China has finalised its first national climate disclosure standard, which now ties corporate reporting to national targets.
The finalised rules are broadly aligned with the International Sustainability Standards Board (ISSB)’s rules and incorporate double materiality, requiring companies to identify the impact of their operations on the climate, beyond how climate risks affect them financially.
“It goes beyond many global standards in terms of its rigour,” said Christoph Nedopil Wang, an expert on Chinese green finance policies and director of Brisbane-based Griffith Asia Institute. The new rules are “very ambitious” for mandating a double materiality lens, on top of disclosures of direct scope 1 emission and supply chain emissions – or scope 2 and 3 emissions, he added.
Bao Qiong, project lead for steel decarbonisation and climate finance at Greenpeace East Asia’s Beijing office, told Green Central Banking that its direct mirroring of the EU’s corporate sustainability reporting directive makes the finalised rules “a major milestone for Chinese enterprises integrated into global value chains”.
“This alignment simplifies their compliance with the EU’s strict sustainability and supply chain due diligence laws, as the foundation ‘impact’ data is already being tracked at home,” said Qiong.
One of the key revisions made to the draft standard, first released for public consultation in 2024, is a requirement for companies to disclose how their climate disclosures, scenario analysis and climate targets align with China’s updated nationally determined contribution, which details its plans to reduce emissions under the UN’s climate change framework. Last September, the country committed to slashing emissions by 7-10% from peak levels by 2035.
Other revisions include changing mentions of “carbon credit” to “emission reduction”, to align with the terminology used in its revamped national emissions trading scheme, as well as easing the requirements around disclosing executive remuneration linked to climate factors and scope 3 emissions related to derivatives, facilitated transactions and insurance activities.
The finalised standard also allows companies to disclose market-based scope 2 emissions, or their indirect emissions from electricity use after accounting for the green power they have purchased.
The updates to China’s unified disclosure framework come two years ahead of schedule, indicating that the government “attaches great importance to this matter”, wrote Peiyuan Geo, chairman of ESG data and analytics provider SynTao Green Finance in a LinkedIn post.
According to a notice jointly issued by China’s finance ministry, central bank and financial regulators last month, they acknowledged that “climate information disclosure has increasingly become an important factor affecting financial stability, investment decision-making and international trade”.
The Chinese government also reiterated plans to introduce mandatory reporting to listed companies, before extending it to larger non-listed entities by 2030. The government bodies are also in the process of formulating sector-specific application guidelines for a number of industries, including electricity, steel, coal, fertiliser, aluminium, hydrogen, cement and automobiles.
In April, listed firms will be expected to release their inaugural sustainability reports, in line with mandatory rules proposed by Beijing, Shanghai and Shenzhen stock exchanges.
The first batch of reports are largely seen as a litmus test for the readiness of listed issuers – which account for roughly two-thirds of domestic emissions – in translating disclosure standards into consistent, auditable outputs.
Implications on emissions abroad
Despite Chinese president Xi Jinping pledging to end the country’s financing of overseas coal projects in 2021, several Chinese state-owned power companies – namely China Energy, China Datang, and China Huadian – continue to build and finance captive coal plants in Indonesia, primarily for industrial use in nickel smelting and processing.
Qiong noted that the immediate impact of China’s new disclosure rules will be limited in restricting its emissions abroad, given that many of the entities funding or operating these overseas projects, as non-listed subsidiaries or special purpose vehicles, are not the primary targets of the standard.
In addition, a substantial portion of China’s overseas energy and mining investments fall outside the materiality threshold for disclosure, as they “are held through minority stakes or joint ventures that do not require full financial consolidation”.
“Unless the parent company deems these activities to be ‘financially material’ to its own valuation, they remain invisible in domestic climate reports,” said Qiong.
Wang concurred, stating that in the short term, he expects the standard to have “little direct impacts” on high-emitting activities of Chinese companies abroad, though better enforcement of standards and penalties might lead them to divest from potentially stranded assets in the medium to long term.
The EU’s carbon border adjustment mechanism, which officially kicked in this month after a two-year pilot, will likely play a role in putting pressure on Chinese exporting companies to decarbonise in order to reduce carbon-related costs, he added.