1 April 2025
This article provides an update to Claudia’s analysis of corporate ESG disclosure in China compared with European standards.
Towards environmental, social and governance disclosure in China
The year 2024 marked a pivotal chapter in the evolution of ESG in China. On the positive side, regulators have provided stronger incentives and guidance for sustainable finance objectives, including new ESG reporting standards for corporates, and a continued focus on the “dual carbon goals” of peaking carbon emissions by 2030 and achieving carbon neutrality by 2060.
While Chinese regulators have historically been cautious about imposing burdens on listed companies, they have taken significant steps to advance ESG objectives. These efforts aim to decarbonize carbon-intensive industries, provide investors with fit for purpose information to support decision making, and foster long-term investment in China’s stock market. Additionally, regulatory pressure from the European Union (EU) prior to the so-called Omnibus Package has played a crucial role in elevating ESG awareness among Chinese companies eyeing overseas expansion.
Omnibus Package:Commission simplifies rules on sustainability and EU investments, delivering over €6 billion in administrative relief
This external impetus has driven many firms to enhance their ESG performance, creating a positive ripple effect on their domestic operations and contributing to the broader ESG momentum in China. Overall, ESG is poised to remain a cornerstone of China’s business environment, shaping its future trajectory in profound ways.
On the other hand, since mandatory ESG disclosure requirements do not kick in before 2026, in 2024 the sustainability reporting rate among mainland China-listed companies remained below 50%, and asset managers’ commitment to ESG investments showed inconsistency rather than steady growth. In addition, encouraging companies to integrate ESG considerations - such as renewable energy adoption, employee welfare, and data privacy protection - into their operations remains an uphill battle. These challenges underscore the need for continued efforts to reinvigorate ESG development in China, especially as the domestic economy faces headwinds and the race for dominance in artificial intelligence (AI) intensifies, leaving businesses hesitant to back initiatives without immediate financial returns.
2024 in retrospect
ESG investment in China experienced notable growth in 2024, largely driven by the expansion of green credits.
According to China Sustainable Investment 2024, a report published by Syntao, a leading Chinese ESG consultancy, the total size of ESG investment in the country reached 40.31 trillion RMB ($5.6 trillion) in 2024, approximately 22% increased from previous year. The main driver is attributed to expansion of green credits, which have risen from 28.58 trillion RMB ($3.94 trillion) in 2023 to 35.75 trillion RMB ($4.93 trillion) in 2024, representing 25.08% increase than last year.
However, the landscape for ESG mutual funds told a different story. The size of ESG mutual fund products decreased from 438.31 billion RMB ($60.42 billion) in 2023 to 409.87 RMB ($56.5 billion) in 2024, marking a 6.5% reduction compared to last year’s figure. This contraction can be attributed to two key factors. First, the underperformance of China’s stock market dampened investor confidence in equity mutual funds, including those with an ESG focus. Second, the China Sustainable Investment 2024 report may not have fully captured the potential rebound in equity and ESG mutual fund investments during the fourth quarter of 2024. During this period, Chinese financial regulators introduced a series of monetary and financial measures to stimulate economic growth, which likely bolstered investor confidence in the stock market. Despite these nuances, the overall growth of ESG investment in China remained modest, highlighting the need for further momentum in this space.
Awareness of ESG investment in China has shown signs of fluctuation in recent years.
The introduction of China’s “dual-carbon” goals - aiming to achieve peak carbon emissions by 2030 and carbon neutrality by 2060 - has spurred growing interest in ESG investments among financial institutions. This shift is evident in the near tripling of Principles for Responsible Investment (PRI) signatories in mainland China, rising from 43 in 2020 to 128 in 2024. Notably, the number of asset managers and owners committing to PRI grew from 34 to 99 during this period, reflecting an annual growth rate of 30.63%.
However, other indicators suggest a cooling interest in ESG investment practices. According to the Annual Self-assessment Report on Green Investment by Fund Managers, published by the Asset Management Association of China (AMAC), key metrics have declined. The issuance of green investment1products by asset managers dropped by 3.1%, while the number of asset managers establishing exclusion lists and environmental risk monitoring mechanisms fell by 9.1% and 14.6%, respectively. This divergence highlights the uneven progress in ESG adoption, underscoring the need for sustained efforts to align investment practices with China’s broader sustainability goals.
The ESG disclosure rate among listed companies in China has shown steady growth.
According to China Sustainable Investment 2024, as of September 30, 2024, there were 5,354 companies listed on the Shenzhen Stock Exchange (SZSE), Shanghai Stock Exchange (SSE), and Beijing Stock Exchange (BSE), with 42.14% (2,256 companies) having published ESG reports. However, despite the announcement of China’s “dual-carbon” goals four years ago, listed companies have been less enthusiastic about including comparable climate-related data in their ESG reports. The Syntao report revealed that while qualitative climate-related disclosures—such as analyses of climate-related opportunities and risks, as well as actions taken to mitigate or adapt to these risks—surged from 33.24% to 66.56% in 2024, quantitative disclosures—such as Scope 1, 2, and 3 greenhouse gas emissions—only increased from 9.59% to 32.61%, lagging significantly behind qualitative reporting.
This reluctance to report quantitative data can be attributed to several factors. First, as discussed below, the deadline for mandatory ESG reports is April 2026, so there are currently no compliance incentives for quantitative reporting. Secondly, companies often allocate limited resources to the preparation of climate-related content. Qualitative information is generally easier and less costly to compile compared to quantitative data, which requires more rigorous measurement, verification, and reporting processes. As a result, many companies opt for the less resource-intensive approach of focusing on qualitative disclosures, leaving quantitative reporting underdeveloped.
Overview of China’s 2024 ESG policies
In China, specific listed companies are obligated to report their ESG performance on a mandatory basis.
In April 2024, the SSE, SZSE, and BSE officially announced sustainability disclosure regulations. These rules stipulate that companies included in indices such as the SSE 180, STAR 150, SZSE 100, and ChiNext, as well as those listed both in mainland China and overseas markets must publish sustainability or ESG reports by April 30, 2026. According to the White Paper on ESG Investing Development and Innovation in China 2024 released by the China Alliance of Social Value Investment, a non-profit organization dedicated to promoting sustainable investment, approximately 457 listed companies, accounting for 8.5% of the total listed firms in mainland China, will be required to disclose their ESG reports due to these regulations. Notably, CCXGFI, a sustainability consultancy firm, has found that nearly all listed companies within the SSE 180/STAR 150/SZSE 100/ChiNext indices have already produced ESG reports.
To boost the utility and relevance of ESG information, in December 2024, the Ministry of Finance (MOF) issued the Corporate Sustainability Disclosure Basic Standards. These standards define the concepts, principles, and requirements for sustainable disclosure by companies preparing ESG reports. Subsequently, in January 2025, the SSE, SZSE, and BSE introduced practical guidelines for listed companies on ESG report preparation. The guidelines offer practical advice on materiality assessment and the evaluation of sustainability - related opportunities and risks.
Transition finance is gathering steam, driven by the pressing need to facilitate the low-carbon transformation of traditional industries like iron and steel.
In April 2024, the People's Bank of China (PBoC) released the Guidance on Further Strengthening Financial Support for Green and Low-Carbon Development. The objective of this guidance is to establish a globally leading financial system for green and low-carbon development over the next five years. It places great emphasis on expediting the research and development of transition finance standards and backing the issuance of transition bonds. These bonds are crucial to meet the low-carbon transition needs of large-scale energy production enterprises.
Subsequently, in October 2024, the PBoC, in collaboration with other regulatory bodies, introduced the Opinions on Using Green Finance to Construct Beautiful China. This document continues to support eligible companies in issuing green bonds and transition bonds. Fundamentally, due to the urgent necessity of greening traditional industries to achieve the "dual carbon" goals and promote industrial upgrading, it is reasonable to expect that regulators will roll out more policies and standards related to transition finance.
ESG has emerged as a trend in city-level policy deliberations.
In response to growing ESG regulations in many markets, city-level regulatory authorities have formulated action plans to enhance corporate ESG awareness, improve ESG practices, and increase ESG disclosure. Bearing in mind that Chinese cities have a population of several million, including 17 megacities with a population over 10 million, city-level actions matter. Take the Suzhou Industrial Park in Suzhou as an example. In March 2024, it announced several initiatives, such as providing monetary incentives, to encourage companies to enhance their ESG disclosure and ratings. During the same month, the Shanghai Municipal Commission of Commerce released a three-year action plan focused on strengthening the ESG capabilities of foreign-related entities. This plan requires foreign-funded companies with world-class ESG performance to share their experiences, aiming to elevate the ESG capabilities of domestic suppliers in China. In June 2024, the Beijing Municipal Commission of Development and Reform revealed its plan to reach an ESG disclosure rate of 70% among listed companies in Beijing by 2027. The plan also explores using suppliers' ESG rating performance as an additional factor in government projects.
The introduction of these policies is expected to draw more service providers into the ESG - related market. This will further intensify the competition for ESG services in China, driving consultancy fees down. While these policies may lead to an increase in the number of small-to-medium-sized enterprises engaging in ESG-related activities like ESG disclosure and rating improvement, the quality of their ESG reports remains uncertain. Therefore, guidelines provided by central level authorities such as the Ministry of Finance’s Corporate Sustainability Disclosure Basic Standards are important.
Coming up....
In their next article, Claudia and Daniel will discuss the outlook for ESG in China in 2025.
Claudia Melim-McLeod
Director of the Future Horizons Institute in Norway and Visiting Fellow at the Centre for Business, Climate Change and Sustainability
Daniel Yiu
Advisor at the Future Horizons Institute