China Unveils Its First Set of Basic Standards for Corporate Sustainability (ESG) Disclosure

• In December 2024, China introduced a Basic Standards of its Corporate Sustainability Disclosure Standards, aiming to guide businesses in aligning their sustainability practices with global ESG expectations. This marks a significant step towards a unified national ESG reporting system, with full implementation expected by 2030.
• The Basic Standards are to be implemented by enterprises on a voluntary basis before the scope of implementation and implementation requirements are stipulated.
• While China is working to harmonize its ESG standards with global frameworks, challenges remain in data accuracy and balancing international standards with local priorities.

China has made significant strides in advancing corporate sustainability and environmental, social, and governance (ESG) practices in recent years. As part of its commitment to fostering greater transparency and accountability, the Chinese Ministry of Finance (MOF), in callaboration with nine other departments, unveiled the new Corporate Sustainability Disclosure Standards—Basic Standards (hereinafter, “Basic Standards”) on December 17, 2024. These standards are designed to guide businesses in disclosing sustainability-related information, ensuring that their practices align with global expectations and regulatory frameworks.

These Basic Standards build on an Exposure Draft released by the MOF in May 2024. Businesses can voluntarily adopt these Basic Standards before the scope of implementation and implementation requirements are stipulated.

The release of the Basic Standards is part of a broader initiative to establish a unified national framework for corporate sustainability reporting in China. This marks a critical miletsone in hormonizing corporate sustainability disclosures across the country and integrating global best practices.

This article delves into the newly introduced sustainability disclosure standards, analyzing  their structure, objectives, and implications for businesses operating in China. With a clear roadmap for full implementation by 2030, the standards are poised to transform how Chinese companies approach sustainability reporting, driving greater corporate responsibility and aligning China’s corporate sector with global ESG benchmarks.

Background: China’s sustainability disclosure journey

China has gradually expanded its commitment to sustainability and corporate transparency over the years, with a clear focus on aligning domestic regulations with international best practices in ESG reporting. This journey began with a recognition of the growing importance of ESG factors in global business and investment decisions, prompting the Chinese government to take steps towards developing a comprehensive national framework for corporate sustainability disclosures.

In May 2024, the Chinese Ministry of Finance took a significant step by releasing a draft of the Corporate Sustainability Disclosure Standards General Standards, soliciting feedback from stakeholders to refine and finalize the approach for corporate sustainability reporting. This draft marked a crucial milestone in the ongoing development of a national ESG disclosure system aimed at enhancing corporate transparency and supporting China’s sustainable development goals.

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By establishing a clear framework, the Chinese government intended to equip companies with the necessary guidelines to report on sustainability in a consistent and comparable manner, in alignment with international standards. Alongside this initiative, China also introduced national ESG reporting guidelines, which came into effect in June 2024.

These guidelines mandated large companies, including those listed on domestic stock indexes as well as overseas markets (such as Hong Kong), to disclose their sustainability performance by 2026. These guidelines sought to balance global ESG integration with China’s local priorities, including climate change, pollution, and rural development. The push for ESG reporting in China was driven by the government’s recognition that transparency in sustainability practices is crucial for mitigating business risks, fostering consumer trust, and remaining competitive in a rapidly evolving global market. The ESG guidelines adopted a “double materiality” approach, requiring companies to report on both the financial impact of ESG factors on their business and the broader social and environmental impacts of their operations.

In parallel, cities like Beijing, Shanghai, and Suzhou issued localized action plans that focused on strengthening ESG infrastructure, improving governance, and ensuring transparency within the corporate sector. Shanghai, for example, set a goal for all export-oriented state-owned enterprises listed on stock exchanges to publish ESG reports by 2027, while Beijing focused on developing policy frameworks and establishing ESG rating systems. These regional initiatives helped build momentum toward national integration, underscoring China’s growing commitment to sustainable business practices.

This comprehensive approach to sustainability disclosure is part of China’s broader strategy to strengthen its ESG ecosystem, making it easier for businesses to navigate the complexities of global sustainability reporting while meeting the country’s economic and environmental objectives. As such, the Basic Standards released in December 2024 represent the latest development in this ongoing effort, representing a critical shift towards more structured and standardized corporate sustainability reporting in China.

Overview of the new Basic Standards for ESG Disclosure

China’s ESG disclosure system

China’s approach to sustainability reporting is undergoing a transformation with the introduction of the Basic Standards, as they provide a new regulatory framework aimed at enhancing corporate transparency on ESG issues.

Overall, China’s ESG disclosure system can be structured in three main components:

• Basic Standards: These standards lay the groundwork for ESG disclosure, outlining the objectives, principles, and general requirements for reporting. They provide clarity on how companies should approach sustainability disclosures, ensuring consistency and comparability across different sectors and industries.
• Specific Standards: These standards build upon the General Standards by detailing the requirements for disclosing specific sustainability themes such as environmental impact, social responsibility, and governance practices. These standards provide the detailed criteria for addressing issues such as climate change, waste management, labor rights, and corporate governance, ensuring that disclosures reflect both global and local priorities.
• Application Guidelines: To support the practical implementation of the General and Specific Standards, the Application Guidelines provide further clarity, offering case studies and detailed explanations to help businesses navigate the complexities of sustainability reporting. These guidelines aim to assist companies in translating the standards into actionable steps, ensuring they meet the disclosure requirements effectively.

Key content of the new Basic Standards

As observed in the Basic Standards, the General Standards themselves are articulated in six key sections, which together outline the full scope of ESG reporting for Chinese enterprises:

• General provisions: This section outlines the purpose of the standards, the broader system of sustainable disclosure, and the relationship between sustainability reporting and other types of corporate disclosures.
• Disclosure objectives and principles: Here, the standards establish the objectives of sustainability reporting, including the materiality principles that companies must consider when deciding which information is relevant for disclosure.
• Information quality requirements: This section sets out the quality standards that all sustainability disclosures must meet, emphasizing key principles like reliability, relevance, comparability, verifiability, comprehensibility, and timeliness. These ensure that the disclosed information is accurate and useful for decision-makers.
• Disclosure elements: The standards define key elements that must be included in sustainability reports, such as governance, strategy, risk and opportunity management, as well as metrics and targets. These elements are derived from international reporting frameworks like the International Financial Reporting Standards (IFRS S1), providing a globally recognized structure for ESG disclosures.
• Other disclosure requirements: This section details additional requirements, such as the reporting period, the need for comparable information, and compliance statements. It also covers the processes for error correction and the methods for disclosing sustainability information.
• Appendix: The appendix clarifies that the Ministry of Finance and relevant departments will be responsible for interpreting and further refining these standards. It also indicates that the scope of the standards will eventually expand to include non-listed companies and small- and medium-sized enterprises (SMEs).

These General Standards are expected to form the backbone of China’s sustainability disclosure system, with full implementation planned by 2030. The Basic Standards released in December 2024 allows enterprises to voluntarily adopt these guidelines before they become mandatory. This phased approach gives companies time to adjust and build the necessary systems for robust sustainability reporting.

Difference between the draft and final Basic Standards

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The final version of China’s Basic Standards for corporate sustainability disclosures introduces several notable changes compared to the draft released earlier this year. These adjustments reflect a clear effort by regulators to address feedback and refine the framework for practical implementation. One of the most significant changes is the shift in focus regarding the primary users of sustainability disclosures.

While the draft standards identified a broad audience—including investors, creditors, governments, and regulators—the final version narrows this focus to investors and creditors.

This change aligns materiality criteria with the needs of financial stakeholders, emphasizing market-driven accountability over regulatory oversight. By prioritizing the requirements of investors and creditors, the framework aims to enhance transparency in ways that directly support capital allocation and lending decisions.

Another important difference lies in the approach to compliance. The draft standards offered limited flexibility, which may have posed challenges for companies with varying levels of resources. The final standards, however, allow businesses to select methodologies for assessing the financial impact of sustainability risks and opportunities based on their specific capabilities. This flexibility reduces the compliance burden, particularly for smaller firms, while still encouraging meaningful participation in ESG reporting.

The final standards also align with recent policy developments mandating sustainability reporting for large listed companies. The draft standards provided a general framework, but the final version integrates with the April announcement by China’s major stock exchanges, which will require these disclosures starting in 2026. This alignment provides clarity and gives companies ample time to prepare for mandatory implementation.

In sum, the final standards represent a more focused and flexible approach to sustainability disclosures. By refining the audience and compliance requirements, regulators have created a framework that is both practical for businesses and aligned with the needs of financial stakeholders. These changes signal a long-term commitment to embedding ESG principles into China’s corporate governance landscape.

How to navigate ESG reporting and disclosure in China?

China’s evolving approach to ESG disclosure represents both an opportunity and a challenge for businesses operating within its borders. As the government continues to strengthen its regulatory framework and develop more structured sustainability reporting standards, Chinese companies are beginning to recognize the significant value of integrating ESG practices into their operations. These practices are no longer seen merely as a compliance measure but as a key driver of long-term value creation, offering opportunities for improved financial performance, greater access to global capital, and enhanced competitiveness in the international marketplace.

While the regulatory landscape in China is being shaped by a distinct set of priorities, the country is working diligently to align its ESG disclosure standards with global frameworks.

However, challenges remain, particularly in balancing the adoption of international ESG standards with local regulatory needs. Ensuring data accuracy and consistency in reporting is a key issue that both Chinese and international companies face. While China is taking significant steps to address these challenges, the accuracy of data collection and reporting will be essential for the credibility and effectiveness of the standards in the long run.

Through strategic collaboration with international markets, particularly in regions such as Southeast Asia and the Belt and Road Initiative (BRI) countries, China is enhancing its ESG framework, encouraging foreign investment, and increasing the global competitiveness of its companies. This collaboration not only supports the integration of international ESG standards but also contributes to the broader advancement of sustainable practices across Asia.

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