[ESG Report] ESG as a New Guideline for Corporate Sustainable Development

I. Introduction

(A) Research Background

"While sinking ships are passed by countless others, and sick trees are outdone by thousands of thriving ones." In the wave of global economic development, the ESG concept has emerged as an increasingly important trend, akin to a refreshing breeze. China has also followed suit, continuously advancing initiatives related to ESG reporting. As global attention to sustainable development continues to rise, ESG has become a core indicator of corporate sustainability. "Like a roc soaring into the sky with the wind, reaching great heights." More and more countries and regions have incorporated it into policy considerations and corporate development strategies. Globally, over 3,000 institutional investors have integrated ESG factors into their investment decision-making processes, managing assets exceeding $100 trillion. In China, from the release of the first regional ESG development report to the launch of the ESG action report in the financial industry, and the advent of mandatory ESG reporting, it is akin to "After much sifting I have found the gold—the pure gold." This marks the escalating importance of the ESG concept. The ESG concept not only represents higher demands on corporate social responsibility but also reflects an active exploration of economic sustainability, urging enterprises to focus on non-financial factors and achieve coordinated economic, social, and environmental development. It also provides investors with a new investment perspective.

(B) Research Purpose

This study aims to analyze the value of ESG reports to corporations and their future development directions. ESG reports offer corporations various benefits, including enhanced transparency and trust, attracting ESG investments, and improving corporate competitiveness. In the future, ESG reports will play a more crucial role in corporate development. Corporations should actively respond to mandatory disclosure requirements and strengthen ESG management; governments and regulatory bodies should intensify supervision and guidance; investors and stakeholders should pay closer attention to corporate ESG performance.

II. The Connotation and Significance of ESG Reports

(A) Content of ESG Reports

Environmental Aspects

"Trees dot the village sides, green mountains lie beyond the town."

• Energy Consumption: Manufacturing enterprises can reduce energy consumption by implementing energy-saving measures.

• Water Resource Utilization and Management: Adopt advanced water-saving technologies to achieve industrial water recycling.

• Raw Material Procurement and Usage: Prefer sustainable raw materials.

• Greenhouse Gas Emissions and Pollutant Disposal: Clarify emissions, set reduction targets, install pollution treatment equipment, and develop low-carbon technologies.

• Climate Change Adaptation: Formulate strategies and take actions such as building disaster-resistant facilities, adjusting production layouts, and utilizing renewable energy.

• Ecosystems and Biodiversity: Pay attention to their impacts and take protective measures.

Social Aspects

"Like the gentle, unseen influence of the night rain, benefiting all things."

• Employee Rights and Welfares: Ensure fair and reasonable compensation, provide a safe and comfortable work environment, and offer career development opportunities and training education.

• Product or Service Quality and Safety: Strictly comply with quality standards and safety regulations.

• Supplier Relationships: Screen, evaluate, and manage suppliers to promote sustainable supply chain development.

• Corporate Impact on and Contribution to the Community: Participate in community development projects, public welfare activities, etc.

Corporate Governance Aspects

• Governance Structure: The board of directors should be composed reasonably, with independence and clear responsibilities.

• Risk Management System: Identify, assess, and address various risks.

• Information Disclosure: Ensure transparency and accuracy to earn trust.

• Ethics and Compliance Operations: Abide by laws and regulations to prevent corruption and other improper behaviors.

(B) Significance of ESG Reports

• Enhanced Transparency: Allows stakeholders to gain a more comprehensive understanding of a corporation's non-financial performance, thereby strengthening trust.

• Risk Management: Helps corporations identify and assess risks, and formulate pre-emptive strategies.

• Investment Attraction: Good ESG performance can attract more investments and reduce financing costs. "Good winds will lift me high, up to the clouds."

• Brand Image Building: Demonstrates corporate commitment and responsibility, enhancing brand recognition and reputation.

• Promoting Sustainable Development: Urges corporations to integrate sustainable development concepts into business decisions, achieving coordinated development.

III. Preparation Process of ESG Reports

(A) Data Collection and Analysis

Corporations need to establish a comprehensive data collection system, clarify data scope and indicators, and select key indicators based on business characteristics and international standards. Develop a data collection mechanism, utilize automated tools, request data from suppliers, ensure data quality and accuracy, and may introduce third-party audits.

(B) Goal Setting and Execution

Corporations should set specific ESG goals based on analysis results, following the principles of clarity, quantifiability, achievability, and timeliness. Define goal directions, break them down into action steps, and clarify responsible individuals and timelines.

(C) Performance Monitoring and Reporting

Establish a performance monitoring system, set key performance indicators, regularly assess and summarize, form reports, disclose to stakeholders, and improve ESG practices based on feedback.

IV. Standards and Frameworks for ESG Reports

(A) Major Global Standards

• GRI Standards: Widely applied globally, providing a comprehensive and systematic reporting framework and indicator system to improve report quality and comparability.

• SASB Standards: Focus on integrating sustainability factors with financial information, providing targeted disclosure standards and indicators for different industries.

• TCFD Recommendations: Focus on corporations' financial risks and opportunities related to climate change, providing disclosure frameworks and guidelines.

• IIRC Framework: Advocates for integrating financial and non-financial information to provide a more comprehensive view of corporate value creation.

(B) Localization Exploration of International Standards

China actively explores the localization of international standards, introduces distinctive ESG rating systems, stock exchanges improve disclosure requirements, and rating agencies explore rating methods suitable for Chinese corporations.

V. Internal Management and Risk Prevention of ESG Reports

(A) Enhancing Risk Management Capabilities

Corporations should comprehensively identify, assess, and control risks at the environmental, social, and governance levels. Pay attention to risks arising from climate change, prioritize employee rights, product quality and safety, and community relations issues, and avoid risks due to poor governance. Develop risk assessment systems, formulate response strategies, and introduce third-party assessment audits.

(B) Optimizing Internal Governance Structure

Clarify the responsibilities and composition of the board of directors, whose members should possess diverse backgrounds and professional knowledge. Regularly review ESG strategies and goals, establish sound decision-making processes. Incorporate ESG performance into executive compensation and incentive systems. Establish independent internal oversight bodies to audit and supervise ESG practices and disclose audit results.

(C) Promoting Sustainable Development Strategy Implementation

Corporations use ESG reports to clarify responsibilities and goals, allocate resources reasonably, and increase investment in environmental protection technologies. Integrate ESG concepts into business process optimization and select suppliers that meet standards. Emphasizing ESG performance can achieve sustainable profit growth and value creation.

VI. External Communication and Stakeholder Relationships in ESG Reports

(A) Enhancing Transparency and Trust

Corporations disclose ESG performance and data, increasing transparency, demonstrating commitment and responsibility, enhancing stakeholder trust, and establishing long-term stable partnerships.

(B) Attracting Investments and Reducing Financing Costs

Preparing high-quality ESG reports can attract ESG investors, enhance market value, reduce financing costs, and improve brand image and market competitiveness.

(C) Meeting Regulatory and Compliance Requirements

Governments and regulatory bodies have increasingly stringent requirements for corporate ESG information disclosure. Preparing ESG reports can help corporations meet these requirements, avoid legal risks, and ensure legal operations.

(D) Enhancing Brand Image and Market Competitiveness

By preparing and disclosing ESG reports, corporations establish a good brand image, increase recognition and reputation, and enhance consumer loyalty.

In the future development process, the China Composites Industry Association will persistently strengthen the promotion of corporate credit evaluation and ESG reporting efforts, akin to "Through wind and rain, it stands firm; no matter the direction of the wind, it remains steadfast." Continuously improving the credit evaluation system. The business credit evaluation service promoted long-term by the SASAC Business Credit Center and the China Composites Industry Association is akin to "While sinking ships are passed by countless others, and sick trees are outdone by thousands of thriving ones." It will undoubtedly provide a solid foundation for the sustainable development of the industry. Here, we sincerely urge more corporations to actively participate, "A single flower does not make a spring, but a hundred flowers in full bloom bring spring to the garden." Let us work together to cultivate an honest and trustworthy industry atmosphere, allowing the light of credit to shine persistently and brightly on the splendid future of the China composites industry, akin to "Like the gentle, unseen influence of the night rain, benefiting all things."