Better monitoring is needed to hold Chinese companies accountable to their environmental commitments
Over the past three decades, a global movement for social and environmental sustainability reporting has catalysed companies to be more open and transparent in documenting their social and environmental impacts. For instance, both the UN Global Compact (UNGC) and Global Reporting Initiative (GRI) have developed internationally accepted frameworks for companies to follow when measuring and reporting on their environmental and social performance.
By encouraging information disclosure, companies become more aware of their impacts and also more open to monitoring by interested stakeholders (such as the government, civil society and even investors).
Recently, Chinese companies have increasingly embraced this trend. According to a recent report by Syntao, a leading sustainability consulting company in China, 1,722 Chinese companies issued Corporate Social Responsibility (CSR) reports in 2012, a large increase from just one in 2006 - State Grid. According to Syntao, in 2012, 22.6% of central government-led enterprises issued CSR reports compared to only 9.4% of private enterprises, suggesting that this trend is being driven by central government influence on SOEs. Yet, significant questions remain about the quality of these reports and whether this trend truly indicates increased transparency or just an elaborate form of “greenwashing,” whereby firms aim to present a sustainable image while not actually being sustainable in practice.
The growth of CSR in China
Since 2006, the central government’s focus on “Building a Harmonious Society” has led to greater focus on CSR and sustainability, with a focus on increasing overall information disclosure standards. For example, some Shenzhen and Shanghai exchange listed companies are required to issue sustainability reports and the Shenzhen exchange even provides training on data collection and report writing for listed companies. In 2008, the Chinese Academy of Social Sciences established a set of corporate social responsibility reporting guidelines which is now highly recommended by central government officials.
Large Chinese firms have increasingly adopted CSR reporting, and there are many examples of well-known companies, particularly SOEs, even being lauded for their reporting. For example, COSCO, the Chinese shipping giant, was awarded Model Practice Company by Global Compact in 2010.
Just because Chinese companies are now issuing reports does not mean that these reports are presenting a full and accurate picture of the firm’s operations. Research on the globalisation of environmentalism suggests that much environmental reporting may simply be greenwashing. For example, with regard to China, we have found that the top-down, governmentally driven process China has followed may have the advantage of leading to rapid construction of policy and regulatory framework, but one weakness is that it does not necessarily lead to better behaviour, owing to a lack of supervision and high monitoring costs.
Anecdotal evidence also suggests that some of the same companies that were lauded for their reporting work were not necessarily following through with more responsible actions in the rest of their enterprises. For example, Baogang Group, a steel company located in Inner Mongolia claims to have invested tens of millions of dollars a year in environmental protection and waste processing, and has also been recognised for its CSR and sustainability activities. But in early 2013, the company was reported to emit large amounts of heavy metals and other chemicals into the air, leaking into surface and ground water. Official studies carried out in Dalahai, one of the worst affected villages, confirmed there were unusually high rates of cancer along with high rates of osteoporosis and skin and respiratory diseases and the radiation levels are ten times higher than in the surrounding countryside.
As a further example, on 29th Nov 2013, China National Petroleum Corporation (CNPC), which has received a number of awards for its outstanding performance in CSR reporting, was sued by All-China Environment Federation (ACEF) because its emissions polluted soil and underground water in Jilin province. These two examples and many others suggest that there may be significant greenwashing among Chinese companies – while they are lauded for some areas of environmental performance and their sustainability reporting, in fact, their actual activities may be less than environmentally responsible.
While China has taken a good first step in introducing and promoting adoption of corporate sustainability reporting, the government needs to focus much more on creating mechanisms of monitoring in order to eliminate greenwashing. For example, our findings were that only firms that were monitored ended up implementing substantive reporting and that without monitoring, reports were mainly symbolic. We recommend that companies should be encouraged to incorporate global standards more effectively, and the government should develop a better grassroots monitoring system.
Closer adherence to international standards
CSR reporting aims to increase transparency and bring companies under public scrutiny. After all, as former US Supreme Court Justice Louis Brandies famously noted, “sunshine is the best disinfectant.” But in our examination of many CSR reports, greenwashers tend to issue complicated reports with obscure criterion, which just confuse their readers. We suggest that Chinese CSR reports adhere more closely to international standards that make them verifiable for stakeholders, both domestic and overseas.
A few leading CSR companies in China have already adopted internationally accepted frameworks. For example, Baosteel, a state-owned iron and steel company based in Shanghai, has disclosed information according to GRI standards since 2006. Moreover, as a high energy consumption enterprise, it also reported information related to energy consumption, water consumption, greenhouse gas emissions and wastewater discharge, which are beyond the standard requirements. But based on Syntao’s report, among 2012 reports, only 17% supplied such critical information.
Fostering grassroots monitoring mechanisms
Many other countries have relied on active non-governmental sectors to effectively monitor corporations. However, in China most influential NGOs are established by or dependent on government agencies, often executing administrative functions. Recently we have argued that, given the tremendous increase in corporate power over the past decades, China needs to develop independent NGOs in order to apply greater checks on this power and allow the social and economic system to run more smoothly.
The Communiqué of the Third Plenum, released in November, highlights the urgency of building a comprehensive system for ecological protection. The Communiqué demonstrates the government’s commitment to sustainable development, and there’s no doubt that more attention will also be placed on CSR activities. Facing increasing pressure both at home and overseas, companies will find it increasingly costly to be socially and environmentally irresponsible. Perhaps, in the first stages of ecological commitment, greenwashing is a stepping stone, but to overcome China’s environmental crisis, more needs to be done to hold companies accountable to their environmental commitments.