Source: China Report

In recent years, the ESG (Environmental, Social, and Governance) sustainability concept has rapidly gained traction in China. The policy framework has been continuously refined, marking a shift from "setting standards" to "strengthening regulations." As ESG investment concepts have become more widespread and regulatory rules have matured, ESG investment has grown steadily. Broad consensus on ESG has translated into measurable, trackable disclosure practices and real capital flows. Liu Hanyuan, NPC deputy, Vice Chairman of the All-China Federation of Industry and Commerce, and Chairman of the Board of Tongwei Group, has put forward proposals to drive ESG from a compliance orientation toward value creation.

Representative Liu Hanyuan pointed out that while China’s ESG practices have expanded rapidly in scope, notable structural gaps persist in depth, hindering the transition from conceptual awareness to value creation, mainly for four reasons:

First, some ESG initiatives remain superficial. Corporate external disclosures focus merely on compliance indicators, featuring descriptive narratives with insufficient quantitative metrics. Internally, enterprises fail to deeply integrate ESG philosophy, risk management and long-term opportunity analysis into core operations, which cannot drive sustainable transformation of production and operation.

Second, ESG practices are poorly aligned with the enhancement of international competitiveness. In global supply chain competition, Chinese enterprises mostly passively follow Western-dominated standards, devoting massive resources to meet various ESG evaluation criteria and factory audits set by European and American buyers, international rating agencies and non-governmental organizations. They have yet to fully showcase China’s systematic strengths forged over years in renewable energy development, green technology application and low-carbon industrial layout, nor effectively convert such strengths into global competitive edges.

Third, the incentive mechanism for ESG value remains underdeveloped. Developed Western economies have established mature, widely market-recognized ESG value systems centered on linking ESG performance to financing costs, investment decisions and valuation frameworks. By contrast, China’s support for corporate ESG practices mostly stops at honorary recognition and qualification accreditation, with weak substantive financial backing and delayed market value returns. Consequently, enterprises generally view ESG practices as a cost center rather than value investment, making it hard to form a sustainable closed loop of "long-term investment – value returns – reinvestment". This restrains the shift of ESG from conceptual advocacy to large-scale implementation.

Fourth, insufficient implementation of standards. Though the basic ESG framework is largely in place, detailed, operable rules are lacking in many sectors, leading to inconsistent interpretations and uneven enforcement in practice. Take biodiversity impact assessment as an example: without unified interpretation standards and practical tools, enterprises are trapped in a predicament of "clear direction yet no actionable roadmap". This not only undermines the overall efficiency of the standard system, but also creates invisible barriers for small and medium-sized enterprises (SMEs) with limited resources and expertise, hampering balanced industrial growth and overall sectoral progress. Furthermore, the exemplary effect of leading enterprises has not been fully replicated, with few mature, scalable and replicable models emerging.

Liu Hanyuan stated that China is currently at a critical stage of pursuing high-quality development and fostering a new development paradigm. Shifting ESG from compliance-driven to value creation is both a practical solution to prevailing implementation bottlenecks and a strategic move to empower Chinese manufacturing to lift global competitiveness and smooth domestic and international dual circulation. Overseas experience proves that leading enterprises jointly building sustainable development closed loops and advancing the internationalization of standards is an effective path to maximize ESG value. Drawing fully on China’s valuable experience in energy transition and green innovation, we should accelerate the development of a Chinese-style ESG evaluation system and value realization mechanism, deepen linkage between ESG and the financial system, strengthen coordination with the green transformation of the real economy, and realize a historic leap for China’s ESG development from follower to parallel runner and ultimately leader. To this end, Liu Hanyuan proposed four recommendations:

Proposal 1: Build a Value-Oriented ESG Evaluation Standard System

Led by the State Administration for Market Regulation, relevant ministries including the National Development and Reform Commission, Ministry of Ecology and Environment and China Securities Regulatory Commission shall formulate sector-specific and scale-differentiated detailed ESG evaluation rules based on existing frameworks. Value creation shall be embedded into quantitative core indicators and accounting methodologies, with additional positive evaluation metrics tied to financial and operational outcomes such as cost reduction, efficiency improvement, innovation driving and brand value appreciation delivered via ESG practices, making value creation quantifiable, comparable and verifiable.

Proposal 2: Strengthen Financial Incentives to Channel Capital toward ESG Value Creation

A linkage mechanism between ESG value creation and financial support shall be established, requiring financial institutions to tie corporate ESG performance to financing costs and credit quotas, offering preferential interest rates and credit tilt to enterprises delivering outstanding ESG value creation. Meanwhile, expand the coverage of green finance, guide long-term capital including insurance funds and pension funds to increase allocation to ESG value-creating enterprises, and launch an ESG investment information disclosure regime to clearly transmit value signals and channel capital into sustainable development sectors.

Proposal 3: Leverage Leading Enterprises to Build Industrial Chain ESG Value Closed Loops

Taking sectors with global competitive advantages such as new energy as breakthrough points, encourage leading enterprises to take the lead in establishing ESG value creation alliances, coordinate upstream and downstream industrial chain players to advance green production, low-carbon supply chains and resource recycling, and build a full-chain ESG value creation ecosystem. Active efforts shall be made to pursue international mutual recognition of standards, translating China’s strengths in sustainable development into global competitive advantages.

Proposal 4: Establish a Diversified Collaborative Support Ecosystem for Robust Safeguards

Incorporate ESG value creation into local high-quality development evaluation systems, rolling out preferential policy support for enterprises that actively participate in industrial chain ESG alliances and launch innovative pilot programs. The government shall build an inter-departmental collaborative service platform to cut corporate implementation costs. A new sustainable development landscape featuring joint construction, co-governance and shared benefits will be formed through coordinated efforts of effective government guidance, proactive corporate action and broad public participation.