ESG, Environment and Climate in China

ESG in China: what has changed

ESG in China has moved from voluntary reporting and policy slogans to binding law and mandatory disclosure. In 2026 alone, the Ecological Environment Code took effect on 15 August, consolidating ten environmental statutes into a single code; the first mandatory sustainability reports from large A-share companies were published by 30 April; and the Ministry of Finance's national sustainability disclosure standards, including a climate standard issued in December 2025, began to shape how companies measure and report. At the same time, the national carbon market has expanded beyond power, and EU measures such as the Carbon Border Adjustment Mechanism have entered their definitive phase.

For foreign companies operating in China, and Chinese companies selling or listing abroad, this means ESG is now a legal, financial and commercial issue at once. Environmental permits and penalties determine whether a plant can operate; disclosure rules determine what a listed group must say; carbon pricing affects cost; and buyers, lenders and investors increasingly price ESG risk into contracts. This page explains the landscape as at November 2026 and introduces each of our ESG, environment and climate practice areas. It is general information, not PRC legal advice.

The direction of travel is set by national policy. China has committed to peaking carbon dioxide emissions before 2030 and reaching carbon neutrality before 2060, often called the "dual carbon" goals, and the new Code turns that commitment from policy into law through a dedicated book on green and low-carbon development. Regulators across finance, securities and industry now issue rules that flow from those goals.

The regulatory landscape for ESG in China

There is no single ESG law in China. Instead, obligations come from several directions at once, each with its own regulator and enforcement style. The table below maps the main pillars that international businesses encounter.

The practical consequence is that ESG in China cannot be run as a reporting exercise alone. The sustainability team, plant management, legal, finance and investor relations each own part of the picture, and the same data point, such as Scope 1 emissions, may appear in an environmental permit file, a carbon market report, an annual sustainability report, a CBAM declaration and a loan covenant certificate. Inconsistency across those documents is itself a legal risk.

The Ecological Environment Code

Adopted by the National People's Congress on 12 March 2026 and in force from 15 August 2026, the Ecological Environment Code contains 1,242 articles. It replaces ten laws, including the Environmental Protection Law, the Environmental Impact Assessment Law and the air, water, soil, solid waste and noise pollution laws, and brings green and low-carbon development and climate change response into statute for the first time. Official reporting highlights tougher sanctions for falsified impact assessment and monitoring work, enforcement powers for county-level environmental branches and a new credit repair mechanism for companies that correct violations.

Mandatory sustainability reporting

Under guidelines issued by the Shanghai, Shenzhen and Beijing exchanges in April 2024, constituents of the SSE 180, STAR 50, Shenzhen 100 and ChiNext indices, together with companies listed both onshore and offshore, had to publish 2025 sustainability reports by 30 April 2026. According to Xinhua's review, 2,720 A-share companies published reports for 2025, with full compliance within the mandatory scope. Companies outside that scope report voluntarily, but investors increasingly expect them to do so.

Carbon, climate and the energy transition

China's national carbon market began trading in 2021 with the power sector and has since been extended to steel, cement and aluminium smelting, making it the largest emissions trading system in the world by covered emissions. Allocation is based on intensity benchmarks rather than an absolute cap, though the policy direction is towards tighter allowances over time. The voluntary China Certified Emission Reduction (CCER) scheme relaunched in January 2024 with new methodologies, giving companies a domestic route to offsets.

For multinationals, climate exposure in China is less about direct carbon costs, which remain modest for most, and more about three linked issues: the cost and availability of renewable electricity for operations, the quality of emissions data for group reporting and customers, and the effect of border measures such as the EU CBAM on Chinese-made steel, aluminium, cement, fertilisers and hydrogen. CBAM moved from reporting into its definitive, paying phase on 1 January 2026, and accurate embedded emissions data from Chinese suppliers is now a commercial necessity.

Renewable power procurement

For most multinationals operating in China, the largest lever on Scope 2 emissions is how they buy electricity. Corporate buyers can participate in green electricity trading through the grid companies and trading centres, buy green electricity certificates, or enter longer-term arrangements with generators. Each route has different contractual terms, evidence of attribute ownership and acceptability under international reporting standards such as the GHG Protocol and RE100 criteria. Getting the paperwork right matters, because claims of renewable sourcing are increasingly scrutinised by auditors, customers and regulators. Our corporate PPA page explains the options in detail.

Timing also matters. Power market reform is moving more generation onto market-based pricing, and provincial rules on green power trading differ. A buyer with sites in several provinces should expect to run a portfolio of arrangements rather than a single national contract, and should align contract tenor with the life of the site and its group decarbonisation targets.

ESG in China for cross-border groups

Cross-border businesses face rules from more than one direction. Inbound, a European or American group must meet Chinese environmental and safety law at plant level while reporting under home-country standards. Outbound, a Chinese manufacturer selling into Europe may need to support customers' CSRD reporting and due diligence, comply with the EU Battery Regulation's carbon footprint and due diligence requirements, and provide CBAM data. The EU's Omnibus I package, which entered into force in March 2026, narrowed the scope of CSRD and CSDDD to the largest companies, but large EU buyers still push requirements down their supply chains.

Hong Kong is a further layer. HKEX's climate-related disclosure requirements, aligned with the ISSB climate standard, apply to Main Board issuers for financial years beginning on or after 1 January 2025: Scope 1 and 2 emissions disclosure is mandatory for all Main Board issuers, other climate disclosures are largely comply-or-explain, and LargeCap issuers must make full climate disclosures from financial years beginning in 2026. Mainland companies with H shares therefore often report under two related but distinct frameworks.

Supply chain rules add pressure from the United States, where import restrictions targeting forced labour require evidence of traceability. Chinese law, meanwhile, includes the Anti-Foreign Sanctions Law and related rules, so companies must design supply chain due diligence that satisfies foreign requirements without breaching Chinese law on data, state secrets or countermeasures. Our supply chain due diligence page covers that tension.

Sector snapshots

ESG in China looks different depending on the business. A few patterns recur across our work:

• Manufacturing and chemicals: permit compliance, hazardous chemicals rules, emissions monitoring and CBAM data dominate. Plant-level enforcement risk is the main exposure.
• Real estate and infrastructure: green building standards, construction safety, energy performance and climate resilience of assets affect financing and valuation.
• Financial institutions and funds: green finance taxonomies, climate risk management expectations from financial regulators, and investor demands for portfolio-level data.
• Consumer and technology: product footprint claims, packaging and recycling rules, supply chain labour standards and data centre energy use.
• Automotive and batteries: battery carbon footprint and due diligence obligations in the EU, end-of-life recycling rules in China and critical mineral sourcing.

These snapshots matter for priorities. A battery maker selling into Europe will usually focus first on EU product rules and mineral sourcing, while a foreign chemicals plant in an industrial park will focus on permits, safety and the Code's enforcement tools.

Our ESG, environment and climate practice areas

Our work on ESG in China is organised into nine practice areas. Each page explains the rules, the decisions clients face and how we help.

• ESG advisory: board-level strategy, governance, materiality assessment and alignment of Chinese and international frameworks.
• Environmental law: the Ecological Environment Code, impact assessment, discharge permits, enforcement, contaminated land and environmental liability in transactions.
• EHS compliance: work safety, hazardous chemicals, fire and occupational health obligations at plant level, and accident response.
• Green and sustainable finance: green, social, sustainability and transition bonds and loans, taxonomies and sustainability-linked structures.
• Carbon markets and CCER: the national emissions trading scheme, CCER projects and offset contracts, and cross-border carbon credit transactions.
• Climate risk and net zero: transition plans, target setting, physical and transition risk, and board oversight of climate commitments.
• ESG disclosure and greenwashing: exchange guidelines, MOF standards, HKEX rules, and the legal risk in green claims and labels.
• ESG due diligence in funds and M&A: environmental, safety, labour and governance diligence, and how findings flow into price, warranties and integration.
• Corporate power purchase agreements: green electricity trading, renewable energy certificates and long-term offtake structures for corporate buyers.

Most mandates touch more than one area. A manufacturing acquisition, for example, typically needs environmental and safety diligence, a view on carbon exposure, a disclosure plan for the buyer and sometimes a renewable power strategy for the target's sites.

Governance, enforcement and liability

Enforcement of environmental and safety rules in China is serious and increasingly data-driven. Online monitoring of emissions, central environmental inspections, daily continuing penalties for unremedied violations and criminal prosecution for serious pollution or safety incidents all form part of the toolkit. Civil liability is also expanding: environmental public interest litigation by procuratorates and qualified NGOs, ecological damage compensation claims by government, and punitive damages for intentional pollution under the Civil Code.

Governance duties follow. Under the revised Company Law, in force since 1 July 2024, directors owe clearer duties of loyalty and diligence, and companies are encouraged to consider employees, consumers and the environment. Boards of listed companies are expected to oversee sustainability governance, and the exchange guidelines require disclosure of how sustainability issues are managed. For foreign-invested enterprises, a recurring weakness is a gap between group ESG policies and what the Chinese subsidiary's board and management actually do.

The social and governance pillars

Environmental issues attract most attention, but the social and governance parts of ESG in China carry their own legal content. Labour law sets rules on working hours, social insurance, dispatch labour and collective consultation; the Personal Information Protection Law shapes how employee and customer data are handled; anti-bribery enforcement and the revised Anti-Unfair Competition Law, in force since 15 October 2025, govern integrity in commercial dealings. Investors and rating agencies increasingly assess these areas alongside environmental data, and weaknesses here can affect access to capital as much as pollution incidents.

Green claims sit across both pillars. Statements such as "carbon neutral", "zero waste" or "eco-friendly" are advertising claims under Chinese law and must be accurate and verifiable. Market regulators can treat misleading claims as false advertising or unfair competition, and listed companies face securities law exposure if sustainability reports contain misleading statements. Our greenwashing page sets out how to manage that risk.

Common mistakes

In our experience, the most frequent mistakes are: treating the Chinese subsidiary's sustainability data as a translation of group data rather than a legally exposed data set; signing green power contracts without checking that the environmental attributes are transferable and documented; relying on a parent's net zero target without a China-specific transition plan; ignoring permit conditions after an expansion or change of process; and making public claims that local teams cannot evidence. Each is avoidable with modest investment in process.

A practical governance checklist for ESG in China includes: a named board-level owner for environment, safety and sustainability; a register of environmental permits and conditions for every site; a single emissions data owner; documented review of public green claims; incident escalation rules covering both Chinese reporting duties and group notification; and periodic legal update on the Code's implementing rules.

What to watch in 2027

• Code implementation: the State Council has amended twelve regulations and repealed three in connection with the Code, and further implementing regulations, standards and local rules will follow through 2027.
• Disclosure standards: the Ministry of Finance plans further topic standards, including on biodiversity, circular economy, pollution, human capital and supply chains, with a national system expected to be basically complete by 2030.
• Carbon market expansion: further sectors and tighter allocation are expected, along with growing CCER supply.
• Bidding and procurement: green criteria in public procurement continue to expand, affecting suppliers to state buyers.
• EU interaction: CBAM scope and the EU's simplified sustainability rules will continue to shape what Chinese exporters must provide.

For boards, the planning implication is to budget for change. Disclosure, carbon and environmental rules are all moving at once, and a programme designed only for today's requirements is likely to need rework within two reporting cycles. Building flexible data systems and clear internal ownership now is cheaper than retrofitting them later, and it gives management a credible answer when investors, lenders or customers ask how the business will meet the next set of rules.

Our ESG and carbon in China topic hub and the China regulatory tracker follow these changes as they happen.

How TRW & Co helps

We advise international companies, investors and Chinese groups going abroad on ESG in China from a cross-border perspective. We map obligations across Chinese, Hong Kong, EU and US frameworks, design governance and reporting structures that work for both group and subsidiary, run ESG diligence in transactions and translate findings into contract protections, and advise on international law aspects of carbon, green finance and supply chain rules. We also coordinate responses to incidents and investigations. Where a matter requires PRC legal advice, permits, filings or representation before Chinese authorities or courts, we work alongside licensed PRC law firms and manage the workstreams together. To discuss your ESG priorities, contact our Shenzhen office.