Environmental, social and corporate governance (ESG) has become a key priority of corporate concerns globally, affecting every market and business model. Benchmarked by increasingly diverse and stringent regulations, ESG brings not only opportunities but also risks to companies.
Although the scope of ESG compliance is broad, the international community mainly focuses on seven areas: climate change, environment and biodiversity, resource efficiency, workplace welfare and equality, forced labour, community impact and board responsibility.
Given that the UK is considered an international leader in the field of ESG, this article compares legislation and compliance practices in China and the UK.
Driven by the Paris Agreement and the UN’s 2030 Agenda for Sustainable Development, public disclosure of information of carbon emissions is gradually entering legislation, with legislative trends in the UK tending to use the report of the Task Force on Climate-Related Financial Disclosures (TCFD) for its disclosure standards for large companies.
China has not considered disclosure standards set by international organisations such as the TCFD. But the Ministry of Ecology and Environment did approve its own Measures for the Administration of Carbon Emissions Trading, for trial implementation starting from 1 February 2021.
Through these measures, China extended the scope of emission reporting responsibility to two types of companies: (1) companies in eight industries including petrochemicals, chemicals, building materials, steel, non-ferrous metals, paper, power and aviation; and (2) companies with annual greenhouse gas emissions that are equivalent to 26,000 tonnes of carbon dioxide.
It is foreseeable that this scope of Chinese companies requiring mandatory carbon emission reporting will continue to expand. Meanwhile, the UK’s product access standards provide that carbon footprint certification will be considered for products placed on the UK market in the future. China has no regulations in this regard.
ENVIRONMENT AND BIODIVERSITY
Both China and the UK implement the UN Convention on Biological Diversity. The UK’s 2021 environmental law requires that companies conduct due diligence on supply chains to avoid using illegally felled trees for raw materials, or illegally cultivated land to make products. The UK’s forest risk products law requires commodity producers to ensure and certify that they do not pose a risk of deforestation or damage. China has no such requirements.
In terms of enhancing and protecting biodiversity, UK legislation currently imposes a net natural capital gain requirement for new development projects, namely assessment and valuation of impacts on the natural environment, and proposes a “non-market and non-monetable value” criterion of natural capital valuation for conducting natural capital-based, cost-benefit analyses.
The UK has initially implemented a circular economy package to guide recycling, reduce waste, improve resource efficiency and reduce waste-related incidents in terms of landfill bans and enforcement measures. In 2005, the EU introduced the Waste Electrical and Electronic Equipment Directive (WEEE), providing that end-of-life electrical and electronic products discarded by users must be sent to appropriate facilities for recovery and recycling, with the cost of recycling borne by the manufacturer.
In the future, UK legislation will impose higher requirements on product design and component recycling percentages, and importers should assume the same obligations as domestic manufacturers and distributors.
China’s legislation focuses on four industries – namely electrical and electronic products, automobiles, lead-acid batteries, and packaging – requiring manufacturers to consider green and recycling principles from product design to end-of-life products. In terms of specific implementation, China’s current laws only provide rules for recycling of scrapped electrical and electronic products, and it may refine the rules for recycling scrapped products in other industries in the future.
WORKPLACE WELFARE, EQUALITY
Treatment of both contract workers and regular employees needs to be improved urgently in ESG legislation. There is no relevant statute in the UK, although in Aslam and others v Uber (2021), the UK court held that contract drivers should be considered “employees”. Future UK legislation is likely to directly address the issue of the legal status of Uber drivers arising from this case.
China’s Labour Contract Law, meanwhile, provides that payment of wages should follow the principle of distribution according to work – and implement “equal pay for equal work”. In particular, it clearly provides that contract workers and regular employees enjoy the same employment conditions.
The UK passed an act in 2015 requiring UK companies supplying products or services to provide a declaration of compliance with respect to forced labour slavery and human trafficking annually, and make it publicly available. This requirement applies to both UK companies and non-UK companies doing business in the UK. Thus, companies need to monitor global supply chains.
Chinese legislation protects workers’ rights to work and rest, but does not require companies to manage the employment status of their supply chains.
Legislation in both the UK and China is unclear as to what limits a project’s impact on its surrounding communities should be subject to. In practice, the norms of community impact in both countries refer to the standards of the International Finance Corporation (IFC) on community impact.
Neither the UK nor China has explicitly required specific responsibilities of boards of directors for environmental and social impacts. However, by examining specific cases in both countries, it can be found that if a company violates disclosure obligation, or makes false disclosure, the board of directors assumes the duty of prudence – and thus shares liability for infringement or compensation with the company.