ESG guidelines, law firm closures, and "Life in a Changing China"

Welcome to China in 5, from the British Chamber of Commerce in China.

Each week, we bring you up to speed with what’s caught our eye in the China-sphere in five(ish) minutes.?Grab a coffee, take a break, and dive in!

China Gears Up for Green: New Guidelines for Corporate Sustainability Disclosures

What’s the background? China's Ministry of Finance has initiated the process of soliciting opinions on a draft guideline aimed at unifying corporate sustainability disclosures. This effort is part of a broader vision to establish a nationwide standard for these disclosures by 2030. The draft guideline, titled "Corporate Sustainability Disclosure Standards -- Basic Standards," was posted on the ministry's official website and outlines general requirements for corporate sustainability information disclosures. This initiative responds to the global emphasis on Environmental, Social, and Governance (ESG) issues and seeks to enhance the international competitiveness of Chinese companies by providing a consistent framework for sustainability reporting.

Fact 1 Unlike a one-size-fits-all approach, the guideline proposes a phased implementation. Initially, it will focus on listed companies before gradually extending to non-listed companies. This phased approach also transitions from voluntary to mandatory disclosures, ensuring that companies have adequate time to adapt and build their disclosure capabilities.

Fact 2 China's ESG investment is experiencing rapid growth. By the end of the third quarter of 2023, the ESG investment scale reached 33.06 trillion yuan (approximately 4.56 trillion U.S. dollars), marking a record high with a 34.4 percent increase from the previous year. This substantial growth reflects the increasing recognition and acceptance of ESG concepts in China.

Fact 3 Certain sectors and corporate attributes exhibit notably high ESG report disclosure rates. For instance, the banking, non-bank finance, steel, mining, and public utilities industries lead in ESG disclosures. Additionally, centrally-administered state-owned enterprises have the highest disclosure rate among listed companies, reaching 80 percent. This indicates a strong commitment to sustainability within these specific areas of the Chinese economy.

The new guidelines on corporate sustainability disclosures are a positive development for businesses and investors. The new requirements mandate comprehensive sustainability information that covers the entire value chain of enterprises and spans multiple timeframes (short-term, medium-term, and long-term). This approach aligns with international trends and significantly enhances the depth and breadth of disclosed information, going beyond traditional financial statements. Importantly, it establishes a direct link between ESG data and financial statements, allowing for a more accurate assessment of how sustainable risks and opportunities impact a company's financial health. However, companies will need to integrate sustainability data with financial data, which necessitates improved internal controls, centralized data management, and robust cooperation across departments. While this may require initial investment in systems and processes. For investors, the integration of ESG and financial data provides a clearer, more holistic view of a company's performance and potential risks. This alignment makes it easier to evaluate the long-term viability and sustainability of investments, aligning with global ESG investment trends. Yiyi Jing , BritCham Government Affairs and Advocacy Manager

"Struggling to cover China costs:" At least six US law firms leave Shanghai market

What’s the background: Multiple business surveys have reported that the services sector has been facing particular challenges in China since reopening, with 70% of such firms finding last year more difficult than 2022 in our own Business Sentiment Survey 2023-24. The Financial Times are reporting that this has seen at least 6 US law firms either commit to or leave Shanghai in recent months, with some interesting insights into why this is happening.

Fact 1: One lawyer in the piece claimed that the biggest factors causing companies to leave are “the drying up of M&A and capital markets work, followed by the decrease in other corporate transactions”.

Fact 2: There are suggestions that many firms are “increasingly struggling to cover China costs” in the current market according to Han Shen Lin, finance professor at New York University Shanghai campus.

Fact 3: Such moves are also down to the rebalancing of Asia-Pacific work for the firms, with one firm shifting operations to Singapore and others retaining offices in Beijing.

It’s been concerning seeing the difficulty faced by many UK services firms in China in the last few years. The sector represents a large part of the British economy, with many UK firms having been used to help new market entrants navigate find their place in China. Many have proposed that such companies could play an important role in helping Chinese companies go abroad, but this piece suggests that legal firms are more inclined to manage this engagement from their own countries, where there is more control. Harry Bell , Policy and Advocacy Manager

Podcast of the Week: "Life in a Changing China" from Chinese Whispers

Chinese Whispers, a podcast hosted by Cindy Yu, invites Chinese experts to share their insightful knowledge. In the new episode, Life in a Changing China, Cindy invites Yuan Yang, a British-Chinese journalist and a Labour party candidate for the UK General Election in less than a month. ‘Everyone in China has a story to tell as long as you can get it out of them’, quoting from Yang as she shares with us the influence of policies on individual lives. One child policy meant more focus on women's education. The Hukou system led to divisions between cities and villages. Opportunities come and go. Education brings rising social mobility. Economic slowdowns then struck people hard. Migrants move quickly from villages to cities. While kids and retirement options tie them back home. The podcast reminds us that changes are temporal. What’s coming next is perhaps another turning point.

Coffee break read: How to write in Chinese faster than in English?

Why We Like It: Despite past foreign evangelistic and Cultural Revolution efforts to phoneticise Chinese to replace clunky pinyin clusters misaligned with the West, “pinyin’s biggest weakness, however – single-character input – might be concealing its greatest strength: the inputting of multiple characters at a time,” as the author puts it. This often-overlooked linguistic truth subtly reminds us to withhold judgement in other areas where China has been seen as an underdog - ESG issues for example. Although burdened with environmental consequences of the former double-digit growth period, China’s clean tech sector has dazzled the world, and already constituted two-fifths of the country’s GDP last year, a whopping $1.6 trillion in size.

Thanks for reading China in 5! Have thoughts about what you'd like to see, suggestions for our coffee break reads, or a favourite podcast you want to share? Let us know below, or reach out via our website at britishchamber.cn .