China Mulls Expanding ESG Disclosure Scope to Include Financial Gauges, Expert Says
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China, inside out. We are the English-language version of Shanghai-based business and financial media outlet Yicai.
(Yicai) June 6 -- China is considering linking the public disclosure of companies’ environmental, social and government issues with their financial statements to help businesses enhance their financial performance, according to the country’s first draft national framework on the matter which has been released to solicit feedback from the public.
ESG information disclosure should include a company’s operating and performance data as well as information concerning relevant risks, according to the draft proposal released by the Ministry of Finance on May 27 which is seeking public opinion as China becomes increasingly influential in the global ESG arena.
Financial data reflects the financial health of a company. Its revenue, profit, assets, and debt data are actually closely connected to a firm’s ESG indicators and this type of information disclosure can help companies better understand and manage their financial risks, it said. For example, the detailed disclosure of energy use will help businesses better control their energy use costs.
The draft principles, drawn up according to international specifications, are adapted to China's actual situation and are applicable to Chinese firms required to make ESG information disclosures.
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China's ESG sustainable disclosure standards will follow the '1+N+X' system whereby '1' refers to the national framework that all businesses need to comply with. The draft is asking the public for suggestions for the prototype of the '1'.
The 'N' refers to the framework that matches the characteristics of different industries and is derived from the national framework. The standards for some industries such as energy, alcohol, tourism and autos have been defined by industry associations. The 'X' refers to personalized standards formulated by a company's ecosystems and all ecosystem partners must comply with these characteristics, the draft said.
As the scope for information disclosure continues to expand, all companies should do their best to prepare information disclosures and try to enhance their own financial indicators through ESG.
(The author is an academic at Beijing’s Tsinghua University, a visiting scholar at Duke University, and a member of the ESG Committee of Experts Panel at Zhejiang province's research group on sustainable development)