As sustainable development continues to gain prominence as an international strategy and trend, environmental and social governance (ESG) compliance issues are becoming increasingly important for Chinese companies facing an increasing number of challenges.
Taking disclosure rules as an example, although there are no complete and independent laws, regulations or regulatory documents on ESG disclosure in mainland China, both the Shanghai and Shenzhen stock exchanges require listed companies to disclose their fulfilment of social responsibility in annual reports, drawing the attention of more Chinese companies to the issue of ESG system building.
As labour compliance is a key component of the “S” in ESG, its importance cannot be overstated.
In our previous article titled “Labour-related ESG compliance in China”, the authors touched on the topic of ESG labour compliance under Chinese laws. This article aims to delve deeper into the issue of building an ESG labour compliance system and offer practical advice. The authors suggest that companies approach the establishment of ESG labour employment in two steps: identify the issues and then resolve them.
In a previous article titled “How enterprises should conduct HR compliance self-inspection”, the authors advised companies to conduct comprehensive labour compliance self-examinations to effectively identify any issues of non-compliance. Such a self-examination will inevitably also cover items in ESG labour compliance. In particular, companies are advised to:
Compile a list of HR compliance items. A comprehensive HR compliance checklist should cover all aspects of a company’s employment process from recruitment to termination, including the main issues related to ESG labour and employment compliance under the current Chinese legal system.
This should include assessing whether there are any institutional or operational risks that may constitute forced labour or discrimination, and whether labour conditions and labour protection, as well as equal pay for equal work, are compliant with current legal requirements.
Conduct due diligence. Once the company has gathered all the information and data based on the above-mentioned self-examination, it can proceed to due diligence to substantively detect and identify problems. For example, a company can conduct a comprehensive review to ensure that there are no inappropriate elements of employment discrimination present in recruitment or hiring documents, and that the employment contract or collective contract template includes the necessary provisions required by law such as those relating to special protections for female staff.
Summarise risk points and form improvement plans. After identifying and sorting out employment compliance risks, companies should develop improvement plans for specific situations. It may also be beneficial to engage an independent third-party agency to participate in the overall compliance project, helping with due diligence and issuing a special compliance assessment and audit report for reference purposes.
TACKLING ESG COMPLIANCE
In terms of implementing and addressing ESG compliance issues, the authors suggest that companies start with the following:
Revise and improve labour management and related employment template documents for the improvement of practices. In relation to problematic internal personnel management systems and documents, companies should revise and improve the relevant content. For example, if any hiring documents restrict the conditions of recruitment to males, or indicate a male preference, or if marital status is set as information required for recruitment in entry registration documents, the company should delete such content except in special circumstances permitted by law.
Additionally, with regard to overtime, companies should improve the regulations on overtime management and settlement of overtime compensation to avoid situations that may be interpreted as forced or disguised forced labour, such as stipulating that companies may arrange overtime solely based on production and business needs.
Loopholes and deficiencies in practice should be addressed in a timely manner. For example, if a company fails to provide female employees with medical checkups, including gynaecological and breast disease examinations, and other health examinations for women’s special needs as required by law, the company should rectify this and arrange to ensure compliance with the Law on the Protection of the Rights and Interests of Women.
Additionally, with regard to severance arrangements, companies should not set unreasonable conditions (such as requiring a project to be completed) to prevent employees from resigning, so as to avoid constituting forced labour.
Furthermore, for employees engaged in operations exposed to occupational disease hazards, companies should arrange for occupational health checkups on their departure in order to adhere to the ESG system’s compliance requirements regarding occupational health and safety.
Set up a complaint and investigation mechanism. To effectively respond to potential complaints from employees (such as those involving forcing unreasonable workloads or unequal pay for the same work), the authors recommend that companies establish a specialised complaint and investigation system, specifying exactly the complaint channels and methods, the acceptance and investigation procedure, the department or individual in charge, and the time it takes.
To ensure fairness and allay the worries of the affected employees, companies may consider engaging a third-party independent investigative agency to carry out an investigation and issue a report, allowing them to take appropriate action in a timely manner in accordance with the findings.
Organise training. It is advisable for companies to provide regular training for their internal staff (both managers and regular employees) on anti-forced labour, anti-discrimination in employment, and improving labour protection and safety to raise their awareness of compliance. Additionally, companies may consider providing training to make employees aware of their available avenues of redress, such as the above-mentioned internal complaint system.
Review and continual improvement. Corporate HR compliance, including ESG employment compliance, is not a one-off process, but should instead be a long-term, dynamic and ongoing endeavour. It is recommended that companies carry out regular or periodic reviews of their employment compliance, particularly in light of new regulations, demands or trends in legal, judicial or industry regulations to continually identify and rectify any issues.
Tracy Liu is a partner and Larry Lian is a counsel at Jingtian & Gongcheng
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