Mainland China
Contributing law firm: JunHe LLP
Contact: Tianling (Carey) Ni, Partner
He (George) Zhu (J.D.)
ESG in APAC - Mainland China by JunHe LLP
Please click on the podcast above for a snapshot of the three key themes of ESG reporting, transition planning and greenwashing in respect of Mainland China. Scroll down for further information on each key theme.
A. ESG Reporting
1. Are there legal or regulatory requirements for companies to make ESG disclosures in your jurisdiction?
Yes.
2. What are the key legislative and regulatory sources for ESG disclosure requirements and to whom do they apply?
In the mainland of China, general ESG disclosure requirements are primarily aimed at listed companies:
(a) Self-regulatory Guidelines of Shenzhen Stock Exchange for Listed Companies No.1 - Standardized Operation of Main Board Listed Companies, which stipulates (1) that the listed companies included in the "Shenzhen Stock Exchange 100 Index" should disclose their Social Responsibility (SR) reports separately in accordance with the relevant provisions of the Guidelines for Standardized Operation of Listed Companies of the Exchange, and in accordance with Annex 1 - Disclosure Requirements for Social Responsibility Reports of Listed Companies, and (2) encourages that other companies listed on the Shenzhen Stock Exchange disclose their SR reports.
(b) Self-regulatory Guidelines of Shanghai Stock Exchange for Listed Companies No.1 - Standardized Operation, which stipulates that the representative companies listed on the "Shanghai Stock Exchange Corporate Governance Sector", companies listed on both Shanghai Stock Exchange and other jurisdiction outside the mainland of China, and financial companies shall disclose their reports on fulfilling social responsibilities (SR reports) at the same time as their annual reports. Shanghai Stock Exchange also encourages other listed companies listed on the Shanghai Stock Exchange to disclose their SR reports at the same time as their annual reports.
(c) Notice on Conducting Disclosure of 2021 Annual Reports of Listed Companies on the Shanghai Stock Exchange's Sci-tech Innovation Board (SSE STAR Market), which stipulates that SSE STAR Market listed companies should disclose ESG related information in their annual reports, and separately prepare and disclose ESG reports, SR reports, sustainable development reports, environmental responsibility reports, and other documents as appropriate. The companies included in the SSE STAR Market 50 Index should disclose their SR report at the same time as the disclosure of their annual reports; those who have already disclosed ESG reports are exempted from separate disclosure of SR reports. Shanghai Stock Exchange also encourages other companies listed on the SSE STAR Market to disclose ESG reports or SR reports at the same time as their annual report. When preparing their ESG reports or SR reports, the companies should disclose their actions to support the "carbon peak and carbon neutrality" goals and promote sustainable development as a key focus.
In addition, based on the Measures for Administration of Law-based Disclosure of Environmental Information by Enterprises (the Measures) issued by the Ministry of Ecology and Environment (MEE) of China, certain enterprises are subject to mandatary environmental disclosure requirements, which include:
(a) Key pollutant-discharging entities;
(b) Enterprises subject to compulsory cleaner production audit;
(c) Listed companies and their subsidiaries at all levels (to the extent consolidated) that are subject to the provisions of Article 8[1] of the Measures (e.g. those that have breached environmental laws);
(d) Enterprises issuing enterprise bonds, corporate bonds, and debt financing instruments of non-financial enterprises that are subject to the provisions of Article 8 of the Measures; and
(e) Other enterprises that shall disclose environmental information as prescribed by laws and regulations.
3. Are the requirements mandatory or do they apply on a comply-or-explain basis?
The disclosure requirements of Shenzhen Stock Exchange and Shanghai Stock Exchange are mandatory for (1) the listed companies included in the "Shenzhen Stock Exchange 100 Index", (2) the representative companies listed on the "Shanghai Stock Exchange Corporate Governance Sector", (3) the Shanghai Stock Exchange listed financial companies (4) the companies listed on both Shanghai Stock Exchange and other jurisdiction outside the mainland of China, and (5) SSE STAR Market listed companies, as discussed in Q&A. A.2, otherwise voluntary for other listed companies on Shenzhen Stock Exchange or Shanghai Stock Exchange in China.
The requirements of China MEE on environmental disclosure are mandatory for certain enterprises as discussed in Q&A. A.2.
4. Which aspects of ESG do the requirements focus upon?
Based on the requirements of Shenzhen Stock Exchange and Shanghai Stock Exchange, various environmental, social and governance aspects are covered. Specifically for the companies listed on the SSE STAR Market, the key focus is on their actions to support the "carbon peak and carbon neutrality" goals and promote sustainable development.
For the companies subject to the Measures of China MEE, the key environmental disclosure aspects include:
(a) Basic information of the enterprise (production and environmental protection information);
(b) Information of the environmental management of the enterprise;
(c) Information of the generation, control and discharge of pollutants;
(d) Carbon emission information;
(e) Ecological and environmental emergency response information;
(f) Information on violation of ecological and environmental laws;
(g) Law-based disclosure of temporary environmental information this year; and
(h) Other environmental information as prescribed by laws and regulations.
5. Are the disclosure requirements based on international standards? If so, which one(s)?
No. The regulatory disclosure requirements do not specify any reference to international standards. However, in practice, many companies listed in Shanghai Stock Exchange or Shenzhen Stock Exchange prepared their ESG/SR reports with reference to the international standards/frameworks such as the GRI Standards, ISO26000 and TCFD.
6. Are there any mandatory requirements for the disclosure of Scope 3 GHG emissions?
No.
7. Are there assurance requirements?
No.
8. Are voluntary ESG disclosures customary?
Many listed companies make reference to international standards (such as the GRI Standards and ISO26000) and/or local group standards (such as the Guidelines on Corporate Social Responsibility Reporting for Chinese Enterprises (CASS-ESG 5.0, as the latest version) and Guidance for Enterprise ESG Disclosure (T/CERDS 2-2022)) in their ESG reports even though they are not mandatory.
9. Is there a local taxonomy? Is it mandatory and what is its scope of application?
The International Platform on Sustainable Finance (IPSF), which was jointly launched by economies including China and the EU, has released the Common Ground Taxonomy (CGT). The CGT has been adopted by some financial institutions in China and the EU as reference for determining whether projects satisfy the purpose of sustainable finance when issuing financial products, but it is not mandatory.
10. Are there plans to adopt the ISSB sustainability and/or climate-related disclosure standards? If so, to what extent will the standards be mandatory, to whom will they apply and what is the timeline?
The China Securities Regulatory Commission (CSRC) has provided formal comments on the exposure drafts of the ISSB sustainability and/or climate-related disclosure standards. The senior management of CSRC indicated that these standards issued by ISSB would probably be adopted globally, and would have huge impact on China’s enterprises.
However, currently there is no specific plan or timeline for the mainland of China to adopt the ISSB sustainability and/or climate-related disclosure standards.
11. Other upcoming developments / direction of travel
The listed companies controlled by the central government-owned enterprises in China have been encouraged by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) to disclose their ESG reports by 2023, based on the Work Plan for Improving the Quality of Listed Companies Controlled by Central Government-owned Enterprises issued by SASAC in 2022. The ESG Reporting Guideline for Listed Companies Controlled by Central Government-owned Enterprises is currently under preparation, and it is expected to be released in 2023.
B. Transition planning and net zero
1. Has your jurisdiction set decarbonisation targets and strategies?
Yes – to reach carbon emission peak by 2030 and carbon neutrality by 2060.
In October 2021, the Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy and the Action Plan for Carbon Dioxide Peaking Before 2030 were issued by the State Council of China.
In October 2022, the National Energy Administration issued the Action Plan for Carbon Peak and Carbon Neutrality Standardization (the "Plan"). The goals mentioned in the Plan include, by 2025, the initial establishment of a relatively complete energy standard system that can effectively support and lead green and low-carbon energytransformation. Specific goals include the establishment and improvement of renewable energy standard system based on photovoltaic and wind power, the formulation of a number of carbon emission reduction related technical standards of emerging technologies and supply chain, the revision of a number of standards related to the energy efficiency of conventional energy production, conversion, transmission and utilization. By 2030, an advanced and reasonable energy standards system with an optimized structure will be established, energy standards will be developed closely with technological innovation and industrial transformation, and energy standardization will strongly support and guarantee carbon peak and carbon neutrality in the energy industry sector.
2. Are there carbon trading markets? If so, please give details. If not, are there plans for such markets?
Yes, there are carbon trading markets in the mainland of China.
The first pilot carbon trading schemes were launched in 2013 in seven provinces and cities, and these were subsequently expanded to cover a total of 11 provinces and cities by 2017.
In 2021, the national carbon trading market was launched, which covers China's power sector.
The above carbon trading markets contain both voluntary and compliance markets.
3. Are there mandatory requirements for transition plans and/or their disclosure? If so, please give details (including whether there is any standard or guidance on transition plans and/or requirement to consider the social impact of the plan). If not, are there plans for such requirements?
It is not mandatory for companies to have a transition plan. However, for companies listed on the SSE STAR Market, their ESG disclosures are required to be focused on actions that support the mainland of China’s “carbon peak and carbon neutrality” goals.
4. Are there mandatory requirements to set, meet and/or disclose climate-related targets? If so, please give details. If not, are there plans for such requirements?
Companies are not legally required to independently set or meet climate-related targets, however, the national government has introduced some policies to encourage and guide enterprises to achieve low-carbon transition, and some local governments have started pilot schemes to take into account carbon quotas in the environmental impact assessment process and cleaner production review for individual projects within certain industries.
Companies in the power sector are subject to emissions allowances as part of the national trading scheme mentioned in section Q&A B.2 above.
5. Other upcoming developments / direction of travel
The government is introducing policies to encourage and guide enterprises in low-carbon transition, including carbon reduction target responsibility system, low-carbon city construction plan, etc.
The government is increasingly developing and releasing regulations on carbon emission, including launching a carbon trading market and promoting a carbon emission verification and reporting system. Further detailed disclosure requirements on carbon emission may be considered in the future.
The government is encouraging and supporting enterprises to develop internal low-carbon transition plans.
C. Greenwashing risks
1. Are there any recent examples of legal proceedings, regulatory actions or investigations against or into greenwashing in your jurisdiction?
No significant examples, but some enterprises were held to have misused “green” information in their advertisement which were considered as violations of relevant laws and regulations. For example, in September 2020, a printing company in Pingdingshan City, Henan Province, marked the "China Environmental Labelling" pattern and the text information of "Green Printing Products" on the back of its product. This information indicated to the public that the product had obtained the green printing environmental label product certification. The government market supervision and management department confirmed the printing company's China Environmental Labelling Product Certification Certificate had expired on January 18, 2020. The actions of the printing company constituted false or misleading commercial advertising as stipulated in Article 8 of the Anti-Unfair Competition Law of the People's Republic of China and the printing company was fined RMB 200,000.
2. Are there any laws or regulations specifically dealing with greenwashing?
No, but some guidance for “green investment” does exist in the finance industry, for example, (1) the Green Investment Guidelines (For Trial Implementation) issued by the Asset Management Association of China (AMAC) deals with how to make green investments and defines the scope of green investments, which should include but are not limited to enhancement of energy efficiency, emission reduction, clean and renewable energies, environmental protection and restoration, and recycle economy, with a focus on environmental protection, low carbon development and recycling, etc.; and (2) the Green Bond Endorsed Projects Catalogue (2021 Edition) jointly announced by the People's Bank of China (PBOC), the National Development and Reform Commission (NDRC) and the CSRC deals with which kind of projects can be funded by green bonds.
3. What are the likely grounds on which such proceedings, action or investigations can be instigated?
Likely grounds include:
(a) Disclosure liabilities under securities laws and regulations, e.g. providing materially false or misleading information in listing documents or other corporate disclosure documents such as ESG reports or SR Report;
(b) Claims in tort/contract breach for misrepresentation; and
(c) Violation of the Advertising Law, the Anti-Unfair Competition Law and/or the Law on the Protection of Consumer Rights and Interests, e.g., deceiving consumers that the products are carbon neutral through misleading commercial advertisements.
4. Other upcoming developments / direction of travel
Although there have been no major greenwashing claims in the mainland of China to date, the risks of claims against companies (in particular, listed companies and financial institutions) are expected to increase as reporting requirements become more robust and the sense of urgency on sustainability continues to grow.
In addition, the Supreme People's Court on the Complete, Accurate and Comprehensive Implementation of the New Development Concept Opinions on Providing Judicial Services for Actively and Steadily Promoting Carbon Neutrality stresses that the courts shall address cases involving disputes over reporting of GHG emissions in accordance with the law. Where key GHG emitting entities refuse to fulfil their GHG emission reporting obligations, or fabricate, conceal, or omit GHG emissions data, the courts shall support administrative authorities in making administrative punishment decisions in accordance with the laws. If the technical service agencies and key GHG emitting entities maliciously collude to fabricate, conceal, or omit greenhouse gas emission data and cause damage to others, any victims may claim compensation for infringement damages. It may also constitute a criminal offence.
This material is provided for general information only. It does not constitute legal or other professional advice.
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