The Standards provide a framework for all Chinese companies’ sustainability disclosures and the applicability extends beyond listed companies.

By Paul A. Davies, Farhana Sharmeen, Michael D. Green, James Bee, and Qingyi Pan

On May 27, 2024, China’s Ministry of Finance published the new Corporate Sustainability Disclosure Standards (Draft for Comment) (the Standards). The Standards set out the general provisions, disclosure objectives, and information quality requirements, which aim to lay the ground for China’s unified national sustainability disclosure standard system, expected to launch by 2030. The goal of the Standards is to promote transparent disclosure throughout the value chain and to enhance the competitiveness of Chinese companies globally.

Overview of the Standards

In drafting the Standards, the Ministry of Finance both drew on the international sustainability disclosure requirements issued by the International Sustainability Standards Board (ISSB), particularly the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, and modified certain aspects (i.e., purpose, scope, technical requirements, etc.) of the Standards for the Chinese market. The Standards have five chapters, the first of which discusses the purpose and applicability of the Standards. Specifically, the Standards emphasize that companies should use reasonable efforts to collect supply chain data and discuss potential risks and opportunities thereof; and if such data is not available after reasonable efforts, companies should estimate and disclose such information to their best knowledge.

The second chapter clarifies that the disclosure is intended to benefit all stakeholders, including investors, consumers, employees, vendors, and local communities. As such, when conducting sustainability disclosures, companies must assess the “importance” of any information. “Importance,” a term generally equivalent to “materiality” as defined in other international sustainable disclosure standards,is defined as any information that, if omitted, mistakenly reported, or vaguely addressed, would affect the decision-making process or result.  

The third chapter lays out the requirements for data integrity. The data must be complete, neutral without bias, accurate, comparable (with peer companies in the same industry), verifiable (based on records or deduction), and timely.

The fourth chapter describes the scope and components of the disclosure framework: Governance (corporate governance and supervision over sustainability risks and opportunities), Strategy (corporate strategy that addresses sustainability risks and opportunities), Risk Management (procedures and mechanisms that a corporate uses to manage sustainability risks), and Target (sustainability targets, both voluntary and compliance or contributions towards China’s 2030/2060 targets).

The fifth chapter clarifies that information concerning sensitive business information or national security will be exempt from the disclosure requirements.

Comparison with Chinese Exchanges’ Sustainability Reporting Guidelines

The Standards are different in many aspects from the Draft Guidelines on Sustainable Development Reports that were published by China’s three major stock market exchanges on February 8, 2024 (collectively, the Guidelines). First, the Standards cover all companies (public and non-public) that are incorporated in China and need to conduct sustainability disclosures, while the Guidelines cover only public companies that are listed on the stock exchange. Second, the Guidelines establish mandatory disclosure timelines that the list companies must comply with, whereas the Standards, as currently drafted, do not impose any mandatory requirements. Third, the Standards emphasize localized sustainability development, as opposed to the focus in the Guidelines on aligning with the global standard for investor disclosure.

What Next?

The Ministry of Finance has opened a consultation on the Standards, which will end on June 24, 2024. We expect that the Ministry will promptly release the finalized version based on feedback from all parties.

Latham & Watkins will continue to monitor developments in sustainability reporting alongside global regulatory developments in this area.