Home > Views & Papers > Zhu Dajian: Corporate Carbon Emissions: From Qualitative Selective Introduction to Quantitative Financial Disclosure (An Interpretation of Sustainability Reporting Guidelines for A-share Listed Companies)

Zhu Dajian: Corporate Carbon Emissions: From Qualitative Selective Introduction to Quantitative Financial Disclosure (An Interpretation of Sustainability Reporting Guidelines for A-share Listed Companies)

Thu, Apr 11, 2024

The year 2024 should be considered as the year that Chinese enterprises begin to engage in standardized sustainable development, with the landmark event being the release of corporate sustainability reporting guidelines by the three exchanges in Shanghai, Shenzhen and Beijing, which essentially serves as a roadmap for Chinese enterprises to transition toward sustainable development and high-quality development in a standardized manner and on a large scale. This aligns with ISSB’s release of two corporate sustainability standards, and with this, the three major regions in the world in the transition toward sustainable development is in the order of the EU, China, and the U.S. Prior to the release of these guidelines, I had the pleasure of participating in an important reform policy research meeting, where I emphasized advancing ESG as part of institutional opening-up. According to the guidelines, core A-share companies must provide comprehensive reports on sustainability and ESG information from January 2026. This implies that there will be a two-year transition period during which the following five changes are expected. From 2024, it is possible to study non-financial reports from 10 to 20 companies across state-owned, foreign and private companies for hypothesis and verification.

An increase in sustainability and ESG reports and a decrease in corporate social responsibility (CSR) reports in the A-share market

As I have been stressing in my lectures and speeches over the years, the guidelines state that listed companies that release sustainability reports can cease releasing CSR reports. From a certain perspective, CSR that separates the greater good and shared interests is pre-scientific, whereas ESG management that integrates the greater good and shared interests truly transcends the traditional purpose of maximizing shareholders’ interests and elevates corporate sustainability to the status of a normal science. The next two years will see an increase in sustainability and ESG reports and a decrease in CSR reports in the A-share market. Under the guidelines provided by the State-owned Assets Supervision and Administration Commission (SASAC), state-owned enterprises are required to disclose information on both ESG and social responsibility, but the structure and content of these reports will primarily shift toward sustainability and ESG issues.

The new Big Four firms leading corporate non-financial reporting in replacement of media and research institutions

In the past, financial media and research institutions such as academies of social sciences were the principal authors of CSR reports intended primarily for regulators like SASAC. Now, in this era of professionalization and standardization, the principal authors and the target audience have changed with changes in the form of reports: the Big Four firms lead corporate non-financial reporting and capital market investors become the primary audience. It’s now considered unprofessional to stuff CSR reports full of admirable individuals and good deeds in the manner of storytelling used by the media. Third-party verification is mandatory for ESG reports, which encourages professionals to carry out professional work. The Big Four firms will rapidly strengthen their human resources and training capabilities in sustainability and ESG.

Involvement of boards of directors and review and audit departments in the entire ESG management process

CSR reports were primarily the responsibility of corporate departments for public relations and social communication in the past, and ESG reports are now the responsibility of strategic research departments under the leadership of boards of directors, with decision-making and management required for ESG matters for the whole process, including planning, review and response before, during and after the process. As ESG reporting becomes more robust, some leading companies may hire a Chief Sustainability Officer (CSO) to act as a direct report to the CEO, complementing the CFO. Corporate board members will strengthen their understanding and training in ESG, add independent directors with expertise in sustainability and review and audit ESG reports in the same manner as financial reports.

A shift from qualitative selective introduction to quantitative financial disclosure for information on corporate energy transition and carbon emissions

While qualitative and fragmented information disclosure was permissible in the past when CSR reports addressed carbon emissions, companies are now expected to systematically manage and disclose information according to SBTi Scope 1, Scope 2 and Scope 3. In the part of energy and carbon emission information, corporations are required to calculate and disclose the impact of reduced carbon emissions on their business according to physical and transition costs. In terms of corporate operations, physical costs should include changes in energy consumption and carbon emission costs as a result of global warming, etc., while transition costs should include financial costs associated with replacing fossil energy with green energy.

A decrease in comprehensive ratings and an increase in professional research in society

Prior to the unification of corporate sustainability reports and indicators, various financial media and social institutions were eager to establish their own standards and launching comprehensive ratings, resulting in all kinds of unofficial end-of-year corporate rating, ranking and award events. I have never consulted material on such events when working on corporate ESG projects. A small number of authoritative institutions, such as international MSCI, S&P and Sustainalytics, will take the lead as corporate non-financial reporting requirements and indicators become more unified in the future, resulting in a decline in the number of comprehensive ratings in society. In order to improve corporate ESG reporting by sector and industry, traditional financial media and research institutions can play a role in industry-specific research and analysis.


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