Dialogue with Shi Han: China's ESG information disclosure has entered a mandatory era, and law enforcement efforts for non compliant enterprises have intensified

In the first half of this year, multiple ministries jointly issued the "Guiding Opinions on Strengthening Financial Support for Green and Low Carbon Development" (hereinafter referred to as the "Opinions"), aiming to improve the disclosure guidelines for sustainable development of listed companies by strengthening information disclosure constraints. As the ESG (Environmental, Social, and Governance) concept increasingly becomes the key to evaluating long-term investment value, the Chinese A-share market is gradually strengthening ESG report disclosure requirements, and policy trends have sparked discussions on whether it heralds the era of mandatory ESG disclosure.

Dr. Shi Han, a non resident senior researcher at the Center for Contemporary China and World Studies at the University of Hong Kong and academic advisor to the ESG Center at the University of Hong Kong's China Business School, pointed out in an interview with Huaxia Times that the experience of the European Union and Hong Kong shows that mandatory disclosure of ESG information is a key path to improving ratings and investments. He suggested that China should closely monitor the policy developments of the European Union, strengthen international cooperation, and jointly promote the green and sustainable development of the global supply chain.

The following are some of the essence of the interview with Dr. Shi Han by the reporter of Huaxia Times:

The era of mandatory ESG disclosure is coming soon

Huaxia Times:The Opinion strengthens the information disclosure mechanism, explores the environmental information disclosure system of financial institutions, and at the same time, the three major exchanges have issued Guidelines to implement mandatory ESG disclosure for key companies. Do you think the era of mandatory ESG disclosure in A-shares is coming?

Shi Han:The "Guidelines" of the three major exchanges stipulate that important index sample companies and cross-border listed companies must disclose their ESG reports for the first time before 2026, marking the beginning of the era of mandatory ESG disclosure in China. The comparability, verifiability, and timely disclosure of ESG information are prerequisites for improving ratings and investments. Although it is currently in its infancy, it has already promoted corporate management practices. In the future, the exchange may expand the scope of mandatory disclosure and improve the overall quality of disclosure.

Huaxia Times:What is the current status of ESG disclosure in A-shares? What experiences and lessons can the Hong Kong Stock Exchange learn from in this regard?

Shi Han:Currently, A-shares adopt a dual mode of mandatory and voluntary disclosure, with approximately 35% of companies independently disclosing ESG reports. In contrast, the Hong Kong Stock Exchange has entered the stage of comprehensive mandatory disclosure. A-shares can learn from the successful experience of the Hong Kong Stock Exchange, such as clarifying disclosure standards, strengthening supervision and law enforcement, while being wary of the potential burden on enterprises and unequal information quality caused by premature comprehensive enforcement, and gradually promoting to ensure effectiveness.

The A-share market can learn from the experience of the Hong Kong Stock Exchange in ESG information disclosure:

1. Progressive implementationThe Hong Kong Stock Exchange has encouraged voluntary disclosure since 2012 and gradually promoted it to comprehensive mandatory disclosure since 2016, providing an adaptation period for the market.
2. Differentiation requirementsImplement graded disclosure standards based on the industry and scale of the enterprise to ensure that the requirements are both challenging and feasible.
3. Strengthen supervisionEstablish a strict regulatory system to ensure the authenticity, accuracy, and completeness of ESG information. Violators will face severe penalties such as warnings, fines, and even delisting.
4. Improve timeliness and qualityThe new version of the guidelines adds key performance indicators, encourages independent verification, and improves the timeliness and quality of information disclosure.
5. Capacity buildingContinuously train listed companies through platforms such as ESG Academy, enhance their ability to disclose ESG information, and raise overall market awareness of ESG.

The A-share market should be cautious of the following points when drawing on the ESG information disclosure experience of the Hong Kong Stock Exchange:

1. Strengthen mandatory disclosureTo avoid slow progress caused by voluntary disclosure, increase the mandatory disclosure ratio appropriately to ensure comprehensive and consistent information.
2. Ensure information quality and transparencyStrictly require disclosure of negative information, enhance transparency, and avoid one-sided positive propaganda.
3. Combining with local realitiesWhen formulating policies, it is necessary to integrate international standards with China's national conditions to ensure the effectiveness and applicability of the policies.
4. intensify law enforcement effortsStrict punishment will be imposed on violations to ensure effective implementation of policies and maintain market order.
5. Strengthen investor educationEnhance investors' awareness of ESG and increase market participation through educational activities.

In summary, the A-share market should comprehensively consider the experience and lessons learned from the Hong Kong Stock Exchange, and formulate and implement ESG information disclosure policies that are in line with its own characteristics.

The legal responsibility for ESG "greenwashing" should be clearly defined

Huaxia Times: How can financial institutions guide funds to transition from high carbon to low-carbon?

Shi HanFinancial institutions have taken multiple measures in the Opinion, such as establishing a carbon accounting system, optimizing green finance standards, strengthening information disclosure, promoting carbon trading markets, and increasing green credit support, to guide funds towards low-carbon transformation. These measures together constitute an effective mechanism for guiding low-carbon development with funding.

Huaxia Times: What are the reasons and solutions for the phenomenon of "false big gaps" and "greenwashing" in ESG reports?

Shi HanSome ESG reports have hollow and "greenwashing" content due to inconsistent rating standards, lack of information disclosure standards, and insufficient supervision. We need to improve ESG rating and disclosure standards, strengthen supervision and punishment, enhance transparency and third-party auditing, and increase investor and public awareness to improve report quality and reduce false disclosure.

Huaxia Times: How do you view the ESG system with Chinese characteristics and international differences?

Shi HanThe ESG system with Chinese characteristics reflects the national conditions and needs, providing reference for the world. In the face of differences in ESG systems between China and foreign countries, we should adhere to Chinese characteristics, strengthen the connection with international standards, enhance the international recognition of Chinese enterprises, and contribute Chinese wisdom and solutions.

The core measures to promote the development of China's unique ESG system include:

1. Promote the integration of ESG standards between China and foreign countries, narrow differences through collaborative dialogue, and build a globally compatible ESG framework.
2. Support domestic ESG rating agencies, strengthen their professional capabilities and international influence, and provide high-quality ESG evaluation services for Chinese enterprises.
3. Guide enterprises to actively integrate the ESG concept with Chinese characteristics, and help them achieve sustainable development through policies and market incentives.
4. Spread the unique ESG practices of Chinese enterprises, adopt internationally recognized communication methods, and showcase the unique value of ESG practices in China.

With the improvement of the system and the increase of international recognition, China will contribute more wisdom and solutions to promote the construction of a globally just, green, low-carbon, and inclusive ESG governance system.

China's ESG development should pay more attention to EU trends

Huaxia Times:With the introduction of the EU's Due Diligence Directive on Corporate Sustainability, this directive will have a profound impact on global, especially Chinese supply chain enterprises.

Shi Han's analysis points out that the introduction of the EU's Due Diligence Directive on Corporate Sustainability (CSDDD) is bound to have a series of profound and significant impacts on relevant enterprises, especially supply chain enterprises involved in China. To gain a more comprehensive understanding of the impact of CSDDD, we can analyze it from the following aspects:

1. Strengthen ESG responsibility in the supply chainRequire enterprises to comprehensively examine and reduce environmental, social, and governance risks in the supply chain, and promote the awakening of ESG responsibility among enterprises.
2. Increase compliance costsEncouraging companies to invest more resources in establishing ESG due diligence systems is also an opportunity for transformation and upgrading, enhancing brand image, and attracting international investment.
3. May become a trade barrierNon EU companies entering the EU market face stricter ESG standards, but this also motivates Chinese companies to improve their ESG levels and strengthen green innovation.

Chinese supply chain enterprises should actively respond to:

• Establish an ESG management system and integrate it into strategic planning.
• Enhance ESG information transparency and credibility.
• Strengthen ESG assessment of the supply chain and jointly build a green supply chain.
• Embrace international cooperation and learn from advanced experience.
• Regularly release ESG reports to earn trust.

The government should introduce policy support, and investors should consider ESG factors to jointly promote the sustainable development of global supply chains. Although the cooperation between China and Europe in the ESG field is influenced by the international situation, the trend of cooperation and benchmarking is expected to strengthen.