonise reporting requirements around the world.

“This is a big milestone for China’s green finance development,” said Su Ting, a sustainable investment research associate at the World Resources Institute (WRI) China.

The framework, which is under consultation until 24 June, should eventually help “firms raising funds from global investors, providing goods or services globally or investing overseas” in the world’s number-two economy, Su told Green Central Banking.

While the ISSB has had an office in Beijing since last year, Chinese authorities have previously been wary of signing up to its standards. But in late 2023 a three-month assessment of the applicability of international disclosure standards found that “most of the requirements are applicable in China”, according to notes accompanying the draft framework.

The framework is presented as representing “the best of both worlds… reflecting the useful experience of international standards while meeting China’s national conditions and demonstrating Chinese characteristics”.

It bears a similar structure to the ISSB’s IFRS S1 requirements, the global baseline for basic environmental disclosures, outlining how companies should disclose sustainability-related information in four key areas: governance, strategy, risk management and metrics.

However, the Chinese framework goes further than S1 by incorporating double materiality – the principle that companies should disclose the impact of their activities on the environment, as well as the impact of environmental risks on the business.

Companies are furthermore required to make “reasonable efforts” to collect sustainability information on risks, opportunities and impacts up and down their value chains, and to otherwise provide the best proxies available, such as industry average figures.

The ISSB had published a Chinese-language version of the S1 guidelines, as well as the accompanying S2 guidelines for climate-related disclosures, in early May.

Towards a unified Chinese disclosure system

In the accompanying notes, the ministry acknowledges that “at present, most of the disclosure of sustainability information by enterprises in China is voluntary and based on very inconsistent standards”, issued by different authorities.

The new framework is “expected to play the role of unifying China’s sustainability disclosure by consolidating all existing standards,” according to Su.

“However, challenges remain on how to implement these policies,” she added, noting that the finance ministry “doesn’t have a regulatory mandate on listed companies or most state-owned enterprises, compared with the China Securities Regulatory Commission (CSRC) and State-Owned Assets Supervision and Administration Commission of the State Council (SASAC)”.

Mainland China’s three main stock exchanges had in February announced sweeping environmental disclosure rules for large listed companies.

The accompanying notes states that China will avoid adopting “a ‘one-size-fits-all’ mandatory implementation requirement”, instead opting for step-by-step measures including pilot schemes and staged expansions from listed to non-listed companies, and from large enterprises to smaller ones.

Su noted that the framework “sets a less ambitious timetable for publishing climate disclosure standards by 2027” and until then “allows other departments to make disclosure rules in their own mandate”.

“I expect the Ministry of Finance’s standard will not overrule other prevailing ones until 2027,” she said.

This page was last updated June 11, 2024

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