China’s Climate Standard: CSDS in Action

Following our analysis of China’s Sustainability Disclosure Standards (CSDS) draft, China’s Ministry of Finance has moved decisively from framework to implementation. The newly released Corporate Sustainable Disclosure Standard No. 1 – Climate (Trial) marks China’s first operational ESG reporting standard, demonstrating Beijing’s commitment to standardizing climate disclosure while aligning with international frameworks—particularly ISSB—yet maintaining distinct Chinese characteristics around impact materiality.

From Framework to Action: Climate Standard No. 1

The release of Climate Standard No. 1 transforms the conceptual CSDS framework into actionable guidance. Developed collaboratively by China’s Ministry of Finance, multiple ministries, the central bank, and key regulators, this trial standard specifically targets climate-related risks, opportunities, and impacts, positioning climate disclosure as the cornerstone of China’s broader ESG reporting architecture.

Why Climate First?

China’s decision to prioritize climate disclosure reflects multiple strategic imperatives:

• Dual-carbon strategy operationalization: Translating national commitments (carbon peak by 2030, neutrality by 2060) into corporate accountability mechanisms
• Capital market transparency: Enabling investors to assess climate-related financial risks across Chinese markets
• Greenwashing prevention: Establishing standardized criteria to combat misleading environmental claims
• International competitiveness: Ensuring Chinese companies meet global investor expectations for climate disclosure

The Ministry explicitly frames this standard as “key policy infrastructure” for transforming macro climate strategy into corporate action, creating a transparent, comparable, and reliable climate information disclosure system.

Structural Alignment with Critical Enhancement

ISSB Convergence

Climate Standard No. 1 demonstrates China’s commitment to international harmonization by structurally mirroring IFRS S2. The four-pillar architecture includes:

1. Governance: Board oversight, management roles, and climate-related governance mechanisms
2. Strategy: Business model implications, scenario analysis, and strategic responses to climate change
3. Risk and Opportunity Management: Identification, assessment, and management processes for climate-related risks and opportunities
4. Metrics and Targets: Quantitative indicators, greenhouse gas emissions, and progress toward climate objectives

This structural convergence facilitates cross-border comparability, particularly valuable as Chinese companies expand internationally and seek foreign capital.

The Critical Difference : Impact Materiality

While ISSB standards focus primarily on financial materiality—how climate affects enterprise value—China’s standard explicitly requires climate-related impact disclosure: reporting how business activities and value chains affect climate change itself. That’s a hybrid approach factoring some ESRS recommendations into a framework that is first and primarily aligned with ISSB, not ESRS requirements. This enhancement positions Chinese disclosure requirements closer to the double materiality principle underpinning the EU’s Corporate Sustainability Reporting Directive (CSRD). Companies must disclose both:

• Outside-in: Climate risks affecting business performance
• Inside-out: Business impacts on climate systems

This dual lens addresses a critical gap in ISSB frameworks while aligning with global sustainability expectations that corporations account for their planetary impacts, not merely their climate-related financial exposures.

Trial Implementation : Strategic Plan

Voluntary-to-Mandatory Pathway

The Ministry has deliberately positioned Climate Standard No. 1 as a “trial” with initial voluntary adoption, signaling a calibrated implementation approach:

• Phase 1 (Current): Voluntary adoption for pioneering companies to pilot processes and provide feedback
• Phase 2 (Near-term): Expanded voluntary adoption across listed companies and large enterprises
• Phase 3 (Medium-term): Mandatory requirements for listed companies in priority sectors
• Phase 4 (Long-term): Full mandatory implementation across enterprise scales and ownership structures

China is learning from the EU attempt to enforce CSRD without enough of a trial phase, triggering backlash and Omnibus withdrawal approach as can be witnessed today across the EU.

Four-Dimensions Expansion

The Ministry has articulated expansion along multiple axes:

1. Company type: Listed companies → non-listed companies
2. Enterprise scale: Large enterprises → SMEs
3. Disclosure depth: Qualitative requirements → quantitative requirements
4. Compliance nature: Voluntary disclosure → mandatory disclosure

This phased approach allows companies to build data infrastructure, develop internal expertise, and refine reporting processes before facing mandatory compliance deadlines.

Industry-Specific Guidance : Priority Sectors

Recognizing diverse sector-specific challenges, the Ministry has announced development of targeted application guidelines for high-impact industries:

Energy Sector

• Power generation (coal, gas, nuclear, renewables)
• Petroleum extraction and refining

Heavy Industry

• Steel manufacturing
• Cement production
• Aluminum smelting

Emerging Sectors

• Hydrogen production
• Automobile manufacturing (particularly EV transition)

Agriculture Inputs

• Fertilizer production

These industry guidelines will form a “full-chain application system” with three integrated layers:

1. Basic guidelines: Common requirements across all industries (now available in Climate Standard No. 1)
2. Specific guidelines: Thematic standards for topics beyond climate (forthcoming)
3. Industry application guidelines: Sector-specific metrics, methodologies, and case studies (in development)

This architecture ensures both standardization for comparability and customization for relevance, addressing the practical challenge of applying generic ESG frameworks to diverse industrial contexts.

Strategic Policy Objectives

Climate Standard No. 1 serves multiple interconnected policy goals beyond simple disclosure compliance:

• Green Capital Allocation : By standardizing climate information, the framework aims to guide capital flows toward low-carbon projects, supporting China’s massive green infrastructure investments and renewable energy transition.
• Greenwashing Mitigation: Standardized disclosure requirements establish clear criteria for climate claims, making misleading environmental assertions easier to identify and penalize.
• Market Expectation Management: Transparent, comparable climate data allows investors, regulators, and stakeholders to form realistic expectations about corporate climate performance and transition pathways.
• Corporate Behavior Regulation: The standard establishes baseline expectations for climate governance and strategy, nudging corporate behavior toward proactive climate risk management rather than reactive compliance.
• Transformation Assessment: Standardized metrics enable scientific measurement of progress toward national dual-carbon goals, providing policymakers with granular data on sectoral transition rates

Navigating China’s ESG Landscape: Partner with Ksapa

The release of Climate Standard No. 1 signals that China’s ESG reporting architecture is rapidly evolving from conceptual frameworks to enforceable requirements. For multinational corporations, investors, and China-focused businesses, this creates both challenges and opportunities that demand strategic navigation.

The Multi-Framework Challenge

Companies operating in or with China now face a complex regulatory environment:

• CSDS/Climate Standard No. 1: Mandatory for Chinese operations (phasing in)
• CSRD/ESRS: Mandatory for EU-headquartered companies with Chinese subsidiaries or supply chains
• ISSB/IFRS S1-S2: Voluntary globally but increasingly adopted by stock exchanges and investors
• SEC Climate Rules: Applicable for US-listed companies with Chinese operations
• National regulations: Country-specific requirements in other markets

Managing separate reporting streams for each framework is inefficient, expensive, and risks inconsistencies that undermine stakeholder trust. The strategic imperative is integrated ESG architecture: identifying the common core of these frameworks while efficiently managing divergent requirements.

Ksapa’s Integrated Approach

With over 25 years experience navigating international sustainability regulations across G20 markets and emerging economies, Ksapa specializes in translating regulatory complexity into strategic advantage. Our approach to multi-framework ESG integration includes:

• Materiality Convergence: We help identify the overlap between CSDS’s double materiality, CSRD’s sustainability matters, and ISSB’s financial materiality, creating a unified materiality assessment that satisfies all frameworks while revealing strategic priorities.
• Data Architecture Design: Rather than building separate data collection systems for each framework, we design integrated ESG data infrastructures capturing required information once and deploying it across multiple reporting formats.
• Strategic Prioritization: We distinguish between “compliance necessities” and “strategic opportunities,” helping leadership teams focus resources on ESG initiatives that simultaneously satisfy regulatory requirements and drive competitive advantage.
• Supply Chain Integration: For companies with Chinese supply chains, we bridge CSDS requirements with international frameworks, ensuring upstream and downstream partners can provide necessary data in compatible formats.

From Compliance to Competitive Advantage

Climate Standard No. 1’s trial phase offers a critical window: companies that engage now can shape internal processes, build institutional knowledge, and demonstrate leadership before mandatory deadlines arrive. Early movers gain:

• Operational clarity: Understanding data gaps and building collection systems while voluntary
• Investor confidence: Signaling proactive climate governance to capital markets
• Regulatory relationships: Building constructive engagement with Chinese authorities during trial period
• Market positioning: Differentiating as sustainability leaders in Chinese markets

Ksapa’s consulting services transform regulatory requirements into strategic assets, ensuring your ESG investments serve both compliance objectives and business performance.

Ready to Navigate China’ESG Evolution ?

Whether you’re a multinational corporation managing Chinese operations, an investor evaluating Chinese portfolio companies, or a China-focused business preparing for mandatory disclosure, Ksapa provides the expertise to navigate this evolving landscape effectively. Contact us to discuss how we can help you integrate CSDS, CSRD, ISSB, and other frameworks into one coherent, strategized ESG approach that enhances both compliance and competitiveness.