China's ESG System is Emerging but Still in Primary Stage

Author: EqualOcean News, Muriel Meng Editor: Yiru Qian Oct 11, 2023 05:58 PM (GMT+8)

Domestic ESG system has been standardized whereas the comprehensive information disclosure mechanism and talent cultivation are still lacking.


On September 22, 2020, China first put forward the "Dual Carbon Goals" at the 75th session of the United Nations General Assembly, that is, strive to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060. Based on the "14th Five-Year Plan" and the 2035 Vision Outline, carbon reduction is the key strategic direction of China's ecological civilization construction, while green and low-carbon transformation becomes the new target for enterprises at the new stage of high-quality development.

The State-owned Assets Supervision and Administration Commission of the State Council (SASAC), the China Securities Regulatory Commission (CSRC) and the stock exchanges have also accelerated the promotion of enterprises to realize carbon-reducing development, along with the continuous improvement of the domestic ESG evaluation standards and the disclosure requirements, boosting the willingness of A-share-listed enterprises to disclose information on ESG.

Statistics indicate that as of the 2023 half-year report, nearly 1/3 of A-share listed companies have disclosed ESG reports, and the scale of public funds invested in ESG has exceeded CNY 500 billion. However, there are existing disadvantages in information disclosure mechanism and talent cultivation according to the 2023 NetEase Finance ESG Trends Forum.

From the perspective of ESG ecosystem construction, Zeng Xiaoliang, Southern University of Science and Technology's Chair Professor of Accounting and a financial consultant expert of the 14th Standing Committee of the People's Congress of Guangdong Province, expressed that, "Although China has already formed the ESG ecosystem, the ecosystem operation mechanism is still in the unsmooth stage, such as in information disclosure regulation."

Currently, the supervision of non-financial information disclosure such as ESG information is in a state of absence, including self-supervision mechanism, government supervision mechanism, audit supervision mechanism and third-party supervision mechanism, leading to unbalanced and manipulated disclosure and difficulty for investors to access the real ESG performance, which in turn affects the overall ESG development of the industry.

"Regarding this problem, the self-supervision mechanism can be a practical short-term solution, requiring enterprises to automatically disclose ESG-related information and facilitating external stakeholders to evaluate the progress in ESG though continuous disclosure. In long term, the government is supposed to strengthen the supervision of rating agencies for information disclosure, information auditing and construct a fairer and more sustainable mechanism", remarked by Zeng Xiaoliang.

Talent shortage is another realistic consideration for ESG development. Liu Xuexin, dean of the School of Business Administration at the Capital University of Economics and Business and executive director of the China ESG Research Institute, has publicly stated, "The Chinese market for ESG talent is estimated mainly in accounting firms, consulting firms, listed companies, investment institutions, and non-listed centralized state-owned enterprises, with a total demand for ESG talents around 2.27 million people."

In contrast to the talent demand, Lin Yin, deputy general manager and senior economist of the Shenzhen Emission Rights Exchange, pointed out that, "The lack of formal education and training programs is one of the biggest threats to the development of sustainable financial ecosystems." According to the Evaluation Report on Sustainable Financial Development of Financial Centers in 2021 issued by the Global Financial Center Cities Green Finance Alliance (FC4S) of the United Nations Development Programme, only 21% of the world's financial center cities, including Beijing, Shanghai, Shenzhen and Hong Kong in China, have carried out all types of education activities related to sustainable development. "We should continue to create a never-ending atmosphere of capacity building for climate investment and financing, whether at the level of governmental organizations, enterprises, or universities."

EqualOcean has learned that in China, Capital University of Economics and Business and the Shanghai University of Finance and Economics have already introduced ESG personnel training.

Zeng Xiaoliang, on the other hand, said from the perspective of discipline construction, "In the face of the development status quo of imbalance between supply and demand, school education is relatively slower than training, but in the next 5 to 10 years, it is expected that there will be an ESG academy. The courses designed will not be an extension of the discipline such as business school, nevertheless, they will focus on more comprehensive content related to the development of the industry, including how ESG affects the environment, how to measure ESG affecting the environment, and how to measure companies affecting the environment. and other."