Comments regarding “Enterprises ESG Disclosure Guidance”

Authors: George Zhu, Carey Ni

 and Qingyu Guo

ESG Special Topic Series (XIII) - Comments regarding “Enterprises ESG Disclosure Guidance”

  Introduction  

In recent years, enterprises and regulatory authorities have focused on environment, society and governance (ESG) issues. Many domestic and foreign investors have incorporated or intend to include ESG factors into their investment decision-making and performance regime. Enterprises are also actively establishing or improving their own ESG information disclosure and governance frameworks. ESG information disclosure is typically conducted in accordance with certain international standards and/or regulatory requirements for ESG disclosure (for example, stock exchange rules that govern listed companies). However, the existence of various international standards may cause difficulty to enterprises in their ESG information disclosure.

The very first domestic standard for enterprises’ ESG disclosure – Enterprises ESG Disclosure Guidance (T/CERDS 2-2022) (“Guidance”) – was officially promulgated on April 16, 2022 and came into effect on June 1, 2022. It provides practical guidance for Chinese enterprises regarding ESG information disclosure. 

1

The Formulation and Significance of the Guidance

The Guidance was jointly formulated by the China Enterprise Reform and Development Society and the China ESG Institute of Capital University of Economics and Business, as well as other educational institutions, scientific research institutions, enterprises and public institutions. These are the first comprehensive voluntary disclosure standards in China.

The Guidance establishes the disclosure system from the dimensions of the environment, society and governance, and includes both qualitative and quantitative disclosure indicators. The Guidance is practical and is a helpful supplement to the international standards and regulatory requirements for ESG disclosure. It can be used by enterprises as guidance for ESG disclosure and corporate governance, and a reference for self and third-party assessment.

2

Disclosure Indicator Systems: The Three Dimensions and the Four Levels of Indicators

The Guidance sets forth the different principles, indicator systems, disclosure requirements, applications, responsibilities and supervision for disclosure. The core of the Guidance is the indicator system for ESG disclosure, which includes three Level-1 indicators, ten Level-2 indicators, 35 Level-3 indicators and 118 Level-4 indicators.

The Level-1 indicators cover the three dimensions of environment, society and governance; the Level-2 and Level-3 indicators are sorted out based on ESG-related theories, the relevant laws, regulations and standards; and the Level-4 indicators refer to the specific measurements and evaluation methods of the Level-3 indicators. A summary of the indicator system is shown below (for the specific Level-4 indicators and descriptions, please refer to Appendix A to the Guidance – Indicators and Descriptions of ESG Disclosure). 

3

Our Recommendations

With the current attention on environmental, social and governance (ESG) issues, we recommend that enterprises:

• Familiarize themselves with the international ESG standards, the domestic ESG regulatory requirements (such as the exchange rules for listed companies), the industry standards and the group standards (such as the Guidance) and their amendments, and understand how ESG disclosure requirements interact with the domestic requirements and with corporate governance practices.

• Establish and improve their internal ESG disclosure systems as soon as possible, and further promote ESG governance to enhance their competitiveness in the market and supply chain. For ESG corporate governance, it is vital to establish organizational structures and provide them with all the necessary resources. Enterprises may set up professional committees (especially ESG Committees) and operational procedures as appropriate.

• Identify which indicators listed in the Guidance are to be prioritized and the substantive issues that need to be disclosed according to the relevant international standards, taking into account their own unique corporate characteristics (for more detail on this topic, please refer to JunHe ESG Series (XI): Deconstructing ESG: The Determination of Material Topics.

For more information regarding voluntary or mandatory ESG disclosure requirements, please contact us via email: ecoenvpro@junhe.com. We can assist with drafting and reviewing ESG reports, construct ESG management systems and enhancement strategies (including the drafting and reviewing of ESG-related internal rules and regulations), ESG due diligence and ESG training.

JunHe’s EHS and ESG Team: JunHe, with over 1,070 professionals, is one of China’s largest full-service law firms with a stellar international reputation for providing high quality legal services. As one of the pioneers in the practice area of ESG in China and with one of the largest teams of environment, health and safety (EHS) lawyers in the country, JunHe provides clients with a full range of EHS and ESG legal services. JunHe is sustainability-oriented and provides EHS compliance audit services to enterprises with different industrial backgrounds depending on the specific needs of the clients, either alone or in collaboration with third-party agencies. JunHe relies on different legal and professional compliance teams (including ESG, EHS, antitrust, labor and employment, intellectual property, trade and data, finance and tax, business, criminal compliance and other professional teams related to ESG) to provide ESG due diligence services in supply chain management and M&A matters. JunHe’s EHS and ESG Team cooperates with enterprises and third-party agencies in drafting ESG reports. Based on our experience in serving clients from different industrial backgrounds, we can provide specialized services for the daily operations of enterprises. This includes specialized ESG-related legal and compliance diagnosis, as well as drafting and reviewing ESG-related terms and clauses in contracts with business partners, construction and enhancement of ESG systems, identification of ESG disclosure requirements, green finance, and ESG training.

George Zhu

zhuh@junhe.com

Practice Area

Corporate and M&A

Infrastructure and Project Finance

Environmental, Health and Safety Compliance

Environmental, Social and Governance

Carey Ni

Partner

nitl@junhe.com

Practice Area

Environmental, Health and Safety Compliance

Environmental, Social and Governance

Corporate and M&A

Qingyu Guo

guoqy@junhe.com

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