Environment, Society, and Governance (“ESG”) is a new framework to evaluate how an organization manages its risks and opportunities according to environmental, social, and governance criteria. It is a response to various societal problems emerging from rapid industrialization, such as pollution and counterfeits. ESG criteria can help investors avoid investment losses when companies engaged in risky or unethical practices which are held accountable. Nowadays, the notion of ESG has been adopted by more and more investors, entrepreneurs, and regulators from all across the world.

Meanwhile, as corporations have become the major entities as well as driving forces in economic development, the governance of corporations turns out to be a critical topic and the quality of corporate governance highly influences the quality of economic growth. Since climate change and low-quality governance put trillions of dollars in public and private assets at risk, regulators and scholars start to discuss measures that companies should take to address these challenges. An important consensus is that ESG has become an unignorable component of corporate governance.

This Note mainly focuses on how this ESG-transformative tendency influences Chinese corporate governance. Part I of the Note traces back to the emergence of the EsG concept in China and how Chinese legislators and regulators begin to respond to its integration with corporate governance; then in Part I, we analyze how this ESG transformation works through internal and external mechanisms from both theoretical and empirical perspectives; In Part IV, we discuss external and internal challenges for Chinese ESG corporate governance; and in Part V, we propose potential solutions borrowed from overseas practices.