Shanghai Stock Exchange Expands ESG Framework With New Guidance

The Shanghai Stock Exchange (SSE) has further strengthened environmental, social, and governance (ESG) practices through releasing two new supplementary guides. These updates, Guide No.4 for listed companies and Guide No.13 for the STAR Market, are aimed at enhancing the understanding and application of ESG Guidelines No.14, which was originally introduced to enhance the quality of sustainability disclosures. The new guidance not only provides practical tools for companies to address climate risks and carbon emissions but also marks China's growing commitment to sustainable finance.

In 2024, ESG reporting by the SSE-listed companies hit a historical high, and 52 percent of companies had disclosed sustainability reports, up from 6 percentage points from last year. Total participation was now at 1,193, which further cemented the belief that ESG initiatives are worthwhile. These reports indicate an intensification of China's focus toward global standards regarding sustainability, wherein Chinese companies compete with international giants in ESG practices.

Newly published Guide No.4 and Guide No.13 are designed to fill gaps in ESG reporting by providing practical insights and examples tailored to the needs of listed companies and the high-tech-focused STAR Market. Building on the work of ESG Guidelines No.14, which emphasized the practical implementation of sustainability measures, these guides provide sample disclosures, technical explanations, and voluntary templates designed to enhance the consistency and quality of sustainability reports.

Significantly, the new version places emphasis on climate-related disclosure. As environmental change becomes one of the urgent issues globally that affects climate, there is a demand for companies to know how they can assess climate risks, provide reporting, measurement of financial implications, and understanding carbon emissions to show their stand in mitigating environmental risks under increasing pressure by investors and the regulators. The guidelines further emphasize the need for sustainable governance that calls for companies to have very systems to handle ESG-related issues and opportunities.

Although the adoption of these templates is still voluntary, the SSE highly encourages their use to improve the quality and transparency of ESG disclosures. The updated framework provides detailed examples and technical insights to simplify the reporting process, making it more accessible for companies of all sizes and industries. This will improve the overall standard of ESG reporting in China, which will contribute to greater global recognition of the nation's sustainable finance initiatives.

There have been many significant accomplishments during the course of ESG reporting progress. At the end of 2024, 342 SSE-listed companies had been rated by MSCI ESG. Eight of these companies obtained the AAA rating. This marks a global level of excellence among Chinese companies in the practice of sustainability. Meanwhile, the ESG-aligned investment products market has been growing dramatically. The number of products tracking ESG indexes reached 89, with green exchange-traded funds (ETFs) accounting for 45 of these products. Together, these funds managed assets exceeding 130 billion yuan, reflecting increased investor interest in sustainable investment opportunities.

These successes demonstrate the SSE's leadership in promoting ESG practices in China's capital markets. The SSE has been able to position itself as a driving force in the global push for sustainable finance by providing comprehensive guidance and promoting transparency. The expanded ESG framework supports listed companies in meeting international sustainability standards and enhances their ability to attract global investment by demonstrating a commitment to long-term environmental and social responsibility.

Looking ahead, the SSE will continue to fine-tune its ESG guidance based on market feedback and emerging trends. The exchange is actively collecting best practices from companies and stakeholders to improve the adaptability and operability of its rules. This iterative approach ensures that the guidance remains relevant and effective in addressing the evolving challenges of sustainable development. The SSE also seeks to promote cooperation among market participants, regulators, and investors in developing a strong ecosystem for ESG practices.

This marks an important step by China in integration sustainability into its financial markets. By encouraging more vibrant disclosures of the ESG, the SSE not only rises in making a strong voice to compete at a global level with regard to Chinese companies but also is part of the overall vision of achieving a sustainable world in years and decades to come. This bears testimony to the growing strength of China in shaping the global agenda for sustainability, while advancing ESG practices reflects the commitment of the exchange.