Climate disclosures: China’s ESG rules for listed firms could spur private firms to set net-zero targets, analysts say

‘Private firms are obviously looking at the torch that is potentially coming for themselves,’ says Net Zero Tracker project leader

Only 38 of the world’s 100 largest private firms have set net-zero targets, versus 70 out of 100 of their listed peers, according to NZT

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Air pollution in Beijing. Although aimed at listed companies, the regulations could have a ripple effect on China’s more than 50 million privately owned firms. Photo: AFP

Published: 8:00am, 25 Apr 2024

New environmental, social, and governance (ESG) rules that require China’s listed companies to disclose their climate commitments could put pressure to follow suit on the country’s privately held companies, which are so far lagging in declaring targets for greenhouse-gas emissions, according to analysts.

“With the three major stock exchanges now mandating double materiality and emissions information [from listed companies], private firms are obviously looking at the torch that is potentially coming for themselves,” said John Lang, project lead at Net Zero Tracker (NZT), a non-profit that examines net-zero pledges by nations, regions and companies.

In February the Beijing, Shanghai and Shenzhen stock exchanges published the country’s new climate and sustainability disclosure guidelines. These mandate that more than 400 listed companies, which account for more than half of the market value in China’s exchanges, must publish sustainability reports covering their emissions and decarbonisation plans by 2026.

The companies must report on the impact their activities have on the environment as well as the risks and impacts of environmental factors on their business, the so-called double materiality. They are also encouraged to disclose the indirect carbon emissions in their value chains, known as scope 3 emissions.

Although aimed at listed companies, the regulations could have a ripple effect on the country’s more than 50 million privately owned firms, prompting them to set up net-zero emissions targets and make decarbonisation plans, Lang said.

“The chances are very high that many private firms in China will be in the supply chains of those public companies, which do have to disclose on their double materiality and emissions,” he said. “And they will demand that private firms disclose their emissions. Otherwise, the public firms can’t have a clear view of what their scope 3 emissions are.”