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The future of environmental management

China's companies are cleaning up their act, writes Guo Peiyuan, but many in business still harbour misconceptions. Rather than hindering growth, environmental standards can save money and open up new markets.

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China’s attitude to corporate environmental management has developed in three stages. From the foundation of the People's Republic in 1949 to the start of the reform era in the late 1970s, the government regarded environmental pollution as a consequence of capitalism – something that socialism would simply not suffer from. The role of enterprises was to manufacture goods in accordance with government planning. There was no need for them to consider environmental issues, nor was there any conception of what corporate environmental management might be.

During the second phase, from the reform era up to the mid-1990s, the government realized the importance of dealing with industrial pollution and put many environmental laws and regulations in place – but their implementation was not strictly enforced. Businesses were unwilling to take the initiative, while the exploitation of loopholes was rife. Also, some local governments opted to tolerate pollution for the sake of maintaining income, and so failed to enforce environmental law. Business paid lip-service to environmental management, but it was not actually implemented.

During the third stage, from the mid-1990s to the present day, industrial pollution has reached a level where it cannot be left untreated and the government has taken a firmer attitude, using stoppages, closures, company mergers and changes in production to force enterprises to make real improvements in their environmental management. Finally, businesses are starting to face up to environmental management issues.

It seems that Chinese companies have only changed their environmental performance when they are forced by external pressures. In the past, this pressure came mostly from government, but the situation now is more complex. For instance, pressure may come from overseas purchasers and investors. If a company's products or technologies do not meet specified environmental standards, buyers may refuse to purchase and investors can pull out. Chinese companies may have no option but to spend on improving their methods and keep the other party happy. Pressure may also come from civil society, including the media and NGOs. When people become better-off, they are no longer willing to tolerate dust storms or polluted waterways and will protest to the companies responsible. In some areas, locals have blockaded factories. Meanwhile, NGOs and the media have taken on a supervisory role, repeatedly exposing offending factories. These voices of society may not have binding force, but their influence cannot be underestimated.

In China, a company's response to environmental concerns differs according to its size. Large firms are relatively responsive as their corporate image directly affects profits. This is mainly true for state-owned companies and the China-based subsidiaries and joint-ventures of multinationals. State-owned companies are closely associated with government, and at least have to take a stance in support of the government's sustainable development strategy. Companies owned by multinationals need to consider the parent company's global image, and so take environmental concerns into account at every stage for fear that a mistake could set off a chain reaction in the global media and markets.

But corporate image is of less value to small and medium enterprises (SMEs), and the majority of them do not pay adequate attention to external pressure about environmental concerns. Many of these are Hong Kong and Taiwan-invested SMEs and local firms in heavily-polluting low-tech industries such as fur, clothing, paper-making and metallurgy, which present a serious threat to China's environment. Over the past decade, areas where these firms are concentrated – such as the Pearl River delta – have already suffered serious damage. These companies are unwilling to change, believing that environmental management will bring nothing but increased costs. This leads them to attempt to evade government regulations or purchasers' requirements. It has also lead to some bizarre situations – water treatment plants are installed and never used except during government inspections, or companies wait till nightfall to discharge their waste.

This is not to say that every business owner is at fault. Apart from a few corrupt bosses, I’m sure most would like to run a safe, environmentally-friendly operation. The mistakes they make are due to a lack of knowledge about environmental management and what they can do beyond buying new equipment.

I once heard an electroplate manufacturer complain that to meet environmental standards, he had needed to build a new factory, equipped it with modern, imported machinery using overseas technology, and installed a water treatment plant. The cost of his products rose greatly and sales went down as a result. He was extremely discontented and put the blame squarely on environmental standards. But in fact he was harbouring two key misunderstandings about corporate environmental management.

Firstly, he mistakenly believed that becoming an environmentally-friendly company required nothing more than the purchase of new equipment. Corporate environmental management is not just an issue of equipment and technology – the most crucial factor is the management itself. The equipment can be bought, but the management needs to be learnt. Generally speaking, good environmental management combined with decent technology can cut operating costs by saving energy, materials and human capital.

Secondly, he failed to target a new group of customers to match his new circumstances. In producing environmentally-friendly products, his customers should not have been restricted to China. He should have looked to global markets to find customers willing to spend the extra. Perhaps on the other side of the world, companies were complaining that they could not find an environmentally-friendly electroplate supplier. Bringing together the needs of both buyer and seller could have covered the additional costs of production, and his products would have remained competitive. 

If a company can change its attitude towards the environment, it will see wider markets and increased competitiveness, not increased costs – something too few Chinese businesspeople have realised. But the government must also bear some of the responsibility. In the process of dealing with industrial pollution, the government has treated it as a public good. As a result, people feel the government is ordering business to sacrifice its own interests in order to protect the public interest. The government uses crude measures, such as inspections, punishments, stoppages and closures, which may scare a company, but cannot persuade it to change. Companies will always look for ways to get around the government. It becomes a never-ending game of cat and mouse. 

To turn the situation around we should change our old ideas about dealing with pollution – particularly end-of-pipe treatment – and make competitiveness a starting point. Environmental management should be part of the essence of corporate management itself. Many Chinese companies use a low level of technology, and management techniques are often coarse – there is great room for improvement. But with the correct guidance, these firms could be given a new lease of life, becoming both environmentally friendly and more competitive.

China already has some innovative prospects. For instance, a Sino-German environmental consulting project in Zhejiang now helps local firms adopt the environmental management tools used in German companies. Profits have improved, and so have the environment and the company’s organisational management. It is an example worth learning from.


Guo Peiyuan is a researcher and PhD candidate at Qinghua University, focusing on finance, sustainable development and corporate social responsibility. He is the co-founder of Syntao.

Also about sustainable business on chinadialogue: Green grows the opportunity

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评论通过管理员审核后翻译成中文或英文。 最大字符 1200。

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Default avatar
匿名 | Anonymous







How to lead the weak to the green road?

Environmental protection should be a feasible option for companies, no matter they are big or small.

Powerful enterprises may go about implementing what they adopt. But for the small and weak ones, what should they do if they too want to pursue a green road to growth? Will they get support from the government? Will they be eligible for loans from the bank?

Can you talk a little bit from the financial support point of view about how the small businesses in China can actually improve their environmental management practices?

What do you know about the situation in western countries? or, how do they support the green movement of their enterprises with government policies?

Default avatar
匿名 | Anonymous






Vision is always the most important

Due to large enterprise and small enterprise are situated at different development stage, as such will be facing distinct development fate. They have the same point of view for the challenge of continuous development; the only dispute is how they are going to deal with it. Those big companies would grasp numerous resources, even able to control the value decision right of the capital market; they could pull rank which involves manpower as well as facilities to carry out R&D. Small enterprise will not be able to compete in this aspect. However, they do have their own way out, for instance they don’t have ability to conduct R&D, but they could introduce technology; they are unable to control the value decision right of the capital market, but could adjust the production strategy rapidly. All these superior situations are not equipped by big enterprise. On the issue regarding loan, small enterprise would have problem to raise capital, it is a general problem in China, and there is not direct relationship with continuous development. In such circumstances, small enterprise can only explore in another way to raise capital. In fact, those joint venture projects between some of the international organization with China’s government could provide certain technical assistance; sometimes these technical assistances are free of charge. I found that the crucial problem is still the vision from investor. It is not due to they are not realize of the problem, but they are actually couldn’t find an alternative to resolve problem. Once the resolution has been decided, those small enterprise will be able to proceed further. Guo Pei Yuan

Default avatar
匿名 | Anonymous



Does it help to make companies insured against causing environment pollution?

Is it helpful for China to introduce insurance for companies and manufactureres against environment pollution?

Default avatar
匿名 | Anonymous



Thanks for your reply. It is inspiring

Thanks for the reply from No.2. Your reply gives me lots of inspiration. But I think environment protection is, for a country, not only about the consciousness and action of individuals or companies,but sometimes related to guidances and encouragement from government policies.

Default avatar
匿名 | Anonymous






About vision

What expert Guo Feiyuan said about vision is very true, yet I think that the reply given by the author of comment #4 is very true as well. Both think that China's medium- and small-scale enterprises need to greatly increase their environmental awareness. Yet driven by profit, China still has no clearly defined policies to lead and encourage such awareness. They fear they cannot take the trouble to pursue "extraordinary" ways of resolving environmental conservation issues. The majority of medium- and small-scale private enterprises have government regulators fast on their heels calculating their every mistake. Yet due to local economic development, the majority of local authorities turn a blind eye to environmental policy. As for the collaborative projects between international organizations and the Chinese government, the majority of medium- and small-scale enterprises, and even some state-owned enterprises, either seldom hear of them, or pay them no attention. The main factors to explain this are the inaccessibility of such news, as well as the structural shortcomings of the system. Dear author, how should we deal with these circumstances?

Default avatar
匿名 | Anonymous

环境保险 及 政府压力

评论3 提到的环境保险其实是非常重要的一种金融产品。但是,前提是政府要有所作为,也就是说,政府要有处罚企业排污的威慑力,这一方面包括定价是否准确地问题,另外一方面也设计执行的问题。如果定价过低,企业愿意交钱排污,如果定价过高,企业会铤而走险;即使定价合适,如果执行不力,威慑力也很弱。






Environmental insurance & pressures from government

Comment 3 has mentioned that environmental insurance is actually a very important financial product. However, active involvement of government is the prerequisite, that is to say, government must pose real threat to those polluting companies in terms of penalty. On the one hand, it is related to the accuracy of pricing; on the other, it is about the design and implementation. If the price is set too low, companies will pay to pollute; If it is set too high, they will choose to take the risks; even if the price is set on an appropriate level, the power of government would still hinges on effective implementation.

In the States, environmental insurance is one of the important property insurances, especially in the sense of helping companies to lock their environmental risks. Back into history, the reason for its birth is the Federal Superfund Act in America. The Act has named the environmental responsibility of companies and the corresponding compensation, thus giving rise to environmental insurance products.

I think environmental insurance has a promising future in China.

As for comment 5, I think the circumstances are changing all the time. If the environment is deteriorating to extreme, government will definitely increase their pressures. The storm of environmental critiques is an example.

At the meantime, a mature civil society should have more than the government. Consumers and NGOs should also have their voices heard, and in an effective manner. With the improvements in information disclosure and the efficiency of communication, companies will face more and more pressures. Act, and the early the better.

But of course, not all the companies share this vision.

Default avatar
匿名 | Anonymous






Possibility of environmental liability insurance

Introducing environmental insurance is no doubt useful for regulators and lenders for a few reasons. Firstly, insurace can provides a mechanism for capping expected cost or even overruns. This helps secure compensation payments to those victims, especially the public. Also, insurance will create a motivation for corporations to manage environmental risk more intensively. From the lender (banks) side of view, a firm with an environmental liability insurance is less likely to go insolvency due to relevant catostrophic claims, which has been increasing in most developed countries.

However, regulators as well as the insurer play an vital role here. If regulation do not impose fair liability on pollutors, it is not necessary to talk about insurance. If the insurer can not price these risks reasonably, there is no supplyers... so on and so on.