China risks missing own deadline for environmental disclosures

Bloomberg News

China is running up against its own deadline to require its more than 3,000 listed companies to disclose environmental metrics.

Despite a goal to kick off the program next year, there are still no guidelines in place to force companies to make available information on measures for environmental sustainability, social impact and good governance, according to people familiar with the progress of the plan.

An official from the Shenzhen Stock Exchange said they had not seen the basic framework for environmental, social and governance (ESG) disclosure, and so the bourse was unable to draft detailed rules on what companies would need to reveal. A Shanghai Stock Exchange official said they are waiting for directions from the China Securities Regulatory Commission, which oversees the program. Both asked not to be identified because discussions aren’t public.

Workers buy lunch from a vendor in Beijing on Wednesday, Dec. 11, 2019. Chinese minister of propaganda Huang Kunming reiterated China's rejection of the notion of a universal human rights standard.

At stake is the chance for Chinese companies to compete for the more than $30 trillion of funds that have been funneled into sustainable investing worldwide. The information may be crucial in China, where investors increasingly use such data to avoid financial landmines, especially as risk appetite shrinks amid a slowing economy. Mandatory disclosure would provide standardized and comparable data to make investment decisions, but is receiving push back from companies because of high costs.

“There’s still discussion on what exactly companies have to disclose,” said Mervyn Tang, Hong Kong-based global head of ESG research at Fitch Ratings. “We have yet to see a fully flushed set of indicators, which could be make it difficult to implement mandatory disclosures by next year as firms need time to build systems to collect and report data.”

The CSRC didn’t immediately reply to a fax seeking a comment.

Investors, who often require more disclosure than regulators, have driven firms to put more focus on their sustainability metrics.

Inclusion in global indexes has pushed companies to improve their governance as they look to boost ESG ratings to attract foreign investors, said Wang Xiaoguang, director of the Corporate Social Responsibility Center at the China Federation of Industrial Economics, an industry body approved by China’s State Council.

Hong Kong Exchanges & Clearing Ltd. sought feedback in May on a proposal to have all listed companies publish on ESG-related risks. Although companies have argued the requirements are “costly and time-consuming,” a disclosure framework would force many firms to start collecting and reporting data.

Chinese companies are up to the task, according to Margarita Pirovska, head of Fiduciary Duty in the 21st Century for Principles for Responsible Investment. Many already report some of the most difficult ESG information to gather, such as pollution data required by law since 2015, she said.

“It’s a very easy win for regulators to add basic social and governance indicators that exist in every company to build an ESG reporting framework in China,” Pirovska said.