In 2025, China’s ESG regulatory regime is accelerating its transition from voluntary guidance to mandatory compliance, with the contours of a binding framework emerging – anchored in stronger legal foundations, increasingly rigid disclosure obligations and steadily enhanced judicial enforcement.

The newly amended Company Law, effective from July 2024, establishes a crucial top-level legal basis for ESG governance. At the same time, capital market rules have made decisive progress: the Shanghai, Shenzhen and Beijing Stock Exchanges have jointly issued the Guidelines for Sustainability Reporting, which provide a systematic disclosure framework and introduce a phased path towards mandatory implementation. To ensure the effectiveness of this reporting regime, regulators are advancing two complementary initiatives. First, the Ministry of Finance is leading the development of unified national sustainability disclosure standards, aimed at improving the comparability and reliability of ESG information and supplying the necessary technical foundation for disclosure. Second, supervisory authorities are strengthening green finance standards and explicitly setting “anti-greenwashing” regulatory priorities, in order to enhance the quality of disclosures, prevent formalistic compliance and ensure the efficient allocation of capital.

Meanwhile, environmental law and judicial practice are reinforcing ESG accountability through rigorous enforcement and representative cases, particularly by establishing binding constraints and deterrence in the environmental dimension.

Taken together, these developments demonstrate that China’s ESG regulation is moving systematically into a new phase of legalisation and marketisation – driven by legislative refinement, mandatory disclosure, standard unification, anti-greenwashing oversight and judicial safeguards.

In 2024, the development of China’s environmental rule of law was characterised by intensified enforcement, refined judicial practice and deepened accountability. Overall, the governance logic is shifting from end-stage punishment to whole-process risk prevention and control, guided by the principles of “protection first, prevention as priority” (as provided in Article 5 of the Environmental Protection Law of the People’s Republic of China). This assessment is firmly grounded in both statutory norms and judicial practice.

Enforcement System: Sustained Deterrence and Procedural Linkage

Regulatory authorities have continued to apply strong deterrent measures against unlicensed pollutant discharge, excessive emissions and regulatory evasion, including orders for rectification, production restrictions or suspension, and shutdowns. “Daily continuous penalties” have been widely applied to maintain pressure. For falsification of monitoring data or abnormal operation of treatment facilities, administrative sanctions may be supplemented by referral to public security authorities for administrative detention (a punitive measure imposed to restrict personal liberty for violations of administrative order, recognised as an administrative penalty under the Administrative Penalty Law, with a duration ranging from one to 20 days) if criminal thresholds are not met, thereby strengthening the linkage between administrative and criminal procedures.

Judicial Practice: Precision and Preventive Remedies

The environmental adjudication system has been further refined. In civil liability cases, courts are clarifying the standards for reversing the burden of proof on causation, with heightened scrutiny of the nexus between pollution and harm. Preventive remedies, such as injunctions and orders to eliminate hazards, are widely applied in public interest litigation. Punitive damages are strictly confined to cases involving illegality, intent and/or serious consequences, thereby preventing over-expansion of judicial application.

Accountability System: Expansion to Full-Chain and Diversified Mechanisms

Corporate responsibility now extends beyond compliance in emissions to encompass ecological restoration, with remedies including fund management, substitute performance and carbon sink purchases, thereby forming a closed loop of “investigation–assessment–restoration–acceptance”. Case types are expanding to cover emerging areas such as hazardous waste, carbon emission settlement and data authenticity, reflecting deeper integration of judicial and administrative governance.

In 2024, China’s regulatory landscape for the social dimension of ESG showed a clear trend of systemic strengthening and greater accountability. The defining shift is from principle-based guidance to binding, enforceable compliance obligations.

This transformation is reflected in three major aspects:

Regulatory Convergence and Institutionalisation

Requirements are becoming increasingly harmonised, particularly in the ESG practices of state-owned enterprises, where social responsibility, corporate governance and high-level disclosure are being advanced in an integrated manner. At the same time, mandatory disclosure of environmental information and the standardisation of charitable activities (ie, aligning philanthropy with pollution prevention and ecological protection priorities, and requiring transparent governance, traceable fund allocation and compliance review of donations) mark the embedding of ESG management into the institutional framework of corporate operations.

Rigidification of Entity Responsibility

Corporate duties towards key stakeholders are being more clearly defined and substantially reinforced. This is most evident in the following:

• Workplace safety: The principle of “people first, life first” has been transformed into a compulsory and accountable duty for enterprises to ensure production safety.
• Platform responsibility: Functional obligations of online platforms in protecting minors (eg, anti-addiction measures) have been expressly imposed, with penalties clarified and escalated.
• Products and consumers: Stricter accountability for regulatory negligence is indirectly compelling enterprises to enhance product quality and disclosure standards.

Judicial and Enforcement Practices Grounded in Evidence

Courts and regulators are increasingly focused on labour disputes, workplace accidents and product liability. Judgments show an emphasis on whether enterprises have established effective internal systems and retained complete execution records. This has translated ESG requirements from obligations on paper into “evidentiary” practices.

Strong Rules, Disclosure, Accountability and Investor Protection

The new Company Law tightens the governance baseline: a board of directors is required for joint-stock companies (Art. 120); acts of the legal representative bind the company, with internal recourse against the at-fault representative (Art. 11), reinforcing “aligned authority and liability”; listed companies must have independent directors and set out board committees’ composition and powers, and pay/performance mechanisms for directors, supervisors and executives in the articles (Art. 136), professionalising structure and incentives.

On capital markets, the Code of Corporate Governance for Listed Companies (2025 revision) mandates that governance actors exercise rights and duties under laws and self-regulatory rules, and perform with loyalty, diligence and prudence with ongoing competence building (Art. 4), while placing minority shareholder protection at the core (Art. 8). Board committees may engage external advisers at the company’s expense (Art. 44), enabling independent judgement across audit, compensation/nomination, strategy and risk. Exchange rules plus sustainability disclosure tighten the board–committee–management chain and curb greenwashing or misleading reports.

In practice, governance disputes cluster around issues relating to dissolution and liquidation, share transfers, capital contribution liability, and validity of shareholder/board resolutions and control; courts are converging on issues such as veil piercing, earn-out/repurchase, nominee shareholding and accelerated capital calls. Meanwhile, D&O liability insurance, coupled with the governance–disclosure–accountability loop, pushes companies to front-load internal control, compliance and disclosure into directors’ performance of their duties, raising transparency and enforceability.

In China, regulatory and supervisory authorities advance ESG implementation through unified supervision, mandatory disclosure and financial co-ordination. The Ministry of Ecology and Environment is responsible for the nationwide organisation, guidance, supervision and administration of environmental information disclosure. Local ecological departments have the authority to conduct on-site inspections of enterprises that discharge pollutants, and those inspected must truthfully report their situation and provide necessary materials. Environmental protection follows the principles of “protection first, prevention as priority, comprehensive governance, public participation and liability for damage”. The state delineates ecological protection red lines under strict safeguards and requires enterprises to develop and utilise natural resources reasonably, protect biodiversity and ensure ecological security.

In the capital market, the Shanghai Stock Exchange has committed to improving both the quantity and quality of ESG disclosures within three years, ensuring that relevant guidelines are effectively implemented. The China Securities Regulatory Commission (CSRC) requires that when securities trading is deemed abnormal, listed companies must promptly identify the causes of unusual fluctuations and make timely disclosures. In the financial sector, the newly established National Administration of Financial Regulation has taken unified responsibility for supervising all financial industries other than securities, safeguarding financial consumers, strengthening risk management and prevention, and investigating illegal practices, while incorporating green credit, green bonds, green funds and green insurance into its evaluation framework. Labour authorities supervise compliance with labour laws and have the power to stop violations and order corrections. The Company Law stipulates that companies must adopt articles of association which are binding on the company, shareholders, directors, supervisors and senior executives. The Law also requires companies to provide necessary conditions for Party organisations and mandates that matters affecting class shareholder rights be subject to special resolutions by class meetings.

Through this system of laws, disclosure, inspections, finance and governance, regulators both set ecological red lines and establish social and governance baselines, embedding ESG into corporate practice through supervision and market discipline.

China’s ESG regulatory regime has established a binding framework centred on “strict disclosure, strict compliance and strict accountability”. The following industries will face the most profound compliance pressures.

Industries Under Core Impact

• Environment and resources: Energy (thermal power), mining (coal and metals) and heavy industries (steel, cement, basic chemicals).
• Finance and capital markets: Banks, insurers, and listed and pre-IPO companies.
• Complex supply chain sectors: Automotive, consumer electronics and high-end equipment manufacturers, and their extensive supply chains.
• Sensitive sectors: Pharmaceuticals and medical devices, hazardous chemicals, large-scale construction projects and new energy operations.

Regulatory Paradigm Shift

• Strict disclosure: Requirements are expanding from environmental data to comprehensive ESG elements, with a clear trend towards third-party assurance.
• Strict compliance: Liability is transmitted on a “look-through” basis – financial institutions must manage client risks, while core enterprises must control risks across their supply chains.
• Strict accountability: Severe liability and heavy penalties are imposed for data falsification, regulatory evasion and workplace safety accidents.

Against this backdrop, embedding ESG deeply into corporate governance and risk-control systems has evolved from best practice into a prerequisite for maintaining both operating licences and market credibility.

Geopolitics Reshapes China’s ESG “External Pressure – Internalisation – Execution – Feedback” Chain

Geopolitics and other political developments shape China’s ESG progress through an “external pressure – internalisation – execution – feedback” chain. External market and rule reshaping raises compliance thresholds and triggers shifts in capital preferences; some investors, citing human rights and the environment, adjust exposure, affecting valuations, capital flows and supply-chain choices. Domestically, policy convergence and a disclosure-first approach accelerate alignment with international rules: enterprises are the disclosure subjects and must disclose environmental information “lawfully, timely, truthfully, accurately, completely”, with standardised monitoring of data and records, and special procedures for state or trade secrets and “major environmental information”. ESG rests on principles of “protection first, prevention as priority, public participation and liability for damage”, turning compliance into an operational necessity. Supervisors and market mechanisms work in tandem – exchanges and green finance extend environmental disclosure into financing and pricing, promoting “double materiality” and curbing greenwashing. At the firm level, M&A, due diligence and financing embed ESG checks on environmental compliance, labour and human rights, anti-corruption, supply-chain contracts, board oversight and reporting quality, shifting from “disclosure” to “management”. For going-global strategies, companies front-load ESG to preserve market access and funding, while leveraging reciprocity/response tools under foreign trade law. Amid co-operation and competition, China’s ESG advances “in controversy and uncertainty”, moving into a phase of quality improvement and broader coverage.

ESG Governance Will Become a Mandatory Board Responsibility in China

In the coming year, ESG governance in China is expected to accelerate under a “strong rules, strong disclosure, strong governance” framework as reflected in the Environmental Protection Law of the PRC, the Reform Plan for the Environmental Information Disclosure System in Accordance with the Law, and the Company Law (2023). Regulators such as the CSRC and stock exchanges will tighten oversight of board duties and governance effectiveness, making ongoing governance evaluations and corrective actions a norm. Information disclosure will move from baseline compliance to high-quality comparability: companies must establish standardised data systems, ensure financing-use transparency, and strengthen board-level accountability for environmental and social disclosures. The amended Company Law adds legal weight to charter governance, category share voting and board authorisation for equity issuance, while imposing hard obligations to protect employee rights and ensure workplace safety. Boards are increasingly expected to create specialised committees – covering audit, risk and sustainability – to integrate ESG into decision-making and risk management. Environmental compliance will be reinforced through continuous monitoring, stricter liability for pollution, and integration of safety in production into governance metrics. Market-driven initiatives, including the Shanghai Stock Exchange’s three-year ESG disclosure action plan, will push issuers towards better alignment with global reporting standards and mainstream ratings. Overall, ESG will become an operational and governance necessity: companies that fail to embed ESG into their governance structures will face not only regulatory penalties but also heightened investor scrutiny and litigation exposure.

Listed vs Non-Listed Company Governance in China: Stricter Rules, Higher Disclosure, Stronger Protection

In China, governance requirements differ significantly between listed and non-listed companies. Listed companies are subject to stricter, more detailed and more transparent rules regarding governance objectives, institutional constraints, disclosure, independence and internal control, protection of investors and stakeholders, integration of Party building, and regulatory evaluation. Non-listed companies, including non-listed public companies and ordinary limited liability or joint-stock companies, follow the general framework and apply the general provisions of the Company Law, allowing greater autonomy and flexibility, despite certain customised requirements such as mandatory voting-right recusal in non-listed public companies.

Specifically, listed companies must align their charters with governance codes, emphasising soundness, effectiveness, transparency, checks and balances, fair treatment of shareholders, respect for stakeholders, and value enhancement. The State Council’s Opinions on Improving the Quality of Listed Companies highlight the strengthening of internal controls, disclosure, and clarification of responsibilities. Listed companies are also required to establish Party organisations and, if state-controlled, embed Party building into their charters. Annual reports of listed firms must disclose governance conditions and explain differences from regulatory standards. Exchanges require independence in assets, finance, personnel, business and institutions, while CSRC rules strictly limit external guarantees. Listed governance stresses minority shareholder and stakeholder protection, whereas non-listed companies rely on autonomy, with judicial remedies such as dissolution available when governance fails. Overall, listed companies operate under “strong rules, strong disclosure, strong governance”, while non-listed companies retain greater self-governance.

ESG Turns Directors/Officers Into “End-to-End” Stewards

In China, ESG requirements expand directors’ and senior officers’ duties from a traditional “finance compliance” focus to an “end-to-end” mandate covering strategy, risk, disclosure and execution. The board must centrally plan and supervise environmental and social compliance, workplace safety, information disclosure and stakeholder communication, as well as internal governance and accountability. Executives are required to embed ESG into day-to-day operations, risk control and delivery of targets. Failure to perform these responsibilities can trigger liability under company law – covering duties of loyalty and due care, non-compete and corporate-opportunity constraints, and remedies for harming corporate interests. In addition, in key pollutant discharge and production-safety areas, non-compliance can lead to administrative/legal consequences and external compensation exposure. Overall, ESG shifts directors and officers from narrow compliance gatekeepers into accountable stewards who align strategy, controls, disclosures and stakeholder engagement, while ensuring that environmental and social obligations are integrated into corporate decision-making and operational discipline. This governance posture requires documented systems, verifiable data and board-level oversight to withstand regulatory scrutiny and investor expectations, with clear lines of responsibility and consequences for breach.

No Dedicated Legal Form for Social Enterprises in China

China currently has no standalone legal form specifically for “social enterprises” or “non-profit corporations”. Under the Civil Code’s typology, entities register either as for-profit legal persons (eg, limited liability or joint-stock companies) or as non-profit legal persons (eg, social organisations, foundations or social service institutions/private non-enterprise units). The Company Law provides only for profit-distributing company forms and does not create a “non-profit company” form. Non-profit routes require public-interest or other non-profit purposes, prohibit profit distribution to founders, investors or members, and bar for-profit operations by social organisations, with residual assets dedicated to public benefit upon dissolution. In practice, mission-driven actors follow three paths: (i) incorporate a company and embed mission locks in the articles and shareholder agreements (while remaining legally for-profit); (ii) register as a non-profit organisation such as a foundation or social service institution and operate under non-distribution constraints; or (iii) build hybrid structures (eg, “company + foundation/social service institution”) to separate commercial and charitable functions and ensure compliant fund flows. Sector policies also allow non-profit licensing in healthcare and elderly care. Empirical studies and judicial practice confirm the absence of a special “social enterprise” form, so organisers must choose, design and document governance, finance and disclosure accordingly.

ESG Duties Recast the Company–Shareholder Relationship in China

In China, ESG duties reshape the company–shareholder relationship by moving corporate purpose beyond pure profit to a legally anchored balance of long-term value and public interest. The Company Law now requires firms to “fully consider” the interests of employees and consumers, as well as ecological protection, positioning boards and management as stewards who embed ESG into strategy, risk and operations. Articles of association can hard-wire ESG oversight, disclosure and accountability, converting policy aspirations into enforceable internal contracts among the company, directors and shareholders. Shareholders’ statutory rights remain intact, so ESG cannot be used to curtail voting rights, information rights or returns outside lawful and chartered processes. Once ESG targets or pathways are publicly promised, securities rules treat them as binding disclosures; misalignment risks compensation liabilities that ultimately harm shareholder value. Environmental laws impose direct operational duties – monitoring, records, and bans on evasion – so violations trigger administrative, criminal or civil exposure that transmits to investors through pricing and financing. Listed-company governance further links managerial pay to safety, compliance and sustainability metrics, aligning managerial incentives with long-term shareholder interests. Where capital maintenance and creditor protection are implicated, courts may accelerate repayment of capital or pierce veils for abuse, cautioning shareholders against underfunding “green” transitions. In practical terms, companies should document ESG controls, materiality and incident protocols to meet “true, accurate, complete” disclosure standards. Overall, ESG recasts directors and officers from narrow compliance gatekeepers into accountable fiduciaries who integrate stakeholder interests with durable shareholder value.

Sustainable Finance in China (2024–2025): What’s Done and What’s Next

China’s 2024–2025 sustainable-finance push follows a blueprint of “unified standards, richer tools, incentive alignment, regional pilots and international co-ordination”. It has issued strengthened guidance to expand green credit, use structural monetary tools (eg, carbon reduction and special relending), and weave green performance into institutions’ key performance indicators (KPIs) and senior-management appraisals. The 2025 Green Finance Project Catalogue unifies eligibility rules and will be adjusted dynamically to track climate targets, technology and market needs. Product breadth is widening – transition instruments and green bonds are promoted, while pensions and insurers are encouraged to utilise labelled debt. Regional green-finance reform zones and climate-investment pilots are scaling, supported by project libraries and data sharing. Legal backstops embed finance into environmental and energy statutes, including “three-simultaneous” EIA compliance (ie, environmental protection facilities must be designed, constructed and put into operation at the same time as the main project) and support for solid-waste control and clean energy. Looking ahead, authorities are set to iteratively refine the catalogue, advance foundational financial legislation (Financial Law, Financial Stability Law), and update PBOC and banking statutes to mainstream sustainability. Expect a deeper carbon market, clearer transition-finance taxonomies, stronger ESG and environmental disclosure, and cross-border interoperability with global standards. Toolkits should expand to sustainability-linked and transition bonds, securitisation of green assets, and FTP/economic-capital incentives that tilt pricing. The practical priority is auditable data and “true, accurate, complete” reporting to align investors, supervisors and issuers.

When raising or providing funds in China, companies must align with five key pillars:

• Governance and approvals: Board or shareholder resolutions must be adopted in accordance with the articles of association and the Company Law, subject to supervisory board oversight. Registration amendments must be filed in a timely manner to avoid counterparties challenging transactions on grounds of defective authorisation.
• Structure and use of proceeds: Debt financing must follow the principle of “borrowing within repayment capacity”, with repayment sources clarified in advance. Fixed-asset financing must comply with industrial policies and minimum capital ratio requirements. Corporate bonds must meet eligibility/net asset thresholds and are strictly prohibited from speculative use.
• Control of public offerings: Listed companies and interbank debt instruments must establish dedicated fundraising accounts to ensure consistent use of proceeds. Any change in use must be disclosed and procedurally approved. Idle funds may only be placed in permitted principal-protected products, subject to ongoing trustee or bank oversight.
• Financial crime prevention: Embed KYC, source-and-use verification and suspicious transaction reporting. Avoid promising guaranteed returns to the general public in order to prevent constituting illegal deposit-taking.
• Group and affiliate boundaries: Funds pooled through group finance companies require clear agreements, approvals and disclosures. No “blood transfusion” of funds to controlling shareholders or affiliates is permitted. Listed companies must maintain financial independence.

In practice, internal borrowing from employees for operational purposes may be recognised as valid, provided the interest rate does not exceed four times China’s Loan Prime Rate and contractual terms are properly documented.

A full audit trail must be maintained of resolutions, contracts, use-of-proceeds undertakings, account flows, project environmental assessments/permits and consistent, truthful disclosures. This end-to-end evidence chain ensures enforceability of transactions, withstands regulatory inspection and mitigates civil, administrative and criminal risks.

Accessibility has improved markedly as China has deepened policy support, unified green standards and built disclosure infrastructure. Banks increasingly earmark credit for green and transition activities under industrial policy guidance, applying stricter use-of-proceeds reviews and, for strong cash-flow borrowers, occasional collateral waivers.

Interbank and exchange bond markets now offer green, social, sustainability and transition labels, with use-control covenants and dedicated escrow accounts that streamline execution and investor protection. Sustainability-linked loans and derivatives extend access for general-purpose borrowers by tying pricing to measurable KPIs, though KPI design, verification and assurance add transaction costs.

Data utilities and exchange portals aggregate ESG reports, ratings and eligible-project catalogues, cutting search and origination costs for issuers and investors. For SMEs and early-stage or “brown to green” projects, access remains constrained by collateral gaps, cash-flow volatility and limited disclosure capacity. Movable-asset and receivables finance, equipment-upgrade leasing and regional pilot programmes partially mitigate these frictions.

Courts increasingly support asset preservation and enforce leasing rights, while regulators curb unlicensed lending, improving market confidence. Overall, borrowers with credible transition plans, verifiable data and stable cash flows obtain cheaper, faster funding; others face heavier diligence and tighter pricing.

Looking ahead, evolving tax and pricing incentives, updated green catalogues, deeper carbon markets and clearer transition taxonomies should widen access, provided that measurement, governance and anti-greenwashing controls keep pace.

As economies align with ESG, concerns under a “just transition” fall into four main categories:

• High-carbon assets face rapid devaluation and stranding, eroding collateral values, tightening covenants, and transmitting stress through defaults, restructurings and bankruptcies.
• Legacy borrowers and issuers in traditional industries experience declining credit demand, widening spreads and shortened maturities as capital tilts towards greener entities.
• Stricter screening creates “unfinanceable” groups – SMEs, coal-dependent regions and low-income households – amplifying regional and social inequality.
• Simultaneous asset reallocations reinforce market upswings and downturns, widening risk premia, depressing valuations and transmitting shocks across banks, insurers and capital markets.

Legal and policy uncertainty compounds these risks: evolving taxonomies, disclosure rules and carbon pricing can alter cash flows and litigation exposure mid-cycle. Data and assurance gaps weaken the credibility of KPIs in sustainability-linked financing, inviting accusations of greenwashing and mispricing. While use-of-proceeds covenants in bonds improve integrity, they may also disqualify transitional projects, creating financing “grey zones”.

To mitigate risks, institutions should adopt transition finance taxonomies, phased targets and social safeguards, linking capital to re-employment, retraining and regional support. Stress tests should incorporate collateral depreciation, policy shocks and carbon price trajectories to prevent “cliff effects”. Regulators can stabilise availability and expectations by updating taxonomies, clarifying disclosure and assurance, smoothing carbon market volatility and providing backstops for critical transition assets.

In the coming years, sustainable finance will not move forward on a smooth track. The first obstacle is greenwashing and “green bleaching”. When products are dressed up as sustainable without solid evidence – or stripped of ESG claims to avoid scrutiny – investors and regulators face distorted information. That not only misguides capital but also raises the risk of penalties. The second challenge is the backlash against ESG in some parts of the globe. In the USA, for example, some states now forbid public funds from considering ESG, whereas Europe is moving in the opposite direction with stricter disclosure rules. This divergence leaves cross-border players caught in the middle, unsure how to design or market products consistently. The third front is a sharp increase in the obligations of market participants. Boards and executives are expected to put ESG into strategy, risk control and disclosure, asset managers must prove their ESG labels, and issuers must produce reliable data. Together, these trends mean higher compliance costs and greater legal exposure. The sensible response is to unify internal standards, build strong evidence and data systems, and link marketing claims with verifiable outcomes. Firms that do so can stay ahead of regulators, earn investor trust and avoid being left behind when the rules tighten.

In China, ESG is clearly shifting from soft-law guidance to hard-law obligations. The most visible change is in environmental information disclosure. What was once encouraged reporting is now mandatory: companies are legally designated as disclosure subjects, required to keep raw records, follow national monitoring standards and file annual and interim reports in prescribed formats. For listed firms and bond issuers, disclosure extends to financing details, project allocation, and climate or ecological impacts. Capital markets governance has also hardened. The 2025 Governance Code obliges listed companies to actively fulfil social responsibility requirements, respect stakeholders and protect minority shareholders. Boards must follow fixed meeting procedures and maintain transparent agendas – turning the principles contained in the “G” part of ESG into binding governance rules. Company law embeds ESG on the “social” and “governance” fronts: articles of association now carry binding force, obliging boards and executives to respect labour participation and collective contracts, while requiring worker consultation on major decisions. Meanwhile, at the constitutional level, the Environmental Protection Law codifies principles of “protection first, prevention as priority, public participation and liability for damage”, setting strict ecological red lines and prohibitions. Taken together, these rules mark a decisive trend: ESG in China is no longer only about voluntary initiatives but is fast becoming an enforceable compliance framework anchored in statute, regulation and capital market oversight.

China’s ESG due diligence is shifting from enterprise-only compliance to value-chain coverage with enforceable obligations. Mandatory environmental disclosure for listed and bond-issuing firms when serious violations arise now pushes screening, remediation and escalation upstream. City-level public rosters and annually published inclusion lists create continuous incentives to monitor suppliers and contractors.

On-site inspections, data retention and monitoring-equipment requirements convert prior soft guidance into auditable procedures. Safety law embeds all-employee responsibility and twin systems for risk control and hazard remediation, extending expectations to outsourced operations and logistics.

In capital markets, underwriters must investigate governance, business fundamentals, credit and material risks, while issuers must co-operate; courts increasingly require not only reports but implementation of pledged controls before drawdown.

International demands amplify this trend: EU disclosure and due-diligence regimes travel through customer contracts, pushing coverage of Scope 3 emissions, forced-labour risks and grievance processes.

As a result, leading firms build tiered supplier mapping, risk scoring and targeted on-site audits, backed by third-party assurance and data traceability to original records. Trigger-based disclosure playbooks, incident escalation and corrective-action verification close the loop.

In short, expected diligence now spans identification, prevention, mitigation, monitoring and transparent reporting across critical value-chain nodes, with measurable, verified results and audit trails.

In China, ESG due diligence is rapidly shifting from voluntary disclosure to mandatory compliance, fundamentally altering how companies decide on supply chain partners. Firms must treat environmental compliance, workplace safety, labour protection and disclosure capability as hard entry conditions, or face regulatory penalties, joint liability, production suspension, and risks in capital market access and disclosure.

Under the Work Safety Law, outsourcing to unqualified contractors triggers fines and joint liability, forcing buyers to impose “one-vote vetoes” at the selection stage; under the Environmental Protection Law, enterprises must establish responsibility systems, retain monitoring data and accept on-site inspections, making supplier violations a direct buyer risk; under the Labour Law, occupational health and safety duties are mandatory, with penalties and even criminal exposure for violations, compelling buyers to include these as baseline requirements; and under the Company Law and Listed Company Governance Code, internal governance and disclosure duties are binding, leading buyers to prefer partners capable of standardised ESG reporting.

Judicial practice further clarifies that due diligence reports alone do not exempt liability unless control measures are implemented, driving buyers to embed ESG clauses, third-party audits and ongoing monitoring into contracts.

Internationally, EU rules such as the Corporate Sustainability Reporting Directive and the proposed Corporate Sustainability Due Diligence Directive cascade obligations to Chinese firms through contracts, requiring coverage of Scope 3 emissions, forced labour and traceability, thereby raising compliance thresholds.

Overall, to mitigate regulatory and reputational risks, companies must prioritise partners with environmental and safety qualifications, occupational health safeguards, disclosure capacity and verifiable data, embedding ESG hard-law obligations upfront in procurement and contractual frameworks.

In China, ESG in mergers and acquisitions has shifted from being a “bonus factor” to a “hard risk and valuation factor”, playing a role across due diligence, disclosure, pricing and deal structure, closing conditions and compensation, financing access, and post-merger integration and governance improvement.

Laws such as the Environmental Protection Law and the Labour Contract Law make pollutant discharge responsibility, occupational health and safety, and labour compliance mandatory review items; failure to meet these obligations can trigger administrative penalties, production suspensions or even civil and criminal liability, directly affecting feasibility and valuation.

Listed companies must ensure ESG disclosures are truthful, accurate and complete, or face regulatory and market constraints on deal timing and terms. Strong ESG performance enhances investor preference and transaction value, while weak performance translates into price discounts, deferred payments, escrows or compensation clauses.

In financing, investors and institutions increasingly demand verifiable ESG data and remediation plans, with non-compliance raising costs or restricting access.

Post-closing, ESG serves as a lever for governance and cultural integration, using board oversight, performance metrics and compliance reforms to strengthen long-term value.

However, because China’s unified ESG standards and mandatory scope are still evolving, non-listed, small-scale or financially driven deals often apply ESG only weakly or not at all.

Overall, ESG has become a substantive driver of risk assessment, transaction design and value realisation in Chinese M&A, though gaps in consistency and depth of application remain.

In China, ESG disclosure obligations follow a “dual-track system”.

Under the securities regulation track, capital market entities – including domestic listed companies, foreign companies issuing depositary receipts in China, bond issuers, NEEQ-listed companies, and firms on the Beijing Stock Exchange – must disclose ESG or sustainability information in their annual and semi-annual reports in line with CSRC and exchange rules, and make additional disclosures in cases of abnormal trading volatility or refinancing.

Under the environmental regulation track, key pollutant dischargers, companies subject to mandatory clean production audits and listed or bond-issuing companies (and their consolidated subsidiaries) that meet major environmental violation thresholds are required by law to disclose environmental information, including pollutant emissions, operation of pollution control facilities, penalties and corrective measures.

These two regimes emphasise different aspects: securities regulation focuses on governance and transparency to stakeholders, while environmental regulation stresses the accuracy, completeness and traceability of environmental data.

Overall, ESG disclosure in China is shifting from voluntary to mandatory, but the scope and intensity vary across entity types, requiring companies to comply simultaneously with both the securities and environmental regulation tracks to ensure completeness and truthfulness of information and to avoid regulatory or legal liabilities arising from false, omitted or improper disclosure.

In China, there is currently no universal legal requirement obligating all companies to disclose overall ESG transition plans or targets. However, specific entities and circumstances are already subject to disclosure duties that involve goal-setting and progress reporting.

First, in the environmental dimension, a mandatory disclosure regime is in place: key pollutant dischargers, companies subject to compulsory clean production audits and listed or bond-issuing companies with serious environmental violations must report pollutant emissions, operation of treatment facilities, penalties and corrective measures, while clean production audits require disclosure of reasons, implementation and acceptance results – effectively embedding targets and progress.

Second, under capital market regulation, stock exchanges have required certain listed companies to prepare sustainability or ESG reports in line with regulatory guidelines, with Shanghai-listed samples and centrally controlled SOEs explicitly expected to “prepare and disclose ESG reports at a high level”, typically covering governance, strategy, annual objectives and performance tracking.

Third, within the state-owned system, central enterprises are directed to improve ESG management systems and regularly disclose reports, reinforcing transparency and accountability.

Overall, ESG disclosure in China is evolving from environmental information mandates towards a broader ESG framework: large listed companies and SOEs face mandatory obligations, while other firms remain driven by voluntary practices and market expectations, with regulatory trends pointing towards greater compulsion and wider coverage in the future.

In China, corporate sustainability claims are subject to strict legal restrictions and must be true, accurate, clear and not misleading, with companies held accountable for their authenticity.

The Advertising Law and Anti-Unfair Competition Law explicitly prohibit false or exaggerated publicity, meaning that claims about performance, composition, honours or promises that deviate from reality constitute false advertising and trigger heavy penalties.

The Consumer Protection Law further stipulates that if sustainability claims are used to induce transactions and amount to fraud, consumers are entitled to triple compensation.

For capital market entities such as listed companies, ESG or sustainability-related disclosures must comply with the Securities Law and the Measures on Information Disclosure, ensuring that information is true, accurate, complete, concise and not in conflict with mandatory disclosures.

Voluntary ESG information must also remain consistent with statutory filings; otherwise, companies risk liability for false statements.

The CSRC and stock exchanges may require explanations, supplementary materials or professional opinions, and companies that fail to file periodic reports on time may be subject to formal investigations.

Overall, China’s regulatory framework emphasises “truthfulness and verifiability”, creating a dual compliance system that governs both marketing claims and capital market disclosures, and imposes civil, administrative and market sanctions on companies making false or misleading sustainability statements.

In China, supervision of ESG disclosures and sustainability claims follows a “three-line” structure led by capital market, environmental and market regulation authorities.

On the capital market side, the CSRC holds overall responsibility for disclosure by issuers and listed companies, while stock exchanges implement self-regulatory rules and conduct inquiries. Disclosures must be true, accurate, complete, concise and not misleading, with liability for violations.

On the environmental side, the Ministry of Ecology and Environment (MEE) and local environmental bureaus organise, guide and supervise corporate disclosure of environmental information. Obligated entities include key pollutant dischargers, enterprises subject to mandatory cleaner production audits, and listed or bond-issuing companies with major environmental violations. Disclosure must be complete and authentic, with special reporting procedures for major environmental information.

On the market regulation side, the State Administration for Market Regulation (SAMR) and local branches enforce the Advertising Law and Anti-Unfair Competition Law, requiring that “green, low-carbon and sustainable” marketing claims be accurate, clear and supported by verifiable evidence, and prohibiting false or misleading statements. Advertisers, operators and endorsers may bear civil and joint liability, while the Consumer Protection Law provides remedies where consumers suffer harm from misleading sustainability claims.

Overall, China’s compliance framework distributes responsibilities among the CSRC, MEE and SAMR, covering the full chain from capital market disclosures to environmental reporting and sustainability-related marketing and consumer protection.

In China, failure to fulfil mandatory disclosure obligations (including late submission or omission of periodic reports) will result in an order to rectify, a warning, and fines ranging from CNY500,000 to CNY5 million for the company.

Directly responsible executives and other liable personnel face fines of CNY200,000 to CNY2 million, and controlling shareholders or de facto controllers who organise, order or conceal such violations are subject to equivalent penalties.

Where disclosures contain false records, misleading statements or material omissions (including false ESG reporting, ie, greenwashing), the penalties are more severe: companies face fines of CNY1 million to CNY10 million, responsible executives up to CNY5 million, and controlling shareholders or de facto controllers the same, with the CSRC also empowered to impose market bans. If such false disclosures involve major asset restructurings, regulators may suspend or terminate the transactions.

Beyond administrative sanctions, civil liability applies where investors suffer losses, with issuers, controlling shareholders, directors, officers and intermediaries jointly liable unless they can prove no fault. In serious cases, criminal liability may be triggered under the crime of “false disclosure or failure to disclose important information”, punishable by up to three years’ imprisonment or detention plus fines.

Additionally, violations of mandatory environmental disclosure requirements are recorded in corporate credit files and subject to credit-based disciplinary measures.

Overall, non-disclosure and false disclosure trigger distinct penalty ranges and liability chains, and ESG, as part of disclosure content, is fully subject to this enforcement framework.

In the next three to five years, Chinese companies’ ESG reporting is expected to advance significantly.

First, the scope of mandatory disclosure will expand, with listed companies, centrally controlled enterprises and key environmental entities serving as the primary focus, accelerating the shift from voluntary to categorised mandatory disclosure.

Second, unified reporting guidelines and new “rigid standardisation” rules will be established, ensuring domestic practices converge with international frameworks such as those of the International Sustainability Standards Board (ISSB).

Third, data quality and third-party assurance requirements will rise, particularly regarding critical indicators such as greenhouse gas emissions, environmental monitoring and occupational health, driving companies to build traceable data governance systems.

At the same time, digital reporting capabilities will strengthen, and capital markets along with green finance instruments will directly link high-quality disclosure to financing advantages, transforming ESG reports from compliance obligations into strategic value-creation tools.

However, several challenges will remain: alignment and adaptation of evolving standards will create uncertainty, access to and protection of sensitive data will intensify compliance burdens, greenwashing risks will expose firms to legal and reputational liabilities, assurance and compliance costs will rise sharply, and supply chains – especially SMEs involved in supply chains – may lack the capacity to produce reliable disclosures, leading to overall reporting distortions.

Overall, regulatory trends are clear, and companies must proactively build integrated governance structures and robust data systems to ensure accuracy, completeness, and resilience against compliance risks.

In China, ESG-related litigation is generally possible but not easy.

In the environmental dimension, civil public interest litigation and ecological damage compensation mechanisms are relatively mature. Qualified environmental organisations may sue for pollution or ecological destruction that harms the public interest, and courts are required to accept such cases, with remedies including restoration, compensation, injunctions, and public apologies. The Civil Code also provides exclusive remedies for ecological restoration and compensation for service function losses, strengthening accountability.

In the social dimension, claims typically arise from occupational safety, workplace accidents, or labour disputes, with workers’ rights to information, consultation, and union participation serving as key entry points.

In the governance dimension, company law offers tools such as shareholder derivative actions, director/supervisor/executive liability suits, and corporate resolution disputes, all of which courts are required to accept under specific jurisdictional rules, lowering procedural barriers.

Beyond these, traditional civil claims can run parallel or sequentially with public interest litigation, while cross-regional consolidation mechanisms enhance efficiency in major cases.

In insolvency contexts, bankruptcy proceedings may be used to carry forward environmental and social claims, ensuring continuity of restoration and compensation.

Overall, environmental claims provide the most accessible channel, while social and governance claims rely more on traditional civil and corporate law tools, leading to a multi-channel but complex ESG litigation landscape.

In China, non-governmental organisations (NGOs) – including foreign NGOs operating through registered representative offices – and social activists are recognised as stakeholders in public affairs such as environmental protection, philanthropy and social services.

Their stakeholder role is grounded in the Law on the Administration of Activities of Overseas NGOs in the Mainland of China, which permits them to engage in fields such as education, environmental protection and disaster relief, while protecting their lawful activities.

However, participation is conditional on registration or filing, supervision by public security authorities and professional supervisory units, and strict prohibitions against profit-making, political or unlawful religious activities.

Complementary regulations, including the Public Welfare Donations Law, the Regulations on the Administration of Foundations and the Regulations on the Registration of Social Organisations, provide organisational and operational frameworks that enable NGOs to interact with government agencies, enterprises and beneficiaries.

Judicial practice confirms that lawful registration is a prerequisite for litigation standing, with unregistered groups denied party status, while compliant organisational applications are approved if they do not infringe legitimate rights. This demonstrates that NGOs’ influence lies primarily in collaborative governance and public service delivery rather than direct involvement in political decision-making.

In practice, especially in environmental protection and ESG contexts, NGOs play a crucial stakeholder role by fostering public participation, providing professional input, and mobilising communities under a compliance-based framework.

Between 2021 and 2025, China has seen regulatory inquiries, investigations and administrative penalties arising from incorrect, incomplete or misleading ESG claims – commonly referred to as greenwashing.

Enforcement has mainly occurred across three areas: advertising, competition and capital market disclosure.

In advertising and marketing, regulators apply the Advertising Law and the Anti-Unfair Competition Law to sanction false or misleading “green” or “eco-friendly” promotions, while consumers may seek triple damages under the Consumer Rights Protection Law.

In capital markets, the CSRC and stock exchanges increasingly scrutinise ESG disclosures through inquiries, investigations and even access to audit working papers, with directors and executives held directly liable for untrue or incomplete disclosures. The Shanghai Stock Exchange’s 2024–2026 action plan explicitly raises penalties for “malicious greenwashing” and selective disclosure.

Despite these measures, publicly reported civil claims by investors against greenwashing remain rare.

As for “green hushing” (withholding ESG targets to avoid scrutiny) and “green bleaching” (understating sustainability attributes to reduce obligations), no Chinese court or regulator has yet issued direct rulings, though these practices are increasingly captured under the broader regulatory focus on selective disclosure and greenwashing.

Overall, China’s compliance framework now spans advertising enforcement, consumer protection and securities disclosure, but investor-led civil remedies remain limited.

In the next three to five years, ESG-related litigation in China is likely to rise moderately, with a differentiated structure.

The main driver will be stricter regulation and mandatory disclosure: listed companies must ensure disclosures are “truthful, accurate and complete”, prohibiting false records, misleading statements or material omissions, while promptly explaining abnormal trading fluctuations. Rules such as the Measures for the Administration of Information Disclosure by Listed Companies (2025), combined with the international spillover of ISSB climate disclosure standards, are expected to expand the volume of ESG information subject to challenge.

Structurally, environmental torts and labour claims will see steady growth. Under the Environmental Protection Law, liability for pollution and ecological damage, including joint liability for falsified assessments or monitoring, enables large-scale litigation; under the Labour Contract Law, forced labour, unsafe commands and harmful working conditions trigger civil, administrative and criminal liability, driving continued growth in the “S” dimension.

New areas will include greenwashing disputes and governance commitments, where embedding ESG obligations in company charters may spark governance claims.

Cross-border dynamics will add further volume: Chinese energy and high-emission companies investing overseas face growing ESG, human rights and supply chain disputes in international arbitration, with pressures feeding back into domestic litigation.

Overall, China’s ESG litigation is expected to develop along two primary tracks: first, disputes triggered by stricter disclosure and enforcement, and second, new cases arising from the global anti-ESG backlash and intersections with competition law and investor rights.