The first batch of ISSB sustainable disclosure standards is about to come into effect, and corporate sustainable development governance will take a new level, facing both challenges and opportunities.
On January 1, 2024, International Financial Reporting Sustainability Disclosure Standard 1- General Requirements for Sustainability Related Financial Disclosures (IFRS S1) and International Financial Reporting Sustainability Disclosure Standard 2- Climate Related Disclosures (IFRS S2) will officially come into effect.
These two ISSB guidelines may bring challenges to the preparation of future ESG reports for companies, but at the same time, they also mean opportunities. Enterprises that take the lead in laying out and optimizing sustainable management will not only be able to better demonstrate their long-term value, but also drive the entire business community towards a more sustainable future.
In this context, the second "Zero Carbon Future ESG Innovation Practice List" award ceremony of Wall Street Insight was successfully held on October 20th at the Future Asset Building in Pudong New Area, Shanghai.
During the event, Shi Han, Director of the ESG Center at the China Business School of the University of Hong Kong and Chief Scientist of the Green Development Alliance for National Economic and Technological Development Zones under the Ministry of Commerce, Li Zhiqing, Director of the Environmental Economics Research Center and Deputy Secretary of the Party Committee at the School of Economics at Fudan University, and Dai Rui, Manager of Climate Change and Sustainable Development for Financial Services at Ernst&Young Greater China, engaged in exciting discussions at a roundtable forum titled "Insight into ISSB Principles: Opportunities and Challenges for Enterprises".
Shi Han, Director of the ESG Center at the China Business School of the University of Hong Kong and Chief Scientist of the Green Development Alliance for National Economic and Technological Development Zones under the Ministry of Commerce, believes that the fundamental purpose of ESG is to internalize the impact of enterprises on the environment and society, which is an inevitable reform in the development process.
With the rise of ESG concepts, the proportion of environmental and social costs incurred by companies themselves will inevitably increase. These costs were overlooked in the past, but now there is an urgent need for companies to pay attention to and digest them. ESG is an important shuffling tool that can promote the survival of the fittest within industries and companies, and improve the efficiency of the use of natural and social capital.
Shi Han calls on companies to view ESG from a positive perspective, seeing it as a new development opportunity rather than just a cost expenditure. By improving their own environmental and social performance, enterprises can seize opportunities and maintain their advantages in the industry reshuffle and upgrading brought about by the new round of green and low-carbon transformation.
Shi Han emphasized that companies should not only view ESG as a risk, but also recognize the development opportunities that ESG brings to the company. In the practice of ESG, corporate governance is the most critical part, and companies that have not implemented good corporate governance will find it difficult to put ESG concepts into practice.
Shi Han further pointed out that the quality of ESG information disclosure by many Chinese companies varies greatly, with obvious anxiety and knowledge blind spots, reflecting a lack of sufficient understanding of the true connotation and importance of ESG within the company. Chinese companies need to improve the quality of ESG information disclosure, communicate using internationally recognized vocabulary, and explore the consistency and pattern between traditional Chinese culture and ESG while absorbing successful experiences from developed countries.
Li Zhiqing, Director of the Environmental Economics Research Center and Deputy Secretary of the Party Committee of the School of Economics at Fudan University, shared his views that enterprises need to find a balance between business development and social responsibility to achieve sustainable growth. The government and society should provide incentives and support to enterprises through various means, such as economic subsidies, spiritual encouragement, and the development of financial innovation tools, to help enterprises bear the cost pressure in the ESG implementation process. They cannot unilaterally blame all responsibilities on enterprises. Financial innovation can play an important role in facilitating ESG practices and addressing the time cost issues faced by businesses by facilitating capital turnover.
Li Zhiqing also pointed out that there are both universal parts and special requirements related to a country's development stage and cultural traditions in ESG standards. Some ESG standards formulated by developed countries may not be entirely suitable for China's national conditions. China can learn from their experience while exploring local sustainable development wisdom. The core concept of sustainable development is common, but different countries and stages of development will present different forms of practice.
Dai Rui, the Climate Change and Sustainable Development Manager of Anyong Greater China Financial Services, mentioned that the new version of the International Sustainable Development Standards has put forward stricter ESG information disclosure requirements, which poses certain challenges for Chinese enterprises. For example, companies need to strengthen ESG data disclosure and risk management, and further integrate ESG concepts into corporate governance and business strategies.
Dai Rui pointed out that establishing a scientific ESG risk management system and disclosing quantitative indicators are also urgent challenges that enterprises need to solve. To achieve the implementation of ESG work, companies need to start from the top and integrate ESG concepts into corporate governance and strategy. Although there is still a certain gap between Chinese companies and international ESG standards, this gap is gradually narrowing through active actions. To ensure comparability of ESG information disclosure, companies need to establish a systematic ESG performance tracking mechanism, develop a quantitative indicator system suitable for the company, and link it with executive compensation to promote progress in various ESG work.
Dai Rui stated that challenges are also important opportunities to promote sustainable development of enterprises. By increasing international standard recognition and local sustainable development practices, Chinese companies have the opportunity to occupy a more important position in the ESG field. Green financial instruments have been proven to effectively promote corporate ESG and green transformation. Chinese financial institutions can play a key role in guiding corporate green transformation and promoting new progress in ESG practices through green financial tools.