China’s New Sustainability Reporting Standards: A Step Towards Global ESG Alignment

In December 2024, China took a significant step forward in corporate sustainability by publishing the first draft of its Corporate Sustainability Reporting Standards ("CSRS") - Basic Standards, known as the “Basic Standards” (available in Chinese, here). The Basic Standards, prepared by the Ministry of Finance in collaboration with nine other government agencies, aims to standardise Environmental, Social, and Governance (ESG) disclosures made by Chinese companies to ensure consistency with global ESG frameworks and to support domestic priorities like promoting sustainable development.

 What are the Basic Standards?

The Basic Standards were developed using the ISSB Standards - specifically IFRS S1 - as a base. The Basic Standards set out general requirements for sustainability disclosures, over six sections:

• general provisions
• disclosure objectives and principles
• information quality requirements
• disclosure elements
• additional requirements, and
• supplementary provisions.

For the moment, businesses are encouraged to adopt the Basic Standard on a voluntary basis, as it is intended to set the foundation for future mandatory and more specific standards, which will eventually form the CSDS. It is expected that the CSRS will apply to large, listed companies first, before it is gradually rolled-out to non-listed, large companies and small and medium-sized companies. This phased approach will allow businesses to adapt to the new requirements, offering flexibility and easing the compliance burden, especially for smaller firms.

The big picture: CSRS

From draft materials, it is understood that the CSDS will consists of three key components:

• Basic Standards, which outlines general provisions, disclosure objectives and principles, and information quality requirements, to ensure consistent reporting;
• Specific Standards, which contain topic-specific disclosures on topics such as climate change and corporate governance; and
• Application Guidelines, which provide explanations, guidance, and case studies to assist businesses with making the disclosures.

Looking to the future, the MOF has proposed to issue a climate-related disclosure standard - based on IFRS S2 - by 2027 and intends to publish the full suite of CSDS and accompanying guidance by 2030. China’s move towards standardized ESG reporting for all companies is a noteworthy development for investors and creditors, enhancing transparency and accountability in the market.