Chinese Sustainability Disclosure Standards vs. CSRD and ISSB

In 2024, China’s Ministry of Finance issued the Exposure Draft for the Chinese Sustainability Disclosure Standards (CSDS). While mostly available in Chinese, this draft aims to establish comprehensive guidelines for businesses in China to disclose environmental, social, and governance (ESG) information. It builds on frameworks from international bodies, especially ISSB and CSRD, to make Chinese companies’ sustainability reports comparable with global standards. With a dual focus on financial impacts and broader social and environmental outcomes, the CSDS calls for double materialities, and outlines both fundamental and thematic standards. This phased approach ensures that companies gradually align their reporting practices, culminating in a full transition to CSDS requirements by 2030. Below, we delve into the draft’s structure, implementation roadmap, and the broader impact on corporate transparency.

Structure and Key Principles of CSDS

The Chinese Sustainability Disclosure Standards (CSDS) draft is structured around a basic standard, thematic standards, and guidance on application. Modeled on ISSB Standards, CSDS also integrates unique aspects suited to China’s regulatory landscape. This section will explore the draft’s structural components and key guiding principles.

1. Basic Standard and Thematic Standards: The basic standard establishes core requirements, creating a foundation applicable across industries. It mandates disclosures on governance practices, environmental impacts, social policies, and risk management. Alongside this are thematic standards targeting specific topics such as carbon emissions, water management, and workforce diversity, which will be added over time to address more specific reporting needs within each sector.
2. Double Materiality: A distinctive feature of the CSDS is its emphasis on double materiality that is a direct adoption basing ESG disclosure requirements on similar principles than CSRD. This principle requires companies to disclose not only the financial implications of sustainability issues but also how the company’s operations impact society and the environment. In contrast to single-materiality approaches focused solely on financially relevant information, double materiality ensures that the broader societal and environmental impacts are fully captured in the report. This principle aligns with EU standards, allowing Chinese firms to mirror the sustainability accountability seen in European markets.
3. Alignment with ISSB Standards: The CSDS also emphasizes compatibility with ISSB Standards to support cross-border comparability, especially crucial as Chinese companies increase their international reach. By aligning with global norms, the CSDS aims to facilitate investment decisions by providing more consistent and comparable information on Chinese companies. This structure reflects China’s recognition of the importance of international ESG standards while maintaining flexibility to address domestic priorities.

The CSDS framework, thus, encourages comprehensive disclosures while ensuring these align closely with international benchmarks, creating a globally recognizable sustainability reporting standard for China.

Implementation Phases and Timeline

To ease the transition for businesses, the CSDS outlines a phased implementation plan aimed at achieving full compliance by 2030. The rollout strategy gradually incorporates different business sectors and scales, starting with larger companies and listed enterprises before expanding to smaller firms. This section details the draft’s implementation approach and rationale.

1. Incremental Adoption Strategy: The implementation plan targets a gradual shift from voluntary to mandatory disclosures. The initial phase focuses on large corporations and publicly listed companies, as these organizations are often more equipped with the resources and expertise to handle the complexity of ESG reporting. Over time, CSDS will extend to smaller entities, supporting a transition period during which these firms can build their reporting capacities. By staging this process, China’s Ministry of Finance aims to alleviate the compliance burden, allowing businesses to invest in the necessary data infrastructure and reporting frameworks.
2. Timelines and Milestones: Key milestones in the CSDS timeline include the development of climate-related disclosure standards by 2027. This timeline reflects an awareness of the urgency surrounding climate-related risks, especially in light of China’s ambitious carbon neutrality goals by 2060. By focusing initially on climate, companies can begin addressing some of the most critical issues within ESG frameworks. Additionally, the Ministry of Finance plans to release detailed guidance for industry-specific disclosures, enhancing the relevance of reporting requirements across sectors.
3. Benefits of a Phased Approach: A phased adoption allows time for companies to adapt, refine their data collection processes, and incorporate sustainability goals into their operational strategies. Furthermore, this approach aligns with the Chinese government’s broader green development goals, emphasizing the need for businesses to adopt sustainable practices progressively. With more firms gradually adopting these standards, the CSDS framework will ultimately become ingrained in corporate governance, building toward a full-fledged, mandatory compliance system by 2030.

The phased implementation thus provides businesses ample time to transition while setting clear expectations and timelines for compliance.

Compliance, Adaptation, and Future Outlook

As the CSDS gradually integrates into China’s regulatory landscape, the draft anticipates the need for continuous adaptation and sector-specific guidance. This section examines how companies will adapt to compliance requirements and the broader implications for China’s sustainability reporting landscape.

1. Industry-Specific Adaptation and Guidance: Recognizing the diversity of sectors within the Chinese economy, the Ministry of Finance has emphasized that sector-specific guidance will play a crucial role in the effective implementation of the CSDS. Industries such as energy, manufacturing, and technology have unique sustainability challenges and disclosure needs. By providing detailed, tailored guidelines for each sector, the CSDS ensures that companies report on the most relevant and material sustainability factors. This specificity also aids investors in assessing sustainability risks and opportunities specific to each industry, contributing to more informed decision-making.
2. Alignment with National and International Policy Goals: The CSDS framework is strategically aligned with China’s national sustainability objectives, such as the “dual-carbon” goals aimed at achieving peak emissions by 2030 and carbon neutrality by 2060. Additionally, by mirroring ISSB Standards and the European Union’s Corporate Sustainability Reporting Directive (CSRD), CSDS positions Chinese firms to meet both domestic and international expectations. This alignment is particularly relevant for companies seeking foreign investment, as investors increasingly scrutinize sustainability metrics in global portfolios.
3. Future Outlook and Global Implications: The CSDS is likely to have a ripple effect on global sustainability reporting practices. By establishing stringent disclosure standards, China sets a benchmark that could influence other emerging markets. Moreover, as Chinese companies enhance their sustainability reporting practices, they contribute to a more transparent and environmentally responsible global market. This shift underscores China’s commitment to participating in the global effort to address climate change, biodiversity loss, and social inequality through improved corporate governance.

As more companies align with CSDS, the standard’s impact will likely extend beyond Chinese borders, setting an example for other economies seeking to standardize sustainability reporting.

Conclusion

The 2024 Exposure Draft for the Chinese Sustainability Disclosure Standards marks a significant step in China’s regulatory landscape, reinforcing its commitment to sustainability. The CSDS establishes a comprehensive framework based on basic standards, thematic disclosures, and double materiality, ensuring Chinese companies provide high-quality, relevant, and globally comparable sustainability information. Through a phased rollout, CSDS provides businesses with ample time and guidance to comply, creating a clear path toward full adoption by 2030.

With sector-specific guidelines and alignment with global standards like the ISSB, CSDS is set to enhance the transparency and accountability of Chinese companies, promoting sustainable growth. By encouraging high-quality sustainability reporting, the Ministry of Finance fosters a more resilient and responsible corporate sector, aligned with both national priorities and international standards. As Chinese companies enhance their disclosures, this framework positions China as a leader in global sustainability efforts, contributing to a more transparent and sustainable global economy.

In essence, the CSDS draft sets the stage for Chinese businesses to advance their sustainability efforts while supporting the country’s broader environmental goals, underscoring the pivotal role of transparent, standardized reporting in achieving sustainable economic growth.

Ksapa is regularly contacted, and works with different type of organizations willing to establish robust ESG strategy and disclosure frameworks aligned with key international standards. Contact us as Ksapa stands at the ready to ensure inclusion of CSDS specific requirements into broader approaches expected to also be consistent notably with CSRD and IFRS requirements among many others.

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