China’s main stock exchanges have tabled draft sustainability disclosure frameworks for large listed companies following an earlier consultation on broad disclosure approaches in February.
If approved, the requirements will see companies listed on the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE) and the Beijing Stock Exchange (BSE) disclose double materiality information that could include KPIs on workforce diversity and the financial value of the negative impacts caused by operations on local communities.
The three exchanges had previously endorsed a double materiality approach in February. Some months later, China’s ministry of finance published a high-level ESG reporting draft framework aligned to the global baseline developed by the International Sustainability Standards Board (ISSB).
The draft framework, however, also asks for double materiality disclosures, suggesting China is aligning itself closer to the EU’s approach to corporate sustainability reporting, as opposed to the ISSB’s strict focus on financial materiality.
According to the latest update from the stock exchanges, the strictest requirements will apply to the top 180 SSE-listed companies (SSE 180), the top 50 companies on SSE’s science and tech board (STAR 50), the top 100 SZSE-listed companies (SZSE 100) and companies listed on SZSE’s growth-focused GEM Index.
The top 100 companies listed on SZSE’s ChiNext tech market have been removed from the scope of the rules after it was included in the high-level consultation earlier this year. Disclosures by BSE-listed companies are considered voluntary.
Key climate information identified for disclosure includes greenhouse gas emissions, use of carbon offsets, green transition plans, internal systems and processes in place to manage climate risk and decarbonisation targets.
The bourses have identified 21 reporting areas in total. These break down into eight climate and environmental topics including climate change mitigation, waste, circular economy and biodiversity.
The remaining indicators comprise nine social topics – including rural revitalisation financing, supply chain ethics and workforce – and four governance topics including anti-corruption and anti-competition measures.
Companies are also asked to select their own industry-specific metrics, such as the proportion of suppliers that have met automotive industry standards for carmakers in scope of the new rules.
While companies are free to choose their disclosure KPIs, the guidance suggests that a substantial amount of detail is preferred. For example, companies are asked to consider monetary thresholds when reporting financially material initiatives including the impact on revenues, costs, net income, total assets and net assets based on renmimbi values and as an overall proportion.
For the reporting of non-financial material information, companies are told to consider specifying the extent to which an issue is considered material on a quantitative rating scale from one to five, with five being the most impactful.
It is suggested that companies also specify the difficulty of remedying a negative impact, including on the same one to five scale, in addition to disclosing processes currently in place to provide remedies.
Finally, companies have been told that there is “conditional disclosure” for Scope 3 emissions depending on data availability, and to prioritise the most significant Scope 3 categories.
The proposals did not specify when the rules would come into force.
Stakeholders have until 21 November to respond to the respective exchanges.
The BSE was launched two years ago to support smaller, innovative companies, and had a reported combined market cap of 366 billion yuan ($50 billion; €47 billion) compared with SSE’s 47 trillion yuan as of November.
