A Guide to China’s CSDS for the Aviation Sector

The Corporate Sustainability Disclosure Standards—Basic Standards (CSDS) in China represent a major advancement in sustainability reporting, reflecting the country’s commitment to aligning with global Environmental, Social, and Governance (ESG) practices. These standards apply across various sectors, including aviation, manufacturing, finance, and other industries operating in China.

This articles covers:

• What is China’s Equivalent to CSRD?
• Overview of China’s CSDS – Basic Standards
• Alignment with Global Standards
• CSDS Voluntary Adoption
• China’s CSDS Timeline
• Why Aviation Stakeholders in China Should Prepare for ESG Reporting
• How to prepare for CSDS reporting requirement?

What is China’s Equivalent to CSRD?

The Corporate Sustainability Disclosure Standards—Basic Standards (CSDS), were introduced in December 2024. Built upon an Exposure Draft released by the Ministry of Finance (MOF) in May 2024. They aim to establish a unified framework for corporate sustainability disclosures, promoting transparency and accountability.

The CSDS serves as China’s equivalent to the EU’s Corporate Sustainability Reporting Directive (CSRD). CSDS aligns closely with international standards set by the International Sustainability Standards Board (ISSB).

Both frameworks emphasise annual reporting on sustainability risks, opportunities, and impacts, covering ESG aspects. CSDS mirrors the value chain approach of the CSRD but adapts it to China’s regulatory and economic context. Like CSRD the implementation of CSDS follows a phased approach.

Overview of China’s CSDS – Basic Standards

General Provisions

The CSDS sets forth general requirements for corporate sustainability information disclosure, addressing ESG aspects. The goal is to promote high-quality development and guide enterprises toward sustainable practices.

Companies are required to consider sustainability risks, opportunities, and impacts stemming from interactions with stakeholders, the economy, society, and the environment.

Scope of Sustainability Disclosure

The scope of disclosures under the CSDS is comprehensive and includes:

• Environmental Topics: Impacts of climate change, pollution control, water and marine resource management, biodiversity preservation, resource utilisation efficiency, and circular economy practices.
• Social Topics: Employee rights and protections, consumer safeguards, community relationships, and rural revitalisation initiatives.
• Governance Topics: Ethical business conduct and oversight mechanisms.

Disclosure Objectives and Principles

The primary objective is to provide stakeholders with relevant information on sustainability risks and opportunities that influence decision-making. Disclosures must be material, complete, accurate, and consistent with financial statements. Companies are also required to conduct materiality assessments to evaluate the significance of sustainability impacts.

Information Quality Requirements

Sustainability information must be reliable, verifiable, relevant, and understandable. It should allow comparisons over time and across companies within the same industry. Neutrality in reporting is emphasised to avoid misrepresentation of sustainability impacts.

Disclosure Elements

The CSDS outlines four core elements for disclosure:

1. Governance: Structures overseeing sustainability risks and opportunities.
2. Strategy: Plans for addressing sustainability challenges.
3. Risk Management: Processes for identifying and monitoring sustainability risks.
4. Indicators and Goals: Performance metrics measuring progress toward sustainability objectives.

Value Chain Considerations

A key feature of the CSDS is its focus on the value chain. Companies must disclose how their activities impact all stages of their value chain—from product or service design to delivery and end-of-life processes. This approach ensures that businesses account for their broader environmental and social impacts across their operations.

Alignment with Global Standards

The CSDS aligns closely with international frameworks such as the European Union’s Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB). While incorporating global best practices like value chain reporting and materiality assessments, it also addresses China-specific regulatory needs.

CSDS Voluntary Adoption

Businesses can voluntarily adopt these Basic Standards before mandatory requirements take effect. This flexibility allows companies to align early with the framework, gaining a competitive edge by demonstrating their commitment to sustainable development.

China’s CSDS Timeline

China has established a clear timeline for implementing its CSDS, aiming for a comprehensive and mandatory sustainability reporting system by 2030.

Development Phase:

• May 2024: The Ministry of Finance released the Exposure Draft for the CSDS

• December 17, 2024: The Ministry of Finance, along with nine other departments, officially released the Basic Standards for corporate sustainability disclosure.

Implementation Phase

• 2025-2026: Voluntary adoption period for enterprises to implement the Basic Standards before mandatory compliance requirements are finalised

• 2026: ESG reporting becomes mandatory for large listed companies

• 2027: Climate-related Disclosure Standards are expected to be implemented

Full Adoption

• 2030: Full nationwide standard system is planned to be operational, with mandatory compliance for all relevant companies

Why Aviation Stakeholders in China Should Prepare for ESG Reporting

Aviation stakeholders operating in China should proactively prepare for the upcoming Corporate Sustainability Disclosure Standards (CSDS) due to several critical factors:

• Increased Scrutiny: Investors are increasingly focused on ESG factors when making investment decisions. Enhanced transparency through standardised disclosures will provide crucial information about a company’s sustainability practices.
• Competitive Advantage: Companies that adopt these standards early may gain a competitive edge by showcasing their commitment to sustainability and responsible governance.
• Risk Management: Understanding and reporting on sustainability risks can help aviation companies mitigate potential impacts related to regulatory changes or environmental challenges.

How to prepare for CSDS reporting requirement?

To prepare for China’s Corporate Sustainability Disclosure Standards (CSDS) reporting requirements, companies should take the following steps:

1. Understand the framework: Familiarise yourself with the four core elements of disclosure – governance, strategy, risk and opportunity management, and indicators and goals.
2. Establish governance structures: Set up specific management positions or departments responsible for overseeing sustainability risks and opportunities.
3. Develop sustainability strategies: Create plans and strategies for managing sustainable risks and opportunities throughout the value chain.
4. Implement risk management processes: Establish processes to identify, evaluate, and monitor sustainability risks and opportunities.
5. Set performance indicators and goals: Develop metrics to measure progress in managing sustainability risks and opportunities, aligned with national laws, regulations, and industry strategies.
6. Ensure information quality: Implement systems and controls to ensure sustainability information is reliable, relevant, comparable, verifiable, and understandable.
7. Conduct materiality assessments: Evaluate the significance of sustainability impacts based on their scale, scope, and potential consequences.
8. Align with financial reporting: Ensure consistency between sustainability disclosures and financial statement information.
9. Prepare for phased implementation: While full implementation is expected by 2030, large listed companies should be ready for mandatory reporting starting in 2026.
10. Consider voluntary early adoption: Companies can gain a competitive advantage by aligning with the CSDS framework ahead of mandatory requirements.
11. Prioritise accurate data collection: Establish robust data collection and management systems to ensure the accuracy and reliability of sustainability information. This is crucial for meeting the CSDS requirements and making informed decisions.

Conclusion:

In conclusion, the CSDS reporting in China represent a significant step towards standardised and comprehensive sustainability reporting. It emphasises the importance of value chain considerations, requiring companies to disclose sustainability impacts across their entire operational lifecycle.

The CSDS mandates that sustainability information be material, reliable, verifiable, and consistent with financial statements, ensuring stakeholders receive high-quality insights into a company’s ESG performance. By prioritising data accuracy and considering early adoption, companies can effectively prepare for CSDS reporting requirements and position themselves as sustainability leaders in their industries.