Guided by the macro-level objectives of the "dual-carbon" strategy and green development, ESG in China has evolved beyond corporate ethics or image management to become a core instrument for the state to direct resource allocation, optimize industrial structures, and strengthen governance capabilities. By leveraging national strategies, aligning with international standards, and integrating local characteristics, China will advance ESG innovation and collaborate with the global community to build an ecological civilization.

This article briefly introduces the practice of ESG in China from the perspectives of its systems, standards, evaluation mechanisms, and related investment trends in the country. It also looks forward to the future development of ESG in China from a global perspective. As a global leader in the legal industry, King & Wood is firmly committed to making a positive contribution to social change by leveraging our expertise to address major challenges. Our international Environment, Social and Governance (ESG) team continuously focus on emerging issues and work closely with governments and businesses worldwide to understand their businesses and their unique environmental, social, and governance opportunities and challenges they face, providing them with professional legal advice.

Environmental, Social, and Governance (ESG) is an investment philosophy and assessment framework that focuses on a company’s environmental impact, fulfillment of social responsibilities, and corporate governance performance. It emphasizes creating comprehensive value across economic, environmental, social, and governance dimensions, aligning with the core demands of sustainable development. It has gained widespread recognition from listed companies, multinational corporations, financial institutions, and investors worldwide, and has received close attention and policy support from Chinese government authorities.

In 2006, the UN-supported Principles for Responsible Investment (PRI) was launched, playing a pivotal role in the development of the ESG concept. In recent years, multiple stakeholders—including non-profit organizations, governments, and enterprises—have begun adopting ESG as a new framework for assessing organizational sustainability.

The ESG philosophy advocates harmonious coexistence between people, nature, and society, which is highly consistent with China's strategic goals of high‑quality development, common prosperity, and the "dual‑carbon" (carbon‑peaking and carbon‑neutrality) goals, making it a cornerstone for promoting long‑term, comprehensive, and balanced development in the new stage. In 2024, China's ESG development achieved landmark breakthroughs, characterized by accelerated improvement of disclosure policies, active local practice innovations, and steady enhancement of corporate ESG governance. More than 2,280 A‑share listed companies have disclosed ESG‑related reports, accounting for over 41.8% of the market. In 2025, as various market participants continue to explore actively, cooperate closely, and mutually promote each other’s progress, China’s ESG ecosystem keeps improving. By July 2025, 379 central state-owned enterprises-controlled listed companies had already released their 2024 ESG reports, essentially achieving full coverage in disclosure rate.

On October 28, 2025, the "Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan for National Economic and Social Development" (hereinafter the "Recommendations") was officially released. The Recommendations explicitly state that by the end of the 15th Five‑Year Plan (hereinafter the "Plan"), China aims to achieve its carbon‑peaking target on schedule and to focus on building a "clean, low‑carbon, safe, and efficient new energy system." Under the overarching requirement of "Comprehensively advancing green transformation and building a Beautiful China," the Plan positions carbon peaking and carbon neutrality as the key engines driving green development.

On November 8, 2025, the State Council Information Office issued the "Carbon Peaking and Carbon Neutrality: China's Plans and Solutions" (hereinafter the "White Paper"), emphasizing that China will integrate carbon peaking and carbon neutrality into the overall economic and social development agenda, accelerate the construction of green and low‑carbon production and lifestyle patterns, inject vigorous green momentum into high‑quality development, and actively promote the establishment of a fair, reasonable, and mutually beneficial global climate governance system.

Guided by the macro-level objectives of the "dual-carbon" strategy and green development, ESG in China has evolved beyond corporate ethics or image management to become a core instrument for the state to direct resource allocation, optimize industrial structures, and strengthen governance capabilities. By leveraging national strategies, aligning with international standards, and integrating local characteristics, China will advance ESG innovation and collaborate with the global community to build an ecological civilization.

The ESG process in China is manifested in three major dimensions: accelerated construction of ESG institutional frameworks, steady advancement of ESG standards and evaluation mechanisms, and increasingly active ESG investment activities.

1. Accelerated construction of ESG Institutional Frameworks

The National Development and Reform Commission, the Ministry of Finance and other relevant departments of the People’s Republic of China are jointly building an ESG institutional system, issuing special policies on information disclosure, rating and evaluation, green finance, and low‑carbon transition to promote sustainable economic, social, and environmental development. At the same time, stock exchanges and securities regulatory authorities have correspondingly issued guidelines that, based on ESG principles, set higher requirements for listed companies‘ information disclosure, sustainable development level, and management level. Moreover, amid the wave of ESG development, state‑owned enterprises have proactively adapted to ESG standards and played a leading role.

（1）ESG Information Disclosure Requirements of the Three Major Stock Exchanges

On April 12, 2024, the Shanghai Stock Exchange, Shenzhen Stock Exchange, and Beijing Stock Exchange jointly issued the “Self-Regulation of Listed Companies-Sustainability Report (Trial)”  and announced that the guidelines would take effect officially on May 1.  This release marks a key milestone for ESG disclosure in the A-share market, ushering in a new phase of enhanced reporting for listed companies. According to the guidelines, companies that are constituents of the SSE 180, STAR 50, SZSE 100, and ChiNext Index during the reporting period, as well as companies listed both domestically and abroad, will be the first group required to disclose a sustainable development report. Moreover, regulatory authorities encourage other listed companies to voluntarily follow the guidelines and disclose ESG information.

Beyond the three Stock Exchanges, the China Securities Regulatory Commission (CSRC) has also continuously refined related regulatory frameworks in recent years, further clarifying responsibilities and regulatory requirements for enterprises in ESG practice. For example, in April 2022, the CSRC issued a revised ”Guidelines for the Work of Investor Relations Management of Listed Companies,“ explicitly incorporating ESG information into the core content of communication with investors, and strengthening the disclosure and communication obligations of listed companies on ESG topics.

（2）ESG Disclosure Requirements for (Central) State-Owned Enterprises

As the backbone of the national economy, (central) state-owned enterprises bear a vital mission in practicing ESG philosophy and consistently serve as leaders and role models in China’s ESG development process.

In May 2022, the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council issued the "Guidelines for the Work of Investor Relations Management of Listed Companies," explicitly requiring an upgrade of ESG information disclosure levels for state-owned listed companies and setting the goal of achieving full coverage of specialized reports by 2023. In July of the following year, the SASAC Office issued a further notice forwarding the "A Study on ESG Special Report Compilation for Central State-Owned Enterprises-Controlled Listed Companies," which includes "Reference Template for Special Reports" and "Reference Template for Special Reports," providing a key basis for standardizing ESG disclosure by central state-owned enterprises.

In June 2024, the "Guiding Opinions on Central Enterprises Fulfilling Social Responsibilities with High Standards in the New Era" was formally released. The guidance promotes central state-owned enterprises-controlled listed companies to implement high-standard management requirements across the three ESG dimensions, strengthen information disclosure, enhance ESG governance capabilities and performance, and improve their recognition in the capital market.

In addition to policy guidance, in December 2022, under the direction of the SASAC's Bureau of Social Responsibility, several national-level institutions jointly launched the "Central Enterprises ESG Alliance." The alliance aims to build an ESG communication platform, carry out nationwide activities to raise corporate ESG awareness, establish a liaison mechanism between council members and the presidium, and provide professional advice and consulting services for enterprises’ ESG system construction. Moreover, the alliance plans to select a batch of ESG practice benchmarks, promote advanced experiences, and further strengthen the demonstrative and leading role of central enterprises in the capital market. To date, more than 95% of central state-owned enterprises-controlled listed companies have implemented ESG special disclosures or related disclosures.[1]

2. Steady Advancement of ESG Standards System and Evaluation Mechanism Construction

（1）Comprehensive Acceleration of ESG Standards System Construction

As the philosophy of sustainable development gains broad consensus globally, ESG standards are increasingly becoming a key tool for guiding companies toward high-quality growth and achieving sustainable objectives. In response to the accelerating convergence of international ESG guidelines, China is actively integrating itself into the global governance framework.

At the international level, the China Quality Certification Center has directly participated in the development of the first ISO ESG standard, giving a Chinese voice to the construction of global ESG standards. At the domestic level, a comprehensive ESG standards system that aligns with China's specific circumstances is also taking shape rapidly. By enhancing cross-departmental collaboration, establishing professional think-tanks, and strengthening international dialogue, China continuously advances the development and implementation of home-grown ESG standards and provides solid support for enterprises to pursue sustainable development while continuing to draw on advanced global practices.

1）National‑level ESG Standards Framework

In the field of green finance, the state has compiled and issued the "Technical Guidelines for Carbon Accounting of Financial Institutions (Trial)," providing essential technical support for financial institutions to carry out green investments and participate in carbon emission rights trading markets. In the realm of social responsibility, the government has formulated and released three national standards, such as the "Social Responsibility Guidelines" (GB/T 36000), setting out principles and methods tailored to the practical needs of Chinese institutions in fulfilling their social responsibilities.  In the realm of corporate governance, three national standards have been developed and issued, such as the "Compliance management systems - Requirements with guidance for use" (GB/T 35770), covering compliance management, risk management, and related aspects.

2）Research Institutes and Industry Associations Actively Participate in the Development of ESG Standards

While the national government actively promotes the construction of an ESG standards system, domestic research institutes and industry associations are also vigorously involved in developing ESG standards to regulate Chinese companies' ESG information disclosure and evaluation. Significant progress has been made in the adoption and promotion of ESG standards. Since 2020, China's ESG standardization efforts have accelerated, with the number of group standards steadily increasing. Moreover, industry associations, based on sector-specific characteristics, have successively issued a series of specialized ESG management and disclosure guidelines, driving the comprehensive dissemination and implementation of ESG standards. These group standards provide operational guidance for enterprises on disclosure principles, information verification, report utilization, and responsibility supervision, steering companies to conduct ESG information disclosure in accordance with unified standards.

（2）Continuous Optimization of ESG Rating and Evaluation Mechanisms

1）Alignment of China's ESG Rating and Evaluation Mechanisms with International Standards

In recent years, an increasing number of internationally influential ESG rating agencies have incorporated Chinese listed companies into their coverage and evaluated them strictly according to globally accepted frameworks. Agencies such as MSCI, FTSE Russell, and S&P Global have successively added thousands of A-share and China-concept stocks to their rating universes, conducting annual assessments and public disclosures based on a unified environmental, social, and governance indicator system. This places Chinese enterprises under the same standards as their global peers for capital market scrutiny. As coverage continues to expand, Chinese listed companies have seen a significant increase in their weighting and visibility within international ESG indices. This development has established a trust foundation aligned with international standards, paving the way for attracting more long-term foreign capital and reducing overseas financing costs.

2）China's ESG Rating and Evaluation Mechanism Incorporates Chinese Characteristics

While actively aligning with international standards, China is also accelerating the development of ESG criteria that reflect its own development stage and institutional characteristics. Domestic rating agencies such as CSI Index, Wind, and Shanda Green have incorporated policy themes like the "dual-carbon" goals, Party building, and common prosperity into their indicator designs, and have localized the disclosure formats, key performance measurements, and sector weightings. This creates a methodology that both connects with global norms and highlights China‑specific conditions.

Specifically, local rating agencies use E, S, G as primary categories. In the E dimension, carbon-peaking and carbon-neutrality goals become core evaluation elements, with customized metrics for different industries—for example, pollution-emission controls for manufacturing sector and the share of renewable energy for the power sector. In the S dimension, beyond the internationally common labor-rights and community-relation indicators, the Chinese ESG assessment places special emphasis on poverty alleviation, rural revitalization, inclusive finance, and fintech development. In the G dimension, the focus is on whether a company integrates the new development concepts, sustainable‑development strategies, and emerging productive forces into its governance framework.

What's more, as China's artificial-intelligence and big-data technologies continue to advance rapidly, the precision and efficiency of China's ESG ratings are expected to improve significantly in the future.

This "international framework + China-specific" compatible system has been proven in practice that it not only aligns with global standards but also integrates Chinese policy directions with market practice. It offers central state-owned enterprises and private firms more targeted and actionable pathways for green governance improvement, thereby helping China's ESG ecosystem achieve high-quality and sustainable development in an open environment.

3. ESG Investment Activities are Becoming Increasingly Active[2]

As the importance of global sustainable development issues continue to rise, attention to ESG across all sectors of society is heating up, driving ESG investing to become a new focal point of the worldwide capital market. Fueled by international trends, policy guidance, and market demand, China's ESG investment market has maintained steady growth, with investment scale expanding steadily and the product ecosystem becoming increasingly diversified, gradually emerging as a key force in the capital market.

（1）The Vigorous Development of ESG Funds

ESG investment, as a brand-new investment philosophy, is increasingly being adopted by financial institutions that incorporate ESG factors into their investment methods or strategies, thereby accelerating the development of ESG investment products in China, exemplified by ESG funds. By June 30, 2025, China had 372 ESG funds with a total assets under management of CNY 3,013.78 billion.[3]

Leading funds have actively embraced the ESG investment philosophy. For example, a top public-fund manager, has deeply explored the green-low-carbon investment track, establishing a product line that covers the entire green-low-carbon industry chain and launching multiple investment products focused on themes such as new energy and new materials, smart automobiles, and carbon neutrality[4]. Another leading fund, which was the first to introduce the Socially Responsible Investment (SRI)[5] concept in China, incorporates climate change, carbon emissions, and resource-use efficiency into its investment analysis, progressively quantifies the carbon emissions of its portfolio, and guides capital toward low-carbon and environmentally-friendly enterprises and industries.

（2）ESG Has Become an Important Consideration in Corporate Mergers and Acquisitions (M&A)

In addition, the traditional merger-and-acquisition model that solely pursued financial indicators has shifted, and the ESG concept is gradually becoming a key consideration in corporate M&A activities. For example, in the case of a central SOE subsidiary acquiring Spanish energy assets:

Environmental dimension (E): Leveraging its technical advantages and large-scale operational capabilities in wind and photovoltaic power, this central SOE subsidiary upgraded the technology and optimized the operation of Spain's abundant wind and solar resources, significantly improving local power generation efficiency and contributing to the development of renewable energy in Spain.

Social dimension (S): This central SOE subsidiary actively participates in community construction and public welfare activities, collaborating with local communities to conduct clean-energy science education to raise residents' awareness and adoption, and supporting infrastructure improvements such as upgrading the energy systems of local schools, thereby strengthening the foundation for sustainable development in the area.

Governance dimension (G): After the acquisition, this central SOE subsidiary optimized and upgraded the target company's governance structure in line with international best-practice standards, establishing a sound modern corporate governance system.

During the “14th Five-Year Plan”, China’s ESG practices have achieved phased breakthroughs in policy formulation, standard systems, and green finance. With the accelerated adjustment of international ESG standards, the 15th Five-Year Plan represents another critical juncture for China's ESG development to achieve a leap forward. Furthermore, the release of the White Paper provides a systematic action blueprint for the future evolution of ESG in China.

1. The Scope of ESG Practice Entities in China Will Continue to Expand

On the one hand, the trend toward the mandatory disclosure of ESG information in China will further intensify. The entities subject to governance will no longer be confined to listed companies, but will extend to a broader range of small and medium-sized enterprises (SMEs), innovative enterprises, start-ups, and social enterprises.

On the other hand, driven by the mechanism of institutional innovation diffusion, local governments will further adjust and optimize ESG policies in accordance with local conditions. By sharing best practices and leveraging demonstrative effects, regional disparities in ESG practice levels will continue to narrow, thereby promoting an overall enhancement of the national ESG development.

2. The Driving Forces of ESG Practice in China Will Continue to Evolve

In the future, corporate ESG practice will transform from formal compliance toward value creation. ESG will no longer be limited to the quantitative and format-based disclosure of information, but will be genuinely embedded across all stages of corporate management, operations, and risk control, serving as a key indicator for measuring real business performance and effectiveness. The ESG philosophy will fundamentally reshape the developmental logic of business models and, through strengthening organizational resilience, guide enterprises toward achieving the goal of long-term value growth.

To support this deep transformation, China will adhere to the principle of "Leveraging the strengths of the government and the market". On the one hand, the government will play a leading role in technological and institutional innovation, launching a green and low-carbon technological revolution to inject technological momentum into corporate ESG practices. On the other hand, China will deepen reforms of market mechanisms, using market-based instruments such as the carbon market to establish effective incentives and constraints, thereby facilitating a comprehensive green transformation of enterprises amid broader economic and social development.[6]

3. China's International Discourse Power in ESG Institutional Framework Will Continue to Strengthen

The standardization of international ESG institutional framework not only provides China with a normative institutional framework but also imposes higher requirements for its participation in global market competition. In response to this trend, China will continue to accelerate the establishment of an ESG institutional framework with distinctive Chinese characteristics that aligns domestic developmental needs with international trends. Relying on the Green Belt and Road Initiative, China will further deepen international cooperation in areas such as green infrastructure and renewable energy, thereby promoting the internationalization of Chinese ESG standards.

Moreover, with the extensive application of big-data, blockchain, and artificial intelligence technologies in ESG data collection, analysis, monitoring, and disclosure, China will capitalize on its ongoing breakthroughs in frontier technologies to continuously inject technological momentum into ESG practices. This will enhance the precision and efficiency of ESG management among Chinese enterprises, enable China to accelerate its progress on the global path toward sustainable development, and further consolidate its institutional discourse power in global governance.

As a global leader in the legal industry, King & Wood is firmly committed to making a positive contribution to social change by leveraging our expertise to address major challenges. We continuously focus on emerging issues and work closely with governments and businesses worldwide to understand their businesses and their unique environmental, social, and governance opportunities and challenges they face, providing them with professional legal advice.