CSRC publishes consultation on tightening ESG disclosure rules against China A-shares companies



On May 7, China Securities Regulatory Commission (CSRC) published a consultation on the proposed revision to China’s Guidelines for disclosure and format of corporate information on publicly issued securities No. 2 - Content and format of annual reports & No.3 - Content and formate of semi-annual reports (Guidelines), intended to, among other things, increase attention to improve transparency and disclosures on corporate governance and ESG matters and promote supervision on major changes among China’s listed companies.

The proposing rules require more transparency on new changes made by the listed entities. Scrutinizing on environmental supervision and increase disclosure requirements on supervision records. Key changes including:

  1. Improvement on management discussion and analysis chapters. Disclosures on specific industry segmentation, business situations, and operating information needed to analyze and explain key financial changes.

  2. Improvement on corporate governance chapter. The provisions relating to corporate governance in the body of periodic reports are integrated into the revised Section Four Corporate Governance, and the disclosure contents of the board of directors and its special committees are detailed in the annual report, requiring the listed entity to introduce the construction and implementation of the internal control system, the management control of subsidiaries, etc., and adding the disclosure content of the implementation and change of voting rights differential arrangements.

  3. Adding new environmental and social responsibility chapter. The Guideline sets out a new Section Five for integrating environmental protection and social responsibility-related provisions. Under the new Guidelines, listed entities are mandatory to disclosure any administrative penalties in environmental issues during the reporting period. Voluntary disclosure on measures and effects taken by listed companies to reduce their carbon emissions and consolidate the expansion of poverty relief achievements, rural revitalization, and other related work.

  4. Improvement on important matters chapter. Adding disclosing content on breach guarantee to annual reports and capital occupation disclosure content to semi-annual reports, which was extended from controlling shareholders and its related parties to any related stakeholders. While more associated financial companies with listed companies shall be disclosed with specific related business contents, the guarantee contract disclosure standard has extended to 10 percent of the net assets.

  5. Adjustment on bond-related disclosure chapter. The scope of disclosure subjects has expanded to public-issued corporate bonds, corporate debts, and non-financial corporate debt financing instruments among the interbank bond market to disclosure approved outstanding bonds to the reporting date. Disclosure contents on bonds and corporate information for this chapter have been simplified and adjusted through this revision. To further reduce the cost of disclosure corporate information, the reporting content has been simplified to replace partial repetitive information with summarised content given no updates to the underlying disclosing information that has been reported in the interim reports. The section on business discussion and analysis, which occupies a larger part of the annual report, was deleted and replaced by an analysis of significant changes in operations during the reporting period and analysis on matters that had a material impact on operating conditions.


Section Five Environmental and Social Responsibility


In Section Five Environmental and Social Responsibility, Article 42 sets out tighter rules on listed companies especially for large emitters (emitter’s threshold: yearly GHG > 26000 ton CO2eq in selected industries) and its subsidiaries that are listed by the environmental protection department to disclosure key environmental information following the provisions of laws, administrative regulations and departmental regulations. Including sewage information, the construction and operation of pollution prevention and control facilities, environmental impact assessment study and other administrative permits of the underlying projects, contingency plans for environmental emergencies, environmental self-monitoring programs, any administrative penalties for environmental issues during the reporting period, and other environmental information that should be made public.


Other emitters outside the range of named large emitters shall disclosure any administrative penalties towards environmental issues during the reporting period and disclosure other environmental information based on the above suggestions. Otherwise, a full explanation shall be provided by the listed entity for non-disclosure of the above environmental information.


Companies are encouraged to voluntarily disclose information that is conducive to protecting the ecology, preventing and controlling pollution, and fulfilling their environmental responsibilities. Where a third party institution, such as an environmental information verification institution, a certification body, an evaluation institution, an index company, or an index company verifies, identifies, or evaluates the company's environmental information, the company is encouraged to disclose the relevant information. Companies are also encouraged to voluntarily disclose the measures and effects taken to reduce their carbon emissions during the reporting period.


In Article 43 within Section Five, listed companies are encouraged to actively disclosure any active engagement in fulfilling social responsibilities including but not limited to, the purposes and concepts of the company's social responsibility, the protection of the rights and interests of shareholders and creditors, the protection of workers' rights and interests, the protection of the rights and interests of suppliers, customers and consumers, environmental protection and sustainable development, public relations, and public welfare undertakings. If such disclosure has been made in the social responsibility report, the listed company shall provide the relevant query index for reference in the annual report.


Article 44 within Section Five outlines encouragement for listed companies to consolidate and expand the achievements of poverty alleviation and rural revitalization in the light of their own production and operation impact, strategic development planning, talents, and resource advantages, and actively disclose such achievements during the reporting period.


In addition to the above, the proposal set out in the consultation paper would enhance China’s governance framework for listed companies, among other things, the quantity and quality of ESG disclosure information for listed companies and their subsidiaries will be improved for conforming to the company’s competitive business strategy. We expect more tighter and instrumental guidelines to come in the future. The consultation closes on June 7, 2021.

(Written by Yitong Yuan)


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