Rule of law construction becomes a key driving force for China-EU ESG cooperation: A new paradigm for cross-border investment from Liaoning's practice

The Rule of Law Gap Amid the Global ESG Investment Wave

In the landscape of global foreign direct investment (FDI), environmental, social, and governance (ESG) standards are evolving from voluntary initiatives into mandatory compliance requirements. The advancement of the EU's Carbon Border Adjustment Mechanism (CBAM), the implementation of the Sustainable Finance Disclosure Regulation (SFDR), and the deepening of China's "dual carbon" goals are collectively driving multinational enterprises to integrate ESG into the core of their investment decisions. However, the biggest challenge facing cross-border ESG cooperation is not technology or capital, but the fragmentation of legal frameworks and regulatory uncertainty.

At the Third China-EU Corporate ESG Best Practices Conference held in Mainz, Germany in July 2026, Wang Heng, Global Chairman of Shenghang Law Firm and President of the German Liaoning Chamber of Commerce, clearly stated that strengthening the rule of law is a prerequisite for expanding China-EU ESG cooperation. This view precisely hits a key pain point in current global capital flows—what investors need is not only green technology, but also a predictable institutional environment.

The Regional Demonstration Effect of Local Practices

Wang Heng took Liaoning Province in Northeast China as an example to demonstrate how the construction of the rule of law reshapes regional investment attractiveness. Liaoning Province has significantly improved its investment environment through market-oriented reforms, strengthened legal protections, and the integration of ESG principles into economic development policies. Such reforms are not abstract slogans, but are reflected in specific industrial cases:

• **BMW Shenyang Production Base**: This base has built the first large-scale geothermal heating system in China's automotive industry, reducing approximately 18,000 tons of CO2 emissions annually and achieving 100% renewable energy power operations. Behind this investment decision lies Liaoning Province's continuous improvements in intellectual property protection, contract enforcement, and environmental regulatory transparency.
• **Joint Venture between Wellhope Foods and Dutch De Heus**: The cooperation between the two parties has been officially recognized by China as a national-level "green factory." Dutch companies chose Liaoning as a partner not only for its agricultural resources but also for the province's progress in the rule of law regarding environmental compliance and labor rights protection.
• **Sino-German (Shenyang) High-End Equipment Manufacturing Industrial Park**: This park is promoting the mutual recognition of China-EU carbon accounting and green certification standards. Such institutional alignment directly reduces the compliance costs of multinational enterprises in bilateral trade and investment.

These cases reveal a trend: ESG cooperation is no longer limited to technology transfer, but has evolved into a deep integration of institutional rules. Regions with higher levels of rule of law are more likely to attract European capital with strict ESG compliance requirements.

The Value Reconstruction of Legal Service Networks

As Chinese enterprises accelerate their overseas expansion and European enterprises continue to increase their investment in China, legal certainty has become a common focus for both sides. Shenghang Law Firm, where Wang Heng is based, has built a global legal service network covering 40 cities in China and Germany, and through a "single host country contact" service model, provides one-stop legal support for cross-border investments, from company establishment to compliance management.The core value of this service model lies in reducing transaction costs arising from differences in legal systems and helping investors establish stable expectations in complex regulatory environments. Against the backdrop of global supply chain restructuring, the deep integration of legal services itself becomes a component of regional competitiveness. For example, a legal team in Liaoning can simultaneously provide localized legal support for Chinese enterprises investing in Europe and European enterprises investing in China. This two-way service capability is precisely a hallmark of the maturation of bilateral investment relations.

Long-Term Trend: The Investment Logic of ESG Legalization

From a global perspective, the demand for legalization in China-EU ESG cooperation reflects broader capital flow trends. According to data from the United Nations Conference on Trade and Development (UNCTAD), although global FDI flows recovered somewhat in 2025, geopolitical risks and policy volatility continue to constrain investment scale. A growing number of institutional investors use ESG performance as a screening criterion for asset allocation, and legal certainty is one of the core indicators for assessing ESG risks.

For China, strengthening ESG-related legal construction—including environmental liability legislation, corporate governance transparency, and cross-border data flow rules—will directly impact its attractiveness as an FDI destination. For European enterprises, China's carbon emission reduction potential, green technology application scenarios, and gradually improving legal environment constitute the three pillars of long-term investment.

Wang Heng's speech at the conference was essentially a call for a new investment paradigm: ESG cooperation should not remain at the level of voluntary corporate actions but should form an enforceable constraint framework through legal institutionalization. This paradigm shift may redefine the direction of capital flows between China and Europe, and even between the Global North and South.

Conclusion

The core signal conveyed by the Third China-EU Enterprise ESG Best Practice Conference is that the rule of law is no longer just a backdrop for ESG cooperation but its core pillar. Liaoning's practices show that regional institutional innovation can effectively attract high-quality foreign investment and lay the foundation for higher-level cooperation, such as the alignment of China-EU carbon markets and the harmonization of green financial standards. For global investors, understanding and adapting to this rule-of-law-driven ESG environment will become a key issue in cross-border investment strategies over the next decade.