China’s implementation of environmental, social, and governance (ESG) rules for listed companies has the potential to influence privately held companies to follow suit and disclose their climate commitments. According to analysts, these regulations, which require listed companies to disclose their climate commitments, may have a ripple effect influencing private firms to establish net-zero emissions targets and develop decarbonization plans.
The regulations emphasize ‘double materiality’ reporting, encompassing both the environmental impacts of a company’s operations and the potential risks and impacts of environmental factors on the business. Additionally, companies are encouraged to disclose indirect carbon emissions within their value chains, known as scope 3 emissions.
While primarily targeting listed companies, the new rules could have far-reaching effects on China’s vast network of private firms, estimated to number over 50 million. John Lang, project lead at Net Zero Tracker (NZT), a non-profit organization focused on tracking net-zero pledges, highlights the likelihood of private firms being part of the supply chains for public companies subject to the new disclosure requirements.
Lang emphasizes that public companies will require their suppliers to disclose emissions data to accurately assess their own scope 3 emissions. The widening gap between the climate targets of the world’s largest private companies and their publicly listed counterparts creates an uneven playing field, according to NZT’s report. The report also notes that only 38 of the world’s 100 largest private firms have set net-zero targets compared to 70 of their listed peers.
In China, the number of private firms with net-zero targets has increased from one in 2022 to four, as reported by NZT. The report suggests that China’s private sector is paying attention to these developments and that government initiatives to mandate climate disclosure may have contributed to this shift.
The recent update to ESG disclosure requirements introduced by China’s major stock exchanges aligns with international standards set by the International Sustainability Standards Board (ISSB). However, Bon Cheung, a research analyst at the Hong Kong public policy think tank Civic Exchange, notes that there is still room for improvement in terms of the stringency of disclosure requirements compared to other markets like Hong Kong.
