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January 21, 2009

China’s Eco-Challenges Changing Way Some Cos Do Business

Diana Verde Nieto
Founder and CEO
Clownfish

Today there are pressing economic, environmental and social issues that are challenging the status quo and changing the way we do business.

China may be better placed than other nations to ride out the current financial crisis, with IMF officials predicting economic growth in 2009 to be 8.5%, compared with economic contraction in the UK and USA of 1.3% and 0.7% respectively.

However, China faces significant challenges from an environmental and social perspective, and is confronted with great stresses on its resources, environment and national stability. The statistics are bleak, but well known. 1.3 billion people live in an area smaller than that of the United States. Last year, China surpassed the USA as the leading contributor to CO2 emissions. China has 20% of the world’s people, but only 8% of the world’s renewable freshwater supply. Half of China’s plants and animals, some of them yet undiscovered, could become extinct by the end of the 21st century.

Failing to address these concerns could mean that in the long term, positive economic growth will not be viable. Sustainability, that is, achieving balanced environmental protection, sustained economic growth and social equity, presents itself as perhaps the only solution for the future.

Fortunately, China is acknowledging these challenges. In 2005, Shanghai invested 28.1 billion Yuan, or 3% of the city’s GDP into environmental protection projects, significantly improving water and air quality. Within the last 12 months, the government has also set ambitious renewable energy targets of 10% of electric power capacity by 2010 and 10% of primary energy by 2020. China’s central government is also putting pressure on Chinese farmers to apply good environmental practices, aiming to have 50 million households on biogas by the end of the decade.

Chinese firms have started to capitalize on the commercial opportunities presented by addressing sustainability issues. China’s richest man, Shi Zhengrong, happens to be the first recorded solar billionaire, identified by The Wall Street Journal back in 2006. Though currently largely an export business – 98% of SunTech Power Holding’s output is sold overseas, Shi predicts that there will soon be a solar boom in China.

There are perhaps even greater opportunities available to companies that engage in the sustainability agenda. Through consumer engagement and communications, a brand cannot only address their environmental and social impact but can also take their consumers on the journey with them.

Environmental consciousness is on the rise among Chinese consumers. But it is not necessarily a new phenomenon – there has always been an affinity with nature deeply rooted in Chinese cultural traditions. For consumer products, people are highly attuned to the idea of natural or traditional Chinese remedies and are sceptical of non-natural preservatives. In this context, expressing environmental concern and buying products that do not damage the environment is a strong trend among urban Chinese consumers, and even has the potential of becoming a new status symbol within the burgeoning middle classes.

Recent research shows that Chinese consumers are some of the most environmentally aware in the world – 67% consider environmental problems to be very serious in China, and 42% list pollution as one of their main concerns. And in terms of these concerns translating into purchasing decisions, 65% of Chinese car owners say it’s important for their vehicle to be environmentally friendly versus just 40% of the global population (GfK Custom Research China, 2008).

In China, online media is the most trusted source of information, with Chinese consumers increasingly looking online for product information (Edelman 2007 China stakeholder survey).  And trust is very important. According to recent research (Green Biz, 2008) Chinese consumers consider trustworthiness along with environmental consciousness and waste reduction efforts, as the three top attributes for green companies.

But many Chinese brands are missing opportunities to build trust among consumers by disclosing transparent information about their environmental and social performance.  In 2006, only 18 companies published a sustainability report, although this did represent a threefold increase on the previous year (SynTao). And last month, Carbon Disclosure Project (CDP) launched its first CDP report in China. Of the 100 Chinese publicly listed companies asked to participate, 5 answered the full CDP questionnaire and 20 provided necessary information. This information not only acts as a guide to investors seeking long term returns but it is also a valuable opportunity to engage stakeholders, an opportunity that is clearly not yet being embraced by most companies.

Given the high trust of online media and increasing web access among consumers – China is thought to lead the word as the fastest adopting society of the mobile web (IBM 2008), it makes commercial sense for brands to tap the interactive potential of digital media to increase transparency and engage a wider stakeholder base.

Beyond this, moving from passive, one dimensional communications to active engagement adds real value because it enables the brand to deliver a service beyond the products they sell; helping consumers to reduce their environmental impacts. Research from The Climate Group (2008) indicates that Chinese consumers are ready and willing to make changes to their lives and are already taking action to combat climate change. But this can only be a credible strategy if the brand can demonstrate a real commitment to responsible business and sustainability. Environmental and social messages are simply not enough.

Diana Verde Nieto is Founder and CEO of Clownfish – www.clownfish.co.uk – a communications and brand agency dedicated to making sustainability tangible for business that has reach into 38 markets.

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