28 May 2024

China proposes sustainability disclosure standard

China's Ministry of Finance issued yesterday (27 May) a draft sustainability reporting standard, with the view to establishing a mandatory ISSB-aligned disclosure regime for Chinese companies by 2030.

The draft standard – named the Corporate Sustainability Disclosure Standards: Basic Principles – sets out the general provisions, disclosure objectives and information quality requirements of the country's proposed reporting requirements.

In a statement, the Ministry said it "will not adopt a one-size-fits-all mandatory approach" but rather gradually phase in voluntary and mandatory reporting for listed and non-listed companies in order to take into account the "development stage and disclosure capabilities of Chinese companies".

Earlier this year, the Shanghai, Shenzhen, and Beijing stock exchanges issued guidelines for listed companies' sustainability disclosures. Under these guidelines mandatory climate reporting – with a range of transitional reliefs – will be phased in for the 100 biggest companies on the Shanghai Stock Exchange and the 50 biggest companies on the Shanghai Science and Technology Innovation Board index from 2025.

In a translated explanatory document issued yesterday, the Ministry of Finance said it hopes that sustainability disclosures will be "standard" by 2027. It also committed to issuing further guidance and a Q&A to support the adoption of sustainability reporting standards over the coming years.

"By 2030, a unified national sustainability disclosure standard system will be basically completed," the translated explanatory document reads. "In view of the construction of the standard system, the relevant departments can formulate disclosure guidelines and regulatory systems for specific industries or fields in advance and gradually adjust and improve them in the future."

According to the draft standard, companies will be required to disclose information on the material sustainability-related risks, opportunities and impacts relating to their own operations and value chains.

"Sustainability information is material [to report on] if it is reasonably expected that the omission, misstatement or ambiguity of the information will affect the decision-making on which it is based," the translated standard explains.

According to the explanatory document, the 'Basic Principles' standard would require companies formed in China to disclose information on their sustainability-related governance, a range of environmental topics - including climate, pollution, marine resources, biodiversity, and resource use – and certain social topics, such as own workforce, consumer protections, community relationships, rural revitalisation and supply chain management.

As required in the ISSB standards, the draft Basic Principles standard specifies that sustainability disclosures should include the four key elements of governance, strategy, risks and opportunities, and metrics and targets.

According to the draft Chinese standard, the reporting period for sustainability information should be consistent with the reporting period for financial statements. Moreover, companies will issue the information in a separate 'sustainability report' which is accompanied by 'an unqualified compliance statement'.

Several exemptions have been written into the draft standard. For example, companies will not have to disclose information if it contains state secrets or commercially sensitive information. 

The Ministry of Finance has opened a consultation on the draft standard which will run until 24 June.

In a statement, the organisation said the requirements "will help companies better engage in global trade and investment activities, enhance their international competitiveness, and support China's institutional opening-up".

The publication of the draft standard was praised by both ISSB chair Emmanuel Faber and Erkki Liikanen, chair of the IFRS Foundation.

"We welcome the recent announcement from the Chinese Ministry of Finance regarding their strategy for unified China Sustainability Disclosure Standards based on ISSB Standards. I am grateful to the continued support of the Ministry of Finance to the establishment of ISSB and the global baseline since our creation," Liikanen said in a statement.