CHINA Law and Practice Contributed by: Rongliang Wu, Mei Wan, Qirong Huang and Xueqi Huang, Jin Mao Law Firm
Green Credit and Credit Management Financial institutions offer preferential credit to busi- nesses meeting environmental criteria. Per the Enter- prise Environmental Credit Evaluation Measures (Trial), enterprises are rated A, B, C or D based on environ- mental behaviour. A credit repair system exists (eg, Shanghai’s trial regu- lations). Enterprises that rectify environmental viola- tions can apply to the penalty-imposing department to restore their ecological and environmental credit. Environmental Certifications Obtaining environmental certifications, such as the “Green Label” or “Environmental Management Sys- tem” certifications, can enhance a company’s repu- tation and market access. This creates incentives for environmental responsibility. Penalties for Bad Environmental Citizenship The penalties for bad environmental citizenship are mainly criminal, civil and administrative liability or a lower credit rating. (For more details, see 5.1 Key Types of Liability .) 6.4 Shareholder or Parent Company Liability A parent company has independent legal status and normally is not impacted by the environment liabil- ity caused by its subsidiaries. However, if the parent company has engaged in acts that are related to the causes of an environmental accident (eg, excessive control), the subsidiaries’ illegal behaviours could also be attributed to the parent company. Hence, in particular cases, the shareholders might bear civil, administrative or even criminal liability. A wastewater company in Nanjing repeatedly dis- charged high-concentration wastewater and toxic and hazardous sludge waste into the Yangtze River, causing enormous ecological and environmental dam- age. The wastewater company paid the ecological environment restoration fee in the final reconciliation agreement, and its parent company assumed joint and several liability. 6.5 ESG Requirements China’s ESG framework is built on laws, national strat- egies (eg, the Dual-Carbon Strategy) and regulatory
documents, with clear norms for environmental pro- tection, social responsibility and corporate govern- ance, supported by systematic reporting, monitoring and enforcement mechanisms. Core ESG Requirements Environmental Core environmental requirements focus on pollution control and low-carbon development. Enterprises must obtain pollutant discharge permits, control emissions of air/water pollutants and solid waste, and install real-time monitoring equipment. High-energy industries (steel, power) must meet energy consump- tion and carbon intensity targets and avoid damaging ecological red lines. Social Core social requirements centre on stakeholder rights. Regarding employees, enterprises must comply with the Labour Law (minimum wage, social insurance, safe working conditions, no child/forced labour). Regard- ing communities, projects with regional impacts need community communication and support for local pub- lic welfare (rural revitalisation). Regarding consumers, the Consumer Rights Protection Law requires product safety, truthful information disclosure and proper com- plaint handling. Governance Core governance requirements emphasise standard- ised governance. Listed companies (per the Securi- ties Law) need sound boards, independent directors and internal controls; all enterprises must establish anti-corruption mechanisms to prohibit commercial bribery (per the Anti-Unfair Competition Law). Listed companies and state-owned enterprises (SOEs) must disclose governance information (shareholder equity,
related-party transactions) transparently. Reporting: Mandatory and Voluntary The following reporting is mandatory:
• A-share listed companies (since 2022) must disclose annual ESG reports (or ESG sections in annual reports) via stock exchanges. • High-pollution/emission firms need to provide detailed environmental data (emissions, energy consumption).
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