Companies must prepare for new ESG requirements. Both China and the EU are tightening their demands for Environmental, Social, and Governance (ESG) reporting, reflecting a global trend toward more rigorous sustainability standards. Here are the key points:
Challenges and Opportunities:
| Aspect | China ESG Requirements | EU Taxonomy |
|---|---|---|
| Focus | Environment, social responsibility, governance | Six environmental objectives, avoiding greenwashing |
| Reporting Obligations | From 2026 for publicly listed companies | Mandatory for large companies since 2023 |
| Approach | Industry-oriented, national goals | Uniform, strict technical criteria |
| Challenges | Different standards | High costs, complex requirements |
Conclusion: Companies must adapt their ESG strategies to avoid legal risks and benefit from sustainable investments. Early preparation and alignment with both Chinese and EU frameworks will be critical for multinational organizations.
China has significantly tightened its ESG system in recent years, pursuing a sector-oriented approach. Instead of uniform regulations, specific requirements are developed for different industries to address their unique characteristics. This strategy allows China to tailor ESG expectations to the realities of its diverse economic sectors, making the transition more practical for companies at different stages of sustainability maturity.
The ESG system in China is based on three main components: basic standards, industry-specific standards, and application guidelines. A central principle is “double materiality”, which considers both the impact of ESG factors on a company’s finances and the company’s impact on ESG outcomes. This dual perspective is increasingly recognized as best practice globally, as it ensures companies account for both risks and opportunities related to sustainability (China Briefing).
“Compared to the uniform ESG regulatory standards in other countries, China’s ESG regulatory standards place a stronger emphasis on industry and corporate characteristics.”
This assessment by Richard Sheng, Board Secretary of Ping An, illustrates China’s individual approach to regulation. The resulting standards lead to binding disclosure requirements for certain companies.
China’s ESG regulations combine mandatory disclosure obligations for certain companies with voluntary reporting options. The country’s three leading stock exchanges introduced guidelines in 2024 that require publicly listed companies to disclose sustainability information. The first reports are expected by April 2026. This phased approach allows companies time to build capacity and systems for ESG data collection and reporting (China Briefing).
The Ministry of Finance plans to establish a unified, mandatory ESG reporting system by 2030, with key standards set by 2027. However, implementation varies greatly: in 2021, around 63.8% of central state-owned enterprises published ESG reports, compared to only 23.5% of private companies. Of around 5,000 A-share companies, only 1,800 issued ESG reports in 2023 (UNEP FI).
The Chinese ESG framework focuses on environmental protection, social responsibility, and corporate governance. Key topics include climate change, environmental pollution, waste management, social initiatives, and rural development. Notably, China’s ESG agenda is closely linked to national priorities such as poverty alleviation and rural revitalization, reflecting the government’s broader social and economic objectives (BSR).
The “Five Key Pillars” of China’s modern financial system reflect these priorities: technology finance, green finance, inclusive finance, pension finance, and digital finance. This alignment supports the goal of peaking carbon emissions by 2030 and achieving carbon neutrality by 2060. For example, Alibaba reduced its customers’ emissions by 6.863 million tons of CO₂ equivalent in fiscal year 2023, while Cainiao saved 184,000 tons of packaging material by using recycled packaging—concrete evidence of how Chinese companies are responding to ESG imperatives (Alizila).
China’s ESG strategy also includes technical and industry-specific standards that are aligned with international frameworks such as the ISSB and EU requirements. By the end of Q3 2023, ESG investments in China reached 33.06 trillion RMB (about 4.56 trillion USD), up 34.4% compared to 2022 (UNEP FI). The number of pure ESG funds rose from 16 in 2019 to 135 in 2023, while ESG equity indices grew from 66 to 370. Beijing aims for a 70% ESG disclosure rate among listed companies by 2027.
A unique feature of the Chinese approach is the consideration of national development goals such as poverty alleviation and rural development. These strategies aim to minimize the negative impacts of economic activities on vulnerable communities and to build sustainable industries for poverty reduction.
The EU Taxonomy Regulation forms the foundation of European sustainability regulation and provides a uniform framework for all industries. It is also gaining global significance, especially compared to approaches in other regions such as China. The Taxonomy is central to the EU’s ambition to become the world’s first climate-neutral continent by 2050 (European Commission).
The EU Taxonomy is a classification system that defines which economic activities are considered sustainable or environmentally friendly. It aims to promote sustainable financing, steer investors toward green projects, and prevent greenwashing through clear guidelines. This system is designed to increase transparency and comparability, making it easier for investors to identify truly sustainable opportunities (Envoria).
Companies must identify all revenue-generating activities assigned to a NACE code (Nomenclature of Economic Activities) and report revenue, investments (CapEx), and operating expenses (OpEx) that are taxonomy-compliant. This definition forms the basis for the legal requirements detailed in the next section.
The EU Taxonomy Regulation (2020/852/EU) is closely linked to the Corporate Sustainability Reporting Directive (CSRD), which governs disclosure obligations. Companies must meet strict reporting requirements, which apply to the following groups:
From early 2023 to May 2024, €440 billion in taxonomy-compliant activities have already been reported (Envoria). Additionally, companies can voluntarily use the EU Taxonomy to demonstrate sustainable activities to investors and stakeholders.
The EU Taxonomy focuses on six core environmental objectives: climate change mitigation, climate change adaptation, sustainable use of water and marine resources, transition to a circular economy, pollution prevention, and the protection and restoration of biodiversity. These objectives are at the heart of the EU’s sustainability agenda, driving both regulatory requirements and investment priorities.
An activity is classified as sustainable if it makes a substantial contribution to at least one of these objectives while meeting strict environmental requirements. For example, greenhouse gas emissions in the EU were reduced by over 30% by 2022 compared to 1990. Moreover, EU member states are legally required to reduce emissions by at least 55% by 2030 (Eurostat).
The European Green Deal foresees investments of €1 trillion over the next 10 years to make Europe climate-neutral by 2050.
Unlike China’s industry-specific approach, the EU sets precise technical criteria and follows the “Do No Significant Harm” principle. For example, wind power generation (NACE code D35.11) falls under the climate protection objective, as renewable electricity production reduces greenhouse gas emissions. However, offshore wind projects must avoid potential harm to marine biodiversity. This means environmental impact assessments, the use of recyclable materials, and measures to minimize impacts on bird and bat populations are required. In addition, companies must comply with international labor and human rights standards. This multi-layered approach ensures that sustainability is not achieved at the expense of other environmental or social priorities (Debevoise & Plimpton).