China is gearing up to become a front-runner in the realm of corporate sustainability reporting, with the Ministry of Finance recently initiating public consultations on the draft standards that will pave the way for a mandatory, ISSB-aligned system by 2030. The initial wave of these standards is slated for 2027, aiming to streamline ESG reporting and enhance transparency for investors and stakeholders alike. As we delve into the intricacies of these draft standards, it’s clear that they are set to redefine the landscape for businesses and investors in the coming decade.

Draft Standards Overview and Scope:

• • The draft standards for ESG reporting in China are the most authoritative to date, aligning with ISSB principles while considering China’s context. They propose a phased introduction of voluntary and mandatory reporting for companies, reflecting their development stage and disclosure capabilities.
  • The standards require disclosure of significant sustainability-related risks, opportunities, and impacts, defining the “value chain” broadly to include the company’s business model interactions and external environment from conception to lifecycle end.
  • The framework, open for public consultation until June 24, is structured into six chapters and 33 articles, focusing on standardizing ESG reporting to ensure reliability, comparability, and usefulness for stakeholders.

Key Elements and Materiality in ESG Reporting:

• • The scope of disclosure includes environmental, social, and governance topics, emphasizing the importance of materiality in reporting, where only information expected to influence decision-making needs to be disclosed.
  • The materiality assessment should mirror financial statement practices, with sustainability reports synchronized with financial reporting timelines and presented in a clear, structured manner, either as a standalone report or concurrently with financial statements on the company’s official website.
  • The core elements of ESG reporting, in line with ISSB IFRS S1 and S2 standards, encompass governance, strategy, risk and opportunity management, and metrics and targets, with each element detailed in Chapter 4 of the draft standards to guide enterprises in meeting the informational needs of primary users.

In the next article, we will look into the recent evolution of China’s ESG regulatory landscape.