27 ASIAN LEGAL BUSINESS CHINA • 亚洲法律杂志-中国版 WWW.LEGALBUSINESSONLINE.COM/CHINA ESG Chinese companies to navigate environmental standards when acquiring European energy companies. Investing in Australia’s mining and energy sectors presents challenges related to environmental protection, land use rights, and aboriginal rights, necessitating compliance with relevant laws and regulations. ESG challenges are also present in crossborder investments and M&As in sectors such as automobile manufacturing, electronic products manufacturing, and other manufacturing industries. Chen highlights the importance of addressing ESG issues like labour rights, supply chain transparency, and environmental responsibility in these sectors. ESG regulations vary globally based on market development levels, and the degree of attention given to the three major sub-categories of ESG differs. Chen provides examples of ESG regulations that often pose challenges for Chinese companies overseas. In terms of the environment, countries and regions have formulated laws and regulations for environmental protection, pollution reduction, and resource utilization efficiency. For instance, the EU Transparency Directive requires listed companies to disclose information on environmental and social matters, while the US Securities and Exchange Commission mandates ESG-related information disclosure for listed companies. Social labour-related laws and regulations cover labour rights protection, occupational health and safety, labour relations, and more. When establishing branches overseas, companies must adhere to international labour standards outlined in the core conventions of the International Labour Organization, focusing on labour rights, working conditions, and social protection. Governance standards encompass laws, regulations, and standards regarding corporate governance, transparency, and anti-corruption measures. For example, the UK’s Corporate Governance Code provides guidance on corporate governance, independent directors, reporting transparency, and more. Chen emphasizes that Chinese investment in recent years has primarily concentrated in Asia compared to developed markets. However, many Southeast Asian countries are implementing mandatory disclosure systems for sustainability reporting. ESG issues are expected to be at the core of Chinese enterprises’ global expansion in the future. Therefore, Chinese companies should integrate ESG factors into their overseas investment and M&A strategies, ensuring that target companies or projects they acquire address ESG risks, including regulatory compliance and reputational risk management. According to Chen, many Chinese companies have matured in terms of ESG-related matters in overseas investments. Some have already incorporated environmental and social risks into their investment decision-making and have enhanced communication and cooperation with local communities and stakeholders. These initiatives cover areas such as CHEN WEI ZHENG HUAN ZHANG NEI HE GUOLIANG Guoliang and Zheng Huan, senior partners at Jincheng Tongda & Neal, “China has been ranked among the top three in terms of total volume of outward foreign direct investment globally for four consecutive years, as stated in the 2021 Statistical Bulletin of China’s Outward Foreign Direct Investment. Despite differences in the focus of ESG compliance management between emerging market countries and developed countries, the tightening of ESG regulations is a global trend. Therefore, with a significant amount of overseas investment, Chinese companies face frequent ESG challenges as they expand abroad.” OVERSEAS ESG CHALLENGES He and Zheng have advised Chinese companies on numerous overseas investment projects and have observed that “currently, the ESG challenges faced by Chinese companies mainly occur in EU member states, such as Germany and France.” Industries investing in overseas mining and energy sectors encounter greater challenges. For example, the lithium battery industry operates with mining activities in Africa and factories in Europe, resulting in complex raw material supply chains and higher ESG compliance risks. He and Zheng highlight the comprehensive human rights and environmental protection standards imposed on enterprises by regulations applied by EU regulators. These include the European Council’s Corporate Sustainability Reporting Directive, the EU Regulations on Prohibiting Products Made with Forced Labour, Germany’s Supply Chain Due Diligence Act, and France’s Corporate Duty of Vigilance Law. David Chen, managing partner of DeHeng Law Offices and head of its cross-border committee, shares similar observations. “ESG challenges faced by Chinese companies overseas mainly come from developed countries and regions such as Europe, North America, and Australia.” Chen cites environmental protection, labour rights, and corporate governance as key areas of challenge in Europe. For instance, the EU has stringent environmental protection requirements for the energy industry, requiring