The Dragon Roars: China’s New Sustainability Disclosure Mandate

This week, the world’s second-largest economy released a mandatory sustainability disclosure regulation for its three largest stock exchanges. 

Beginning in 2026, large companies listed on the Shanghai, Shenzhen, and Beijing Stock Exchanges will have to disclose a range of sustainability information across a broad set of environmental, social, and governance categories, including climate change, ecosystem and biodiversity protection, circular economy, energy use, supply chain security, and rural revitalization, as well as anti-corruption and anti-bribery, among others. 

Notably, the rules include reporting on Scope 3 value chain greenhouse gas emissions, which has been a key point of controversy for the SEC as it prepares its final climate rule, as companies have raised concerns about the unreliability of and difficulty in collecting value chain emissions data.

Also, the Chinese adopted the “double materiality” approach used by the EU. This approach determines which sustainability issues a company must disclose based on both financial concerns and the company’s impact on people and the planet. With a combined ~32% of global GDP (compared to 25% for the US), have China and the EU established double materiality as the de facto global approach?

Although the new rule will affect fewer than 500 companies, they represent around half of the listed market value. The Beijing Exchange, which houses primarily small and medium enterprises, is introducing the guidelines on a voluntary basis.

Climate On Trial

A recurring theme this year so far has been climate litigation, so much so that climate change replaced data security as law firm Baker Mackenzie’s biggest litigation risk for 2024. 

This week, some high-profile cases are setting precedents - and interestingly - these cases cut both for and against climate action. Here are four cases that hit the headlines this week that could shape the climate agenda over the coming years:

1. Michael Mann vs. Climate Deniers: In a landmark 12-year-long case, which might allow climate scientists some breathing room against vehement deniers. Michael Mann was awarded $1 million in a defamation case against two republican pundits. Mann said after the case, ”It’s a good day for us, it’s a good day for science.”
2. Exxon vs. Activist Shareholders: In a surprise move, Exxon Mobil sued activist investor groups “Follow This" and Arjuna Capital to prevent them from putting new climate targets to a vote at the company’s shareholder meeting in May. The precedent-setting case is being closely followed by other companies and shareholder groups, and even before a decision, the activists withdrew their shareholder resolution. Withdrawn or not, Exxon is pushing its case in the friendly venue of the US District Court in Texas. The activists have  petitioned the court to throw out the case for what they say “amounts to tactics of intimidation and bullying to silence our fair ask to tackle the climate crisis.” 
3. Climate Activists & Oil and Gas Groups vs. Biden: When I worked in politics, we had a saying that is appropriate for this story: “When both sides are mad at you, you must be doing something right.” The American Petroleum Institute (API) and climate activists are both taking legal action against the Biden Administration for releasing only three offshore leases in the Gulf of Mexico between 2025 and 2029. The lawsuit from API charges that the “US government is using ‘every tool at its disposal’ to restrict access to resources in federal waters.” In a separate case, Earthjustice is also suing the Biden Administration for releasing any oil and gas leases, citing health implications.
4. US Chamber of Commerce vs. California (and soon SEC): A couple of weeks ago, we shared that California’s new climate reporting laws (SB 253 & 261) are likely to be held up due to a lawsuit from the US Chamber of Commerce and other business groups. This week, in an interview, SEC Chair Gary Gensler said that he not only expects legal challenges against the SEC’s upcoming climate reporting rule but welcomes them. Gensler acknowledged the legal challenge as part of the process but that he is focused on making a rule that will stand up to any legal challenge, saying, “Sustainable rulemaking is really important—doing something the public understands, the courts understand, that’s within the law." 

In addition to these cases, this Guardian exposé revealed the disturbing rise of “Investor-State Dispute Settlements” (ISDS). ISDS, also known as “litigation terrorism,” are law tribunals where companies can sue governments and receive compensation if the country creates an environmental law that leaves the company's assets “stranded.” The sums of compensation can be huge, running into the $100s of billions. The threat of these cases has diluted or even completely halted some environmental policies. 

Despite this being a huge election year, these cases point to the global green agenda increasingly being decided in the courtroom instead of at the ballot box.

The CS3D RollerCoaster

In last week’s edition, we covered the lack of support from Germany and other EU States for the EU's Corporate Sustainability Due Diligence Directive (CS3D).  When it was clear they did not have the votes, the vote in the EU Council was postponed to February 14th.  In another sign of doom for this policy, the bill was then removed from Wednesday's agenda and pushed back to an unknown date. 

The looming EU elections in June are adding pressure to both sides of this debate. The hold-up is largely due to internal politics in countries like Germany and Italy, where there are growing worries about the impact of the bill on businesses. German development minister and CSDDD supporter Svenja Schulze said, “Politics should not be based on the few black sheep who declare the fight against child labor to be a bureaucratic monster.” 

Temperature Records Tumbling in 2024

The hottest year ever was quickly followed last month by the hottest January ever. Global sea levels were also beating records set last August. Scientists believe we are totally unprepared for what comes next. With floods in California and wildfires in Chile already this year, it looks like another year of dealing with a new normal of more frequent and severe weather events. 

GreenBiz’s Biggest Event Ever

As a veteran of this event, I was even amazed at the swelling crowd at GreenBiz 2024. You have to be inspired by the legion of people from every sector, background, and career stage that flooded into the conference this year.  There were many highlights, but I was impressed by my friend and GreenBiz founder Joel Makower ’s sustainability rhyme in the opening keynote (in the above video from 7:00 minutes onwards). 

Also, in a touching moment, my friend Bill Weihl (former Google and Meta) gave an impassioned pitch using an AI voice as his own voice has been silenced by illness.  Hat’s off to the GreenBiz team for another outstanding year.  

The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer. 

Other Notable News:

• Despite the ESG backlash and BlackRock distancing themselves from the term, the world’s largest investor’s ESG funds are expanding. BlackRock's ESG-listed funds grew every quarter over the last two years.
• A new study has found that wildfire smoke similar to the smoke that carpeted North America last year will worsen, and there are few protections against the health issues the smoke causes. 
• The majority of people are willing to pay for climate action out of their own pocket. A new study has revealed that 69% of people are willing to pay 1% of their personal income toward climate action. The survey of 130,000 people from 125 countries also found that 89% of people want politicians to do more about climate change.
• Grading Biden’s Inflation Reduction Act. This NYT deep dive does a great job of explaining how good the IRA has been for US business but also explains how its ballooning costs, which could reach up to $800 billion by 2033, make it more likely to get cut if a Republican government comes in.
• Scientists are now experimenting with once unthinkable geoengineering projects to reduce carbon in the atmosphere. Examples of some of the trials underway include releasing chemicals into the ocean to increase its CO2 absorption rate and another is creating saltwater clouds to increase Earth’s albedo.
• A survey reveals that almost half of companies are still using spreadsheets to hold all of their ESG data. The survey also found that 40% of companies plan to invest in ESG software over the next three years as new regulations kick in.
• Drought, deforestation, and wildfires are edging the Amazon toward a tipping point. A new study reveals that these growing stressors could see half the Amazon turned into grassland in the coming decades.
• Barclays Bank announced they will be ending direct financing for oil and gas fields. The move comes because of the pressure they have been feeling from environmental groups about their current oil and gas investments. 

Notable Podcasts: 

• This week’s podcast from Outrage and Optimism features the first part of a brand new mini-series, “Our Story of Nature.” During this three-part series, host Christiana Figueres will explore humanity's relationship with nature. In this episode, “From Rupture to Reconnection,” she is joined by Isabel Cavelier Adarve and other guests to discuss humanity’s departure and disconnection from nature. 
• Check out this new podcast from sustainability communication expert Mike Hower . “The Sustainability Communicator” podcast will dive into all of the ways communication and sustainability intersect and teach you all of the challenges, risks, and opportunities in sustainability communication.