CHINA Law and Practice Contributed by: Chen Ma, Michelle Gon, Xinjie Li and John Fitzpatrick, Han Kun Law Offices
7.2 ESG Developments The global shift towards sustainable investment has led to material changes in how Chinese companies report and consider ESG issues. A key development is the standardisation of reporting frameworks, with the Shanghai, Shenzhen and Beijing stock exchanges recently releasing specific ESG disclosure guidelines. These guidelines place a heavy emphasis on “green development”, reflecting China’s unique domestic pri - orities, such as rural revitalisation and common pros - perity, alongside traditional environmental metrics. There is also a growing focus on the “governance” component of ESG, particularly concerning data security and anti-corruption. As digital transforma - tion accelerates, how companies manage user privacy and algorithmic transparency has become a critical part of their social responsibility profile. Furthermore, the integration of ESG performance into the enterprise credit evaluation system means that a company’s ESG standing can now directly influence its access to financing and its overall cost of capital. In China, there are currently no specific statutes that mandate a particular board composition or commit - tee structure solely for AI oversight. However, under the broader fiduciary duties of loyalty and care estab - lished by the PRC Company Law, boards are increas - ingly expected to oversee the digital transformation and technological risks of their enterprises. For com - panies in the technology sector or those utilising gen - erative AI, regulatory authorities such as the Cyber - space Administration of China (CAC) emphasise that the “legal representative” and the board bear ultimate responsibility for ensuring that AI systems align with “core socialist values” and maintain data security. Existing departmental rules, such as the Interim Meas - ures for the Management of Generative Artificial Intel - ligence Services, indirectly require board-level atten - tion to compliance. Boards are expected to ensure that the company has established internal mecha - nisms for content moderation, data labelling and pro - tection of intellectual property. While not mandatory 8. Artificial Intelligence 8.1 Board Oversight of AI
for all, many leading Chinese technology firms have voluntarily established technical committees or Ethics Committees that report to the board to manage the complex regulatory landscape surrounding AI ethics and safety. 8.2 AI Use-Related Risks The governance framework for addressing AI risks in China is characterised by a “layered” approach, focusing on specific technologies such as algorith - mic recommendations, deep synthesis and genera - tive AI. The CAC, together with other ministries, has issued regulations requiring service providers to con - duct security assessments and algorithm filings for any AI systems with “public opinion properties” or “social mobilisation capabilities”. These filings require companies to demonstrate that their AI models have robust internal controls to prevent the generation of discriminatory or harmful content. For 2025 and 2026, the key governance develop - ment is the anticipated progression of the “PRC Artificial Intelligence Law”, which aims to provide a unified framework for AI development and security. Responsibility for AI strategy and risk management typically falls to a cross-functional team involving the Chief Technology Officer (CTO), the legal department and, increasingly, the audit or risk committee. This integrated approach ensures that AI risks – includ - ing reputational risks arising from “hallucinations” or biased outputs – are monitored from both a technical and a compliance perspective. 8.3 Liability Exposures Arising From AI Use Boards and officers face several layers of liability exposure arising from the use of AI, ranging from administrative penalties to civil litigation. A primary risk is “disclosure failure”, where a company fails to accurately inform users or regulators about the use of AI algorithms, as required by transparency rules. Addi - tionally, safety incidents or the output of prohibited content can lead to severe administrative sanctions, including the suspension of AI services or the revoca - tion of business licences, for which senior manage - ment may be held personally accountable. Intellectual property (IP) and data breaches constitute another significant area of exposure. If an AI system
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