On 28 June 2021, the China Securities Regulatory Commission published revised versions of the information disclosure rules relating to annual reports and to half-year reports for listed companies, which were updated from their 2017 versions. The revised information disclosure rules took effect on the same day.
The updated rules reflect the changes introduced to the Securities Law and the Administrative Measures for the Information Disclosure by Listed Companies, which took effect on 1 March 2020 and 1 May 2021 respectively.
Below is an overview of the key rule revisions and requirements on the environmental, social and governance (ESG) aspects of annual reporting. Similar ESG disclosure requirements apply with regard to half-year reporting.
All listed companies are now required to disclose in their annual reports any administrative penalties relating to environmental issues received during the reporting period. The “key polluting entities” are however under more stringent disclosure obligations to disclose additional environmental information, including pollution discharge and status of pollution control facilities. Disclosure on any actions to reduce carbon emissions is now stated as encouraged due to the general promotion of low carbon transition of China.
Environmental and social disclosure
In terms of structure, the 2021 rules now have a standalone section 5 (articles 41 to 43) for information disclosure relating to environmental and social responsibilities, which cover the former articles 42 to 44 of the 2017 rules.
In terms of disclosure obligations, the 2021 rules introduce a mandatory disclosure obligation on environmental penalties for all listed companies. A number of items whose disclosure is encouraged on a voluntary basis is also stated in the 2021 rules, which is similar to the approach taken in 2017 rules.
According to article 41 of the 2021 rules, certain “key polluting entities” determined by the environmental authorities are obliged to disclose the following information in their annual reports:
Pollutant discharge information, including but not limited to the name of the major pollutants and characteristic pollutants, way of discharge, number and location of discharge outlets, concentration and total amount of discharged pollutants, occasions of discharging exceeding the required limits, applicable pollutant discharge standards, and total amount of approved discharge of pollutants;
The construction and operation of pollution prevention and control facilities;
Environmental impact assessment of the projects and other environmental protection administrative permits;
Emergency response plan for environmental emergencies;
Environmental self-monitoring plan;
Administrative penalties due to environmental issues during the reporting period;
Other environmental information that should be made public.
Among the above, item (6) on environmental administrative penalty is a new requirement introduced by the 2021 rules. It is clearly stated that such disclosure is mandatory for all listed companies, whether or not they are “key polluting entities”. In respect of other items above, listed companies which are not key polluting entities are not obliged to make disclosure, but should state sufficient reasons if they choose not to disclose.
The 2021 rules contain a number of items whose disclosure is encouraged but not mandated, including:
Information relating to the promotion of environmental protection, prevention and control of pollution, and any actions to perform environmental responsibilities;
Information on the measures taken to reduce carbon emissions during the reporting period and the effects of these measures (new item in the 2021 rules);
Information relating to the fulfilment of social responsibilities, including but not limited to the company’s mission and ideology of fulfilling social responsibility, the protection of the rights and interests of shareholders, creditors, employees, suppliers, customers and consumers, environmental protection and sustainable development, public relations and social welfare;
Information relating to actions taken to strengthen the achievements of poverty alleviation and development in rural areas during the reporting period (item revised to be more concise in the 2021 rules).
Corporate governance disclosure
The 2021 rules contain a revised corporate governance section which consolidates all provisions relating to corporate governance in Section 4. The 2021 rules now require disclosure of any shares with special voting rights and subsequent changes to such arrangement. The 2021 rules also make a number of improvements to existing disclosure requirements, such as on the disclosure of the members of Board special committees and meeting details, measures to guarantee the independence of the company from its controlling shareholder and actual controlling person and any potential conflict of interests.