With only 10% of Chinese firms carrying out sustainability initiatives, the country’s business sector will need to act quickly if China is to meet its emissions target
April 21, 2016 — China’s offshore oil drilling firm and the country’s largest oil producer with $98.53bn in revenue in 2014, China National Offshore Oil Corp (CNOOC) inevitably disturbs marine life as it probes seabeds around the world for resources. Like other big oil firms, the company has caused its share of environmental disasters, including a 2011 oil spill that contaminated 840 sq km (324 sq miles) of Bohai Bay, off China’s northeastern shore. CNOOC got in trouble with government regulators for initially concealing the spill and has since been named in a lawsuit.
But the company has also been spending hard to make amends for its environmental sins. From 2008 to the end of 2014, its Southeast Asia subsidiary spent $1m to plant coral reefs and protect mangrove stands in the Thousand Islands archipelago of Indonesia. Some of the money also bought equipment to help local people breed and keep up the sea turtle population, which was dwindling because of illegal trade and habitat loss, in the waters north of Jakarta. In all, CNOOC sank the equivalent of $18m into charity and other social programs in 2014.
CNOOC’s spending is unusual among Chinese companies. Only 10% of Chinese firms carry out corporate social and environmental initiatives, typically charity work, according to SynTao, a Beijing-based consulting firm on corporate sustainability. In February, SynTao and European nonprofit Globethics released an online directory of 6,000 sustainability reports from China. They found 1,300 reports filed for 2013 and 666 the following year.
Meanwhile, sustainability has been part of the corporate vernacular in the US and Europe for decades; its meaning is starting to expand to include strategies for cutting costs and improving companies’ bottom lines, an approach to build social and environmental initiatives into long term business plans. Sustainability reporting by S&P 500 firms rose from 20% in 2011 to 81% in 2015, according to New York-based consultant G&A Institute. A study by auditing and management consulting firm KPMG in 2011 found that 95% of the world’s 250 largest companies did the same.
To achieve its climate goals, Chinese companies must start putting money into projects that will minimize their environmental impact, which has created air so dirty that it’s among the chief causes for lung cancer. In 2014, the country, which is the world’s largest producer of greenhouse gas emissions, committed to cap its greenhouse gas emissions by 2030. This Friday, it plans to sign the historic Paris climate deal in a UN ceremony.
“Companies (historically) looked at sustainable initiatives from a compliance approach or as a public relations tool,” said Yuan Yuan, senior program coordinator with the Global Reporting Initiative, an Amsterdam-based organization that designs corporate responsibility reporting standards. “Chinese companies are gradually becoming more and more proactive.”
Even before China committed to capping emissions, it had begun to address the environmental impact of its growing economy. In 2008, the government started to require state-owned firms to regularly review and change their practices to save energy, manage resources more efficiently and cut pollution.
Since then, about half of China’s state-owned companies – generally the largest and oldest ones – carried out sustainability projects, said SynTao’s co-founder Guo Peiyuan. In 2011, state-owned China Petrochemical Corp, the country’s chief petroleum and petrochemical producer, began reporting its sustainability efforts, which have included water conservation, wildlife protection and carbon footprint reduction. The government-backed Industrial and Commercial Bank of China began its efforts in 2007, launching projects that reduce poverty and help startup businesses grow. China Vanke Co, a major property developer, puts money into habitat preservation in the cities where it does business.
In recent years, the Chinese government has begun to toughen environmental regulations that apply across state-owned and private businesses as severe air and water pollution, a result of the country’s fast-growing economy in recent decades, is being linked to an increase in cases of cancer and other serious health problems, and costing its economy billions of dollars.
“China’s interaction with the environment will be very much driven by government policy and they are really serious about this,” said Tim Clissold, author of Mr. China: A Memoir. “There is a genuine effort underway to clear up the mess and, like Western governments before them, I’m sure that over time they will solve this problem. They have no choice.”
Even without climate change and the government to contend with, many Chinese companies are facing growing pressure to improve their business ethics in order to attract investments and win contracts. Much of the nudging comes from their overseas customers and partners. One of the most high profile cases began with a string of employee suicides in 2010 at Foxconn, a Chinese manufacturer that makes iPhones and iPads for Apple. Long working hours, paltry pay and other conditions at its sprawling manufacturing compound – and the media attention on these conditions – have forced the company and Apple to make changes in labor practices that included increasing wages.
“The increasingly competitive global marketplace and the rise of social media, coupled with more and more conscientious consumers, are drivers for [corporate sustainability] inside or outside China,” said Song Seng Wun, economist in the private banking unit of CIMB in Singapore.
In 2014, the Swedish Embassy in Beijing and research firm CSR Asia surveyed 2,944 people, including corporate sustainability officers from Chinese and international companies, academic researchers and non-government groups, to find out more about what was driving sustainability practices in China. Some 46% said demand by international buyers was the second biggest reason (after the government) that they had developed sustainability plans. Other motivators included media coverage, industry peer pressure and demand from the Chinese public. The survey also found that energy and banking are the two business sectors that have done the most in cutting emissions and implementing other sustainability programs.
That said, critics still say Chinese companies have a long way to go to do their part in reining in global warming when most of them don’t build sustainability into their long term business plans.
“There are quite a number of Chinese companies that are competitive worldwide, acting as role models in sustainable initiatives and their approaches and reports are following international best practice,” Yuan of the Global Reporting Initiative said.
“But there are still thousands of companies that show no real awareness of sustainability issues. The gaps in this market remain, therefore, quite large.”