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).
* Note: Summarized based on Appendix A – Indicators and Descriptions of the Guidance.
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.
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).
| Level-1 indicators | Level-2 indicators | Level-3 indicators | Number of Level-4 indicators |
| Environment (43) | Resource Consumption (14) | Water Resources | 5 |
| Materials | 4 | ||
| Energy | 4 | ||
| Natural Resources | 1 | ||
| Pollution Control (20) | Wastewater | 7 | |
| Exhaust Gas | 5 | ||
| Solid Waste | 7 | ||
| Other Pollutants | 1 | ||
| Climate Change (9) | Greenhouse Gas Emissions | 5 | |
| Emission Reduction Management | 4 | ||
| Society (32) | Employee Interests (15) | Employee Recruitment and Employment | 3 |
| Employee Protection | 5 | ||
| Employee Health and Safety | 4 | ||
| Employee Development | 3 | ||
| Product Liability (7) | Manufacturing Specifications | 2 | |
| Product Safety and Quality | 2 | ||
| Customer Service and Interests | 3 | ||
| Supply Chain Management (5) | Supplier Management | 3 | |
| Supplier Chain Management | 2 | ||
| Social Response (5) | Community Relations Management | 2 | |
| Civic Responsibility | 3 | ||
| Governance (43) | Governance Structure (10) | Shareholders' Meeting | 2 |
| Board of Directors | 3 | ||
| Supervisory Board | 2 | ||
| Senior Management | 2 | ||
| Other Top Governance Bodies | 1 | ||
| Governance Mechanisms (24) | Compliance Management | 7 | |
| Risk Management | 6 | ||
| Supervision and Management | 3 | ||
| Information Disclosure | 1 | ||
| Executive Incentives | 3 | ||
| Business Ethics | 1 | ||
| Governance Effectiveness (9) | Strategy and Culture | 2 | |
| Innovative Development | 4 | ||
| Sustainable Development | 3 |
* Note: Summarized based on Appendix A – Indicators and Descriptions of the Guidance.
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.