Annual reports in China will now include environmental and social information

On June 28, the China Securities Regulatory Commission (CSRC) released revised guidelines on the format of annual and semi-annual reports for listed companies, prompted by updated requirements under China’s Securities Law.

One important change relates to ESG disclosure: reports now need to consolidate environmental and social information under Section 5: Environmental and Social Responsibility.

This new section includes detailed requirements, which can be summarized as the following:

• Key polluting companies, as defined by governments, shall disclose environmental information in accordance with laws and regulations – such as types pollutants and total amount of pollutant. Other companies (non-key polluting companies) shall follow a comply-or-explain rule on environmental disclosure.
• Companies are encouraged to voluntarily disclose relevant information about ecological protection, especially the measures and results of reducing their carbon emissions during the reporting period.
• Companies are encouraged to disclose their efforts in fulfilling their social responsibility including, but not limited to, the protection of the rights and interests of employees, suppliers, customers and consumers. 
• Companies are encouraged to disclose their efforts related to poverty alleviation and rural revitalisation during the reporting period.

In general, the new revision reflects – to a certain extent – the regulator’s recognition of ESG and echoes broader policy trends in China, such as rural revitalization and carbon reduction. However, it continues to be voluntary or semi-mandatory for most companies.

We expect that the measure will affect this year’s semi-annual reports and subsequent annual reports. Listed companies will add an “Environmental and Social Responsibility” section to their reports, which will greatly improve the recognition of ESG disclosure and raise ESG awareness in China’s capital market.

Some may wonder whether listed companies may stop publishing separate ESG reports, and simply incorporate ESG into their annual reports; but we believe this won’t happen – the mainstream trend is still for publishing separate ESG reports, which can be seen from the experience of the Hong Kong Exchange. Although the Hong Kong Exchange’s ESG Reporting Guidelines allow companies to include ESG in their annual reports, the proportion of listed companies that publish separate ESG reports is increasing continuously.

Looking forward, we believe that mandatory ESG disclosure is still an inevitable trend in the long run. Early this year, CSRC stated on its website that it will continuously improve ESG disclosure of listed companies and will “further align and cooperate with international organisations in related aspects such as the issuer’s sustainability disclosure and the establishment of international standards for non-financial reporting”.

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Dr. Guo Peiyuan is the Chairman of Beijing-based consultancy SynTao Green Finance and co-founder and General Manager of SynTao.