The CSI Listed Company ESG Evaluation assesses enterprises from three dimensions: Environment (E), Social (S), and Corporate Governance (G), comprehensively measuring the ESG risks and opportunities of listed companies. This article focuses on the governance dimension to briefly introduce the evaluation considerations for corporate governance within the CSI ESG rating system.
Corporate governance theories are based on corporate governance theory and aim to ensure the scientific nature of corporate decision-making through a set of institutional arrangements. The core objective of corporate governance theory is to solve the principal-agent problem in enterprises. Under the modern corporate system, when enterprise ownership is highly dispersed, scattered shareholders find it difficult to fully supervise managers. The self-interested motives of managers can lead them to pursue personal benefit maximization while neglecting shareholder interests. This self-serving behavior by managers, caused by the separation of ownership and control, is termed the Type I principal-agent problem. Mechanisms to address the Type I problem include external mechanisms like the market for corporate control, the managerial labor market, and the product market, alongside internal mechanisms such as separation of the chairman and CEO roles, equity incentives, institutional investor ownership, dividends, and executive independence.
In countries like Italy, Sweden, and most Asian nations, most enterprises are characterized by relatively concentrated ownership. When major shareholders hold corporate control, the separation of control rights and cash flow rights can lead to the expropriation of other shareholders' interests, thereby creating a Type II agency problem between majority and minority shareholders. Major shareholders might expropriate the rights and interests of minority shareholders and the listed company through methods like fund embezzlement, related-party transactions, predatory dividends, or high-premium financing. Approaches to resolving the Type II principal-agent problem include legal protection, checks and balances by other major shareholders, the independent director system, institutional investor ownership, and other internal and external corporate governance mechanisms, as well as minority shareholder self-governance mechanisms like voting at shareholder meetings, appointing directors, and investor-corporate engagement.
With the development of stakeholder theory, the traditional connotation of corporate governance has expanded further, moving from "shareholder primacy" towards accountability to a broader range of stakeholders. From this perspective, the issue corporate governance needs to address is no longer simply the shareholder-manager or majority-minority shareholder agency problem, but rather multi-layered agency problems between management and a wider array of stakeholders. This requires that corporate decisions must coordinate and balance diverse interest demands, incorporating externalities like environmental and social impacts into the governance framework, thereby laying a crucial theoretical foundation for the modern ESG (Environmental, Social, and Governance) concept.
Within this systematic theoretical framework, empirical research focusing on how to optimize specific governance mechanisms to solve agency problems constitutes the rich application layer of governance theory. Existing research has delved into numerous topics—such as board composition, background, and size; the incentive structure and effectiveness of executive compensation; ownership concentration and shareholder types; the quality and oversight of information disclosure; and the unique role of Party organization embedding in corporate governance—accumulating substantial findings. This body of work aims to test and refine various specific mechanisms, providing solid empirical evidence and practical guidance for constructing governance systems that can effectively mitigate agency conflicts and ultimately promote high-quality enterprise development.
The governance dimension of the CSI ESG Evaluation reflects a listed company's ability to ensure scientific decision-making, maintain sustainable operations, and reasonably safeguard the interests of all parties through internal and external mechanisms. Grounded in corporate governance theory and focusing on the characteristics of Chinese listed companies, this dimension aligns with policy requirements like the CSRC's "Code of Corporate Governance for Listed Companies," establishing 5 themes, 9 units, and nearly 100 indicators.
Information disclosure is the primary channel for investors and regulators to understand a company's operations and forms the foundation for evaluating its corporate governance. The "Information Disclosure" theme includes indicators such as exchange review opinions on disclosures and financial report audit opinions to measure overall disclosure quality. It also incorporates controversial event indicators, like whether there have been instances of non-compliant disclosure or inaccurate earnings forecasts, collectively assessing whether the company's information disclosure is truthful, accurate, complete, timely, and fair.
The "Governance Structure and Operation" theme primarily examines a company's internal governance from three aspects: institutional setup, institutional operation, and incentives and constraints, measuring whether the board of directors, supervisors, and senior management can perform their duties diligently and maximize corporate value. This theme mainly addresses the Type I agency problem. Regarding institutional setup, indicators include the proportion of independent directors on the board and the proportion of board members with professional expertise, assessing the independence and professionalism of governance bodies like the board. For institutional operation, indicators such as board meeting attendance rates and instances of non-standard board operations evaluate the actual operational effectiveness of these bodies. In terms of incentives and constraints, indicators like the linkage between executive compensation and performance assess the effectiveness of motivational and restraint mechanisms for senior management.
The "Shareholder Rights" theme primarily examines the Type II agency problem from two perspectives: protection of minority shareholders and the behavior of controlling and major shareholders. Given the relatively concentrated ownership in domestic enterprises, controlling and major shareholders might exploit their equity advantage for personal gain at the expense of minority shareholders. Therefore, in evaluating the corporate governance of domestic companies, the effective protection of minority shareholder interests and checks on the behavior of controlling shareholders are crucial metrics. For minority shareholder protection, the CSI ESG Evaluation sets indicators like voting mechanisms at shareholder meetings and investor participation rates to measure the practical effectiveness of mechanisms safeguarding minority rights. Regarding the behavior of controlling and major shareholders, a series of controversial event indicators assess whether there are actions or risks, such as fund embezzlement by major shareholders, that harm minority shareholders and the company's interests.
The "Corporate Governance Risk" theme evaluates a company's governance level by promptly tracking controversial events involving the company. These controversial events cover multiple dimensions, including conflicts of interest among corporate governance entities, abnormal stock trading, and internal control deficiencies, comprehensively reflecting risks and potential problems across key aspects of corporate governance.
The "Management and Operations" theme measures the effectiveness of corporate governance by examining a company's financial risk and financial quality. For financial risk, indicators like the asset-liability ratio and guarantee ratio gauge the soundness and execution efficiency of the company's risk control mechanisms. Regarding financial quality, indicators such as the proportion of goodwill assess the supervision and management effectiveness of corporate governance mechanisms on operations by evaluating asset and profit quality.
In April 2024, the Shanghai, Shenzhen, and Beijing Stock Exchanges, under the guidance of the CSRC, issued the "Guidance for Listed Companies on Sustainability Reports" (hereinafter referred to as the "Guidance"). This guidance proposes disclosure requirements for the governance dimension related to sustainability mechanisms and business conduct, specifically covering areas like due diligence, stakeholder communication, anti-bribery and anti-corruption, and anti-unfair competition. Building on the requirements of the "Guidance," the CSI ESG Evaluation system integrates traditional corporate governance indicators with sustainable governance elements to comprehensively measure corporate governance effectiveness.
First, information disclosure has seen further improvement. Against a backdrop of ongoing regulatory strengthening and increasing market discipline, listed companies have continuously heightened their focus on disclosure work. Through accurate, timely, and complete information disclosure, they effectively protect investors' right to know, further solidifying the information foundation for the healthy operation of the capital market. In the 2024 assessment, 1,001 listed companies received an 'A' grade in the exchange's information disclosure evaluation, accounting for 18.6%, with the number of companies excelling in disclosure increasing year by year.
Second, incentive and constraint mechanisms have become more robust. In 2024, the standardization level of listed companies' governance mechanisms continued to rise. 84.8% of listed companies had established equity incentive systems or achieved executive shareholding, while 95.8% linked executive compensation to corporate operating performance. By aligning senior management's interests with the company's long-term development, this reinforces management's sense of responsibility and efficiency orientation. Regarding business ethics development, 47.6% of listed companies disclosed anti-corruption and anti-bribery systems, aiming to prevent tunneling of benefits and moral hazards by establishing sound internal control and compliance systems and clarifying integrity requirements.
Third, the behavior of key minority groups like controlling shareholders is generally relatively standardized. Given the characteristics of ownership structure in Chinese listed companies, regulators have focused on the compliance risks associated with key minorities like controlling shareholders, intensifying standardization efforts through strengthened regulatory enforcement and reinforcing governance主体责任. According to CSI controversial event data, as of the end of November 2025, the proportion of listed companies involved in fund embezzlement by controlling shareholders or actual controllers was 0.74%, remaining at a relatively low level overall. Sectors such as consumer staples, utilities, energy, and consumer discretionary still need to make further efforts in improving internal control and compliance mechanisms and strengthening risk prevention and control for tunneling of benefits to drive overall governance standards higher.
