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Environmental and CSR Reporting in China Today: A Paradox

China is a country of many paradoxes, and the level of environmental protection and Corporate Social Responsibility (CSR) is no exception.

On one hand, Chinese companies’ reporting of Environmental and Corporate Social Responsibility (CSR) is increasing dramatically. Did you know, for example, that CSR or sustainability reports issued in China rose from 1 in 2001 to 631 in 2009 (Source: 2009 China CSR Practice Benchmark Report from China WTO Tribune)? Or that there are more ISO 14001 certified companies in China than in any other country (the 2007 ISO Survey puts China at 30,489, Japan at 27,955, and then after Spain, Italy, UK, and Korea the USA at 5,462)? Did you realize how many of the following sustainability standards Chinese companies are using?

– By September 2009, 47 Chinese companies adopted the Global Reporting Initiative (GRI) G3 guidelines
– By September 2009, there were 212 members of the UN Global Compact in China
– By July, 2009, 22,667 Chinese companies were accredited to the worker health and safety standard OHSAS 18000
– By March 2009, 223 Chinese companies were accredited to SA 8000, for social responsibility
– By 2006, more than 400 factories in China were audited according to the Business Social Compliance Initiative’s code of conduct
(Source: Scoping Study on Voluntary Social Standards in China)

On the other hand, reports of unfair treatment of workers as well as factories’ pollution of water, air, and soil are now more widespread. About one third of the industrial waste water (e.g., heavy metals from mining) in China is released into rivers and lakes without being treated. In China grain contaminated by heavy metals caused direct losses of $2.8B. Much of the damage is caused by industry and by putting into landfills products containing hazardous substances, without proper recycling.

How does one explain the gap between increased reporting and bona fide, country-wide environmental and social responsibility?

Sustainability in China, as in other countries, is being driven by leadership and innovation. Though most Chinese companies casually use CSR reporting for public relations, without internationally-recognized third-party audits, many leading companies in China are distinguishing themselves in the marketplace by seriously and objectively measuring, auditing, reporting, and improving environmental and social practices. Reporting is a key first step. A recent post by my TFI colleague Nikki Pava underscores the importance of GRI reporting, for example, to the global electronics supply chain.

I offer two examples of Chinese companies documenting substantive environmental improvements in their third-party-audited CSR reports. This first is from the all-important power-infrastructure sector, which accounts for three-quarters of today’s greenhouse gas emissions, according to McKinsey’s latest assessment. With lifespan of efficient infrastructure being 2 to 3 dozen years, improvements here will not only help cut national greenhouse gas emissions but also allow businesses and consumers to reduce their power usage and costs. The Chinese Government expects to spend more than US$2 trillion on power infrastructure by 2013, and officials recognize the critical importance of reducing power losses during electricity distribution. In 2009, State Grid Corporation of China developed ultra-high-voltage (UHV) transmission lines and opened the first UHV AC project, a highly efficient power line stretching for 640,000 meters from Shanxi Province through Henan to Hubei, and has launched plans to triple the number of UHV lines by 2012. UHV enables countries to efficiently supply electricity over large distances to meet the growing electricity demand in the populous cities. Electricity distribution through UHV transmission also helps more people in China to access reliable and affordable energy that is distributed in carbon-efficient ways. “These types of innovations help move towards a low-carbon economy,” said Li Weiyang, head of Corporate Social Responsibility at State Grid. “Making UHV commercially viable is to help State Grid fulfill our core social function, build expertise that enables us to access new markets, and gain national competitive edge in sustainability.” State Grid was one of the first organizations in China to publish a CSR Report with a third-party assurance statement.

The second example is from the Chinese paper industry for which I took the role of project leader of the CSR report. Traditionally, paper companies are among the top polluters around the world. Since APP-China’s establishment in China in 1992, this paper company has transformed the industry with a business model of plantation-pulp-paper integration for sustainable development. In June 2008, APP-China published its first “Paper Contract with China”; this manifesto declared the company’s commitment to become a dedicated advocate for China’s green paper industry in sustainable plantation development, clean production, and corporate social responsibility. Then in 2009–with four successive years of third-party-validated environmental and social improvements–APP-China set up its first data collection system to comply with the GRI (G3) in consideration of China’s national standards, local rules, and regulations in areas where the scope of report is located and the company’s best practices. In the meantime, APP-China also initiated the first stakeholder interviews through a third party to collect perceptions, expectations, and suggestions for better communications and cooperation with stakeholders. APP-China is one of the pioneers to publish a CSR Report in China as well.

And Chinese Government officials are saying the right things: “We should combine our efforts to address climate change to promote the growth of developing countries and build up their own dynamism for development and their ability for sustainable development.” –Hu Jintao, President of the People’s Republic of China, September 22, 2009.

The key challenge now in China is to achieve a critical mass to change the practices of the business community, country-wide. Nearly all of TFI’s tech-industry clients manufacture in China or use contract manufacturers and component suppliers there, and we are training more and more engineers there in Design-for-Environment principles. It’s up to customers to demand objectively-audited CSR reporting proving substantive improvements not only from top-tier suppliers there, but also to require that subcontractors ensure that their suppliers are reporting CSR and making improvements just as objectively and substantively.

If your company wishes to have its products manufactured in China, how can you confidently select suppliers with bona fide environmental and social responsibility? Demand that the supplier have a corporate sustainable-development roadmap, strategies for meeting measurable goals, a sustainability management system, a system of vetting the social and environmental responsibility of their supply chain, stakeholder engagement and communication, assurance services, data collection systems, sustainability training and development programs, and feedback/correction systems. Without verifying that all of these elements exist, don’t believe that a CSR report with bold statements and pretty pictures represents anything but good work by a savvy communications consultant.

What steps do you predict will further close the gap between Chinese companies’ dramatic increase in Corporate Environmental and Social Responsibility reporting and wide-spread responsible protection of the natural environment and workers’ rights?

Fanny Lee is China-based analyst and CSR consultant for Technology Forecasters Inc.

Fanny Lee
Fanny Lee is China-based analyst and CSR consultant for Technology Forecasters Inc.
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2 thoughts on “Environmental and CSR Reporting in China Today: A Paradox

  1. Great article, Fanny. I agree that raising demand will be the quickest way to ensure that Chinese companies are not only creating CSR reports but are having them verified by independent third parties. It is easy to be swayed by attractive reports that make companies appear to be doing what investors, business partners, and consumers hope they are doing. Increasingly these stakeholders are looking past the smiling faces and searching to find out what is behind an organization’s social and environmental claims. Soon they will be choosing not to associate with businesses that are not pursing the triple bottom line of people, planet, and profit.

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