Environmental, social, and governance (ESG) standards have gained importance with the increasing global emphasis on sustainable development and corporate social responsibility. These standards evaluate the performance and contributions of enterprises in non-financial indicators. These include the ecological environment, social responsibility, and corporate governance. As a result, many economies, securities regulators, stock exchanges, and investors have started paying attention to ESG.
Many stock exchanges around the world currently have requirements for the disclosure of listed companies’ ESG reports. These include NASDAQ and the New York Stock Exchange in the United States, as well as the Hong Kong Stock Exchange, Shanghai Stock Exchange, and Shenzhen Stock Exchange. ESG has shifted from being an optional consideration to a mandatory one. This applies both to the operations of the companies themselves and to the choices of investors. ESG has become a key indicator that no one can ignore.
EU: “Top-Down” systematization drives ESG
The European Union’s ESG regulatory standards are considered more advanced in the world. From a legislative perspective, the market is gradually developing ESG disclosure information norms in three areas: enterprise disclosure, financial institution disclosure, and ESG classification of economic activities. For example, the European Council adopted the Corporate Sustainability Reporting Directive. This directive requires EU enterprises that meet specific size requirements to disclose information uniformly according to the European Sustainability Reporting Standard.
US: Diverse cultures and different political positions have led to significant internal differences in ESG policies and practices.
Currently, the support for promoting ESG investment and corporate disclosure varies between states and between federal and state governments. For example, the Inflation Reduction Act, which President Biden signed in August 2022, demonstrates strong support for low-carbon and sustainable development legislation. This act commits the government to spending $396 billion over the next decade to reduce U.S. greenhouse gas emissions by about 40%. On the other hand, Republicans have led the introduction of the ‘Anti-ESG Act.’ This act aims to repeal government rules that allow investors to consider ESG factors in retirement investment plans.The diverse attitudes toward ESG reflect the diverse social culture and clear-cut political attitudes of the United States.
China: Pay attention towards the characteristics of the business model and promote it pragmatically.
China’s ESG regulatory standards differ significantly from the ‘one-size-fits-all’ approach seen in foreign companies, which apply across industries and enterprises. Chinese standards have strong industry and enterprise type characteristics. In recent years, authorities have introduced regulatory guidelines such as the ‘Green Financial Evaluation Guidelines for Banking Financial Institutions.’ These guidelines are more effective than broad voluntary disclosure across industries. They guide enterprises towards green development through strategic business planning and resource investment.
Emerging market countries: Focus more on how to integrate ESG concepts into existing businesses.
Compared with mature European and American markets, emerging market countries are often faced with more physical risks, such as water resource pressure and environmental pollution. At the same time, as the economic transformation and industrial upgrading of emerging markets are accelerating, they are also facing greater transformation risks. Therefore, they are more focused on how to integrate ESG concepts into their existing businesses to achieve sustainable development. In the emerging markets, more social issues need to be paid attention to, such as labor rights protection, medical and health conditions. At the same time, because enterprises in emerging markets are often in a period of rapid expansion, they also need to pay more attention to the improvement and optimization of internal governance structure.
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