China’s New Application Guide for ESG Disclosure Standards: Implications for Businesses

China’s Application Guide for ESG Disclosure Standards provides clear, actionable guidance for enterprises to implement sustainability reporting that is decision-useful, reliable, and aligned with regulatory expectations.

On September 3, 2025, China’s Ministry of Finance (MOF) issued the Application Guide for the Corporate Sustainability Disclosure Standards – Basic Standards (Trial), hereinafter referred to as the “Application Guide”, offering enterprises detailed instructions for applying the trial version of the country’s sustainability disclosure framework.

The Application Guide requires companies to define the scope of their value chain in disclosures, reassess sustainability risks and opportunities when significant changes occur, and align sustainability information with financial statements and other public reporting.

As this lastest move reflects China’s wider strategy to promote transparent, consistent, and decision-useful sustainability reporting in line with long-term national development goals, in this article we examine the key features of the new Application Guide, its implications for enterprises, and how it fits into the broader evolution of ESG reporting standards in the country.

Background: China’s ESG regulatory framework

China has progressively developed its ESG disclosure framework in recent years, moving from voluntary initiatives to a more structured regulatory system. The year 2024 was widely regarded as a turning point, with several major policy instruments setting the foundation for a national sustainability disclosure regime.

In February 2024, the China Securities Regulatory Commission (CSRC) instructed the country’s three stock exchanges to issue ESG reporting guidelines. These rules mandate companies listed on key indexes, including the SSE 180, STAR 50, SZSE 100, and ChiNext, as well as firms listed both domestically and overseas, to begin ESG disclosures in 2026. According to these guidelines, other listed firms are also encouraged to publish reports on a voluntary basis.

In December 2024, the MOF, together with nine other departments, issued the Basic Standards for Corporate Sustainability Disclosure (Trial), hereinafter the“Basic Standards”. These standards establish the general framework for corporate sustainability reporting in China, drawing heavily from the International Sustainability Standards Board (ISSB) structure.

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However, unlike ISSB’s financial materiality approach, the Basic Standards adopt a “double materiality” perspective, requiring companies to disclose both the impact of sustainability factors on financial performance and the broader environmental and social effects of their activities. Implementation remains voluntary until further regulations define the scope and timetable.

These initiatives reflect a phased approach toward building a unified national disclosure system, with full implementation expected by 2030. The Basic Standards are designed to work in tandem with forthcoming specific standards on climate and thematic topics, as well as application guidelines to support practical implementation. Together, these instruments aim to harmonize disclosure practices, improve data quality, and enhance comparability across industries.

Parallel to disclosure reform, China has continued to expand green finance. The People’s Bank of China (PBOC) and other regulators have introduced policies to increase financial support for low-carbon projects, while the “Five Key Pillars” strategy (covering green, technology, inclusive, pension, and digital finance) further integrates sustainability into the country’s financial system.

Taken together, these measures illustrate China’s dual strategy: aligning its corporate sustainability reporting framework with international standards while ensuring compatibility with domestic policy priorities, particularly the goals of carbon peaking by 2030 and carbon neutrality by 2060.

Key features of China’s Application Guide for ESG disclosure standards

China’s new Application Guide ESG disclosure standards sets out how companies should apply the Basic Standards in practice. The main areas of focus are outlined below.

Value chain scope

The Application Guide makes clear that sustainability risks and opportunities cannot be assessed in isolation from a company’s broader value chain. This means enterprises need to look beyond their direct operations to include upstream suppliers, downstream distributors, and other business partners where relevant.

The scope of disclosure should be determined by materiality: risks or impacts that could reasonably influence the company’s financial outlook or stakeholder decisions must be included, while immaterial aspects can be excluded to avoid excessive reporting.

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Importantly, the scope is not static. Companies are required to reassess their value chain boundaries in response to major developments, such as changes in business models, significant restructuring, the emergence of new sustainability risks, or shifts in regulatory requirements. This dynamic approach reflects the fact that value chain exposures can evolve rapidly, for instance with changes in sourcing patterns, reliance on critical raw materials, or entry into new markets.

Companies should establish a structured process for mapping their value chain, identifying where the most significant risks and impacts occur, and setting clear criteria for reassessment. This ensures disclosures remain relevant, reliable, and aligned with both regulatory expectations and stakeholder interests.

Linkage with financial reporting

Sustainability information should be closely integrated with a company’s financial reporting. Quantitative disclosures (such as costs associated with carbon emissions, resource consumption, or regulatory compliance) should align directly with financial statement figures, ensuring that stakeholders can clearly understand the financial magnitude of sustainability risks and opportunities.

Similarly, qualitative information, including descriptions of strategic initiatives, risk mitigation measures, or transition plans, should explicitly outline their potential impact on revenues, expenses, cash flows, and overall financial performance.

This linkage ensures that sustainability reporting does not exist in a silo but complements and reinforces traditional financial reporting, providing a holistic view of the company’s performance and long-term value creation.

To meet these requirements, companies should foster strong collaboration between finance and sustainability teams. Establishing shared data systems, consistent methodologies, and coordinated review processes will help ensure that all quantitative and qualitative disclosures are internally consistent, accurate, and decision-useful for investors, creditors, and other stakeholders.

Users of sustainability information

The Application Guide identifies primary and secondary users of sustainability disclosures:

• Primay users: Investors and creditors are identified as primary users, reflecting their focus on assessing financial risks, returns, and long-term enterprise value; while
• Secondary users: Include regulators, business partners, and civil society, who are interested in broader social, environmental, and compliance aspects.

By clearly distinguishing between these user groups, companies can tailor disclosures to ensure that investors and creditors receive decision-useful financial insights, while also providing transparency and accountability to wider stakeholders.

Materiality and proportionality

Companies are expected to report on material sustainability risks, opportunities, and impacts, using a structured process:

• Identify relevant issues;
• Assess their financial and societal implications; and
• Determine what information is significant enough to disclose.

The principle of proportionality ensures that data collection and reporting are balanced, information must be reliable and decision-useful, but reporting processes should remain practical, avoiding excessive costs or unnecessary complexity, especially for smaller businesses.

Financial impacts and resilience

The Application Guide emphasizes disclosure of both current and expected financial impacts of sustainability risks and opportunities, showing how they may affect the company’s financial statements, cash flows, and overall performance.

Companies should also report on the resilience of strategies and business models, explaining how they are designed to withstand or adapt to sustainability-related risks. Scenario analysis is recommended to explore different outcomes, but where resources or data are limited, qualitative assessments or expert judgment can provide meaningful insights.

Broader sustainability impacts

Beyond financial considerations, companies should disclose significant positive and negative impacts on society, the economy, and the environment. This “double materiality” perspective ensures stakeholders understand not only how sustainability factors affect the business but also how the business affects its broader context.

Positive impacts might include job creation, community development, or emissions reduction, while negative impacts could involve resource depletion, pollution, or social inequities.

Key takeaways for businesses

The following table summarizes the key actions, rationale, and practical steps businesses should take to ensure compliance, improve transparency, and deliver decision-useful information to stakeholders.

Conclusion

By following the Application Guide, companies can produce sustainability disclosures that are both credible and decision-useful, meeting the needs of investors, creditors, regulators, and other stakeholders.

Implementing structured processes for value chain mapping, financial alignment, materiality assessment, and ongoing governance ensures businesses are well-prepared to manage risks, seize opportunities, and demonstrate resilience in a rapidly evolving sustainability landscape.

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