Article 20 of the new Company Law, which will be implemented on July 1, 2024, stipulates that "when a company engages in business activities, it shall fully consider the interests of the company's employees, consumers and other stakeholders, as well as the social and public interests such as ecological and environmental protection, and assume social responsibility. The State encourages companies to participate in social welfare activities and publish social responsibility reports." This is the first time that the ESG concept has been incorporated into legislation in China, and ESG governance has been made one of the basic principles of corporate law, which shows the government's determination and confidence in the high-quality development of China's economy.

As early as 2017, the report of the 19th National Congress of the Communist Party of China proposed "high-quality development" for the first time; in November 2020, the Fifth Plenary Session of the 19th Central Committee of the Communist Party of China adopted the "Proposals of the Central Committee of the Communist Party of China on Formulating the Fourteenth Five-Year Plan for National Economic and Social Development and the 2035-Year Vision Goals". It is emphasized that during the "14th Five-Year Plan" period, my country's economic and social development should implement the "new development concept of innovation, coordination, green, openness, and sharing" to promote the high-quality development of China's economy.The ESG concept emphasizes that enterprises should pay attention to ecological and environmental protection, fulfill social responsibility and improve the level of governance, and its many indicators and the rich requirements of "high-quality development" are highly compatible.At the same time,The concept of ESG is actually in line with the concept of corporate compliance that has been hotly debated in recent years,Put forward higher and more three-dimensional requirements and standards for enterprise compliance,The use of ESG measures for corporate governance will be a new direction for future companies to build compliance management systems.

Connotation and Development of 1. ESG Concept

ESG is the abbreviation and abbreviation of Environmental (environment),Social (society) and Governance (governance). It is a sustainable development value that takes into account economic, environmental, social and governance benefits. From a horizontal perspective, ESG includes three dimensions: the environmental dimension includes enterprise energy management, energy efficiency utilization, energy consumption, renewable energy, greenhouse gas emissions, environmental pollution and other factors; the social dimension includes not only the internal relationship between enterprises and employees, but also the external relationship between enterprises and other institutions and communities, for example, employee welfare, working environment, diversity and inclusiveness, charitable activities, product quality, data security and other elements are all subordinate to this dimension; the governance dimension measures the internal mechanisms established by enterprises to achieve self-management, effective decision-making, legal compliance and other needs, including anti-corruption, corporate governance structure, protection of shareholders' rights and interests, equity incentives and so on. From a vertical perspective, ESG consists of three major links, namely ESG disclosure, ESG evaluation, and ESG investment.

ESG originated from socially responsible investment, and some scholars even believe that it can be traced back to more than two thousand years ago, regulating investment behavior with religious and moral standards ("ethical investment" pursued by some religious and social groups). In the sixties and seventies of the twentieth century, the sustainable development of social and environmental resources gradually received widespread attention from the international community, and the pursuit of sustainable development extended to the investment field, and the concept of socially responsible investment came into being. In this context, in 1971, the United States took the lead in establishing the world's first socially responsible investment fund-Pax World Funds (Pax World Funds). In 2004, the United Nations Global Compact (UNGC) released the "Who Cares Wins -- Connecting Financial Markets to a Changing World" report, and ESG entered the public eye for the first time as an overall concept. In 2006, the United Nations Global Compact (UNGC) and the United Nations Environment Programme's Sustainable Finance Initiative (UNEP Finance Initiative, UNEP FI) jointly launched the "Responsible Investment Principles" (PRI) on the New York Stock Exchange to encourage ESG evaluation as a reference for investment by financial institutions.

The United Nations Principles for Responsible Investment contain six specific principles:
1. Incorporate ESG issues into the investment analysis and decision-making process;
2. Be an active owner and integrate ESG issues into ownership policies and practices;
3. Require investment institutions to disclose ESG information appropriately;
4. Promote acceptance and implementation of PRI principles by the investment industry;
5. Establish cooperation mechanisms to enhance the effectiveness of the implementation of PRI principles;
6. Report on the activities and processes of the implementation of PRI principles.

With the popularity of the concept of socially responsible investment, more and more investment institutions believe that ESG, as a non-financial information disclosure of enterprises, has a significant impact on the financial performance of enterprises, especially listed companies. As of January 2022, 4000 global investors, asset managers and intermediaries, including Morgan Stanley, Blackstone, Goldman Sachs and other well-known institutions, have joined the United Nations Responsible Investment Principles, including 84 financial institutions in China, all of which are committed to incorporating ESG into their investment decisions.

The concept of ESG began in the field of environmental protection in China. In September 2006 and May 2008, the Shenzhen Stock Exchange and the Shanghai Stock Exchange respectively issued the "Guidelines on Social Responsibility of Listed Companies on the Shenzhen Stock Exchange" and the "Guidelines on Environmental Information Disclosure of Listed Companies on the Shanghai Stock Exchange". In August 2012, the Stock Exchange issued the Environmental, Social and Governance Reporting (ESG) Guidelines, which require issuers to publish ESG reports annually and regularly disclose their sustainability performance to stakeholders. In August 2016, the People's Bank of China, the Ministry of Finance, the National Development and Reform Commission, the former Ministry of Environmental Protection, the former China Banking Regulatory Commission, the China Securities Regulatory Commission, and the former China Insurance Regulatory Commission jointly issued the "Guiding Opinions on Building a Green Financial System" and proposed the concept of "green finance. In September 2018, the CSRC issued the Code of Governance of Listed Companies, which defines the basic framework for environmental, social responsibility and corporate governance (ESG) disclosure. In May 2022, SASAC issued the Work Plan for Improving the Quality of Listed Companies Controlled by Central Enterprises, requiring central enterprise groups to coordinate and promote listed companies to further improve ESG working mechanisms, improve ESG performance, and actively participate in the construction of ESG information disclosure rules with Chinese characteristics, ESG performance ratings and ESG investment guidelines. In July 2023, SASAC further issued the Notice on Forwarding and the Reference Index System for ESG Special Reports of Listed Companies Holding by Central Enterprises to provide reference for ESG information disclosure of listed companies holding by central enterprises.

2. the relationship between ESG and compliance

After understanding the connotation of ESG, further discussion of the relationship between ESG and compliance can be considered from the internal requirements of compliance, the author will cite the international standard ISO 37301: 2021 Compliance Management System Requirements and Guidelines for Use (hereinafter referred to as ISO 37301) to explain through comparison.

The first sentence of the introduction of ISO 37301 states that "it is necessary for organizations committed to long-term development and sustained success to establish and maintain a culture of compliance in conjunction with the needs and expectations of interested parties. Therefore, for such organizations, compliance is not only a foundation for sustained development and success, but also an opportunity,The underlying logic of ESG philosophy and compliance is derived from "sustainable development".

The third sentence of the introduction "establishes an effective compliance management system within the organization that demonstrates the organization's commitment to compliance with relevant laws, regulatory requirements, industry codes, organizational standards, good governance standards, generally accepted best practices, and ethics and community expectations." from this,Compliance also requires companies to self-discipline in the three dimensions of governance, ethics, and community, which is essentially consistent with the content of the three horizontal dimensions of ESG.

It is well known that the identification of compliance obligations is based on a full understanding of the needs of the internal and external environment of the enterprise, and ISO 37301, in article 4.1, requires that "the organization shall determine the external and internal factors relevant to its purpose that affect its ability to achieve the expected results of the compliance management system. To do so, the organization should consider a number of factors, including but not limited:

the business model, including the strategy, nature, scale, complexity and sustainability of the organization's activities and operations;
the nature and scope of business cooperation with third parties;
Legal and regulatory requirements;
the economic environment;
Social, cultural and environmental factors;
Internal organizational structure, policies, processes, procedures and resources, including technology;
own compliance culture."

from this,The three dimensions of compliance obligation identification sources and ESG evaluation are consistent, and ESG indicators provide a clearer and detailed source for identifying corporate compliance obligations.

From the above three comparisons, it can be seen that the ESG concept puts forward requirements for high-quality development of enterprises, and compliance is an important path to achieve high-quality development of enterprises, it can be said that the two are the relationship between purpose and method,ESG building as one of the corporate compliance obligations is a perfect combination of ESG philosophy and compliance,ESG compliance has gradually become a sub-concept of enterprise compliance.

Integration Construction of 3. ESG Management System and Compliance Management System

Compliance management system is a continuous process, not only to follow the "PDCA" management process to ensure the effectiveness of the system itself, more importantly, the compliance management system should be in accordance with the needs of the business to build its internal and external environment to meet the compliance response measures.Taking ESG element compliance as the basis for identifying enterprise compliance obligations, enterprises can achieve the purpose of ESG governance through compliance management system, and the integration of ESG management system and compliance management system can improve enterprise management efficiency and save management costs.

Throughout the global ESG practice, academic institutions, consulting firms, investment institutions and international organizations have proposed dozens of ESG evaluation systems, with different indicators and different standards. The law, as a minimum moral, is a common code of conduct that people abide.Enterprises set up ESG compliance management system, laws, regulations, policies, regulatory requirements, international treaties and other requirements can still be listed as the most basic compliance requirements.

In terms of compliance practice, the areas of focus of corporate compliance management are: production safety compliance, product promotion compliance, product quality compliance, international trade and export control compliance, environmental protection and resource utilization compliance, overseas investment and operation compliance, human resources and labor compliance, anti-unfair Competition compliance, financial and tax compliance, anti-monopoly compliance, intellectual property compliance, anti-fraud compliance, trade secret protection compliance, anti-commercial bribery compliance, information security and data compliance, criminal compliance construction. Using the three dimensions of ESG, the compliance management area can be classified as follows:

According to the above table, the compliance management area is examined by the three dimensions of ESG, giving compliance management a rich and three-dimensional content. Therefore, the company has built its own basic ESG management system while building a compliance management system in conjunction with its own business.

4. epilogue

Currently,The growth model of the domestic economy has gradually changed, and the smooth realization of the green and low-carbon transformation of the economy and society has become the core issue for my country to implement high-quality development and support global sustainable construction. The implementation of ESG practice has become the main focus of the government and listed companies to practice economic and social responsibility.

Although the development of the ESG concept is still difficult to unify the disclosure framework and standards, the linkage mechanism between ESG and enterprise performance and other difficulties have not been solved. "A good society is more important than the interests of shareholders" has become the international mainstream argument, the international investment market will be the disclosure of ESG, evaluation as an important orientation of the trend will not change, coupled with the attention of global public opinion, more and more governments, regulators have adopted the mandatory disclosure of ESG information,Incorporating ESG measures into the scope of the company's compliance management system will be an important direction for future corporate compliance governance.

Lawyer Presentation

Lawyer Liu Ying

Lawyer Liu Ying is currently the director of the Enterprise Compliance Research Center of Beijing Huixiang Law Firm, ISO19600:2014, ISO37301:2021 Compliance Management System Auditor "Environmental, Social and Governance (ESG) Management System Requirements" Drafter, Senior Expert of China Business Federation International Compliance Management Expert Database, Third-party Review Expert of Beijing Public Welfare Legal Service Promotion Association, Mediator of Beijing Diversified Mediation Development Promotion Association, Legal Lecturer of Tsinghua University National Art Fund Talent Training Funding Project, member of the Beijing Intellectual Property Law Research Association, member of the Beijing Lawyers Association Technology and Big Data Legal Affairs Professional Committee, his practice mainly focuses on corporate risk and compliance management, corporate governance and equity investment and financing, construction engineering disputes, trademark rights and copyright protection, etc. Legal services, has served as a legal consultant for many enterprises and institutions, and is good at applying legal risk prevention and control to all aspects of corporate compliance management and project operation based on industry characteristics, "Good law does not sue" is Liu Ying lawyer's consistent practice philosophy.