Disclosure: Where is China?

By China Water Risk 12 June, 2012

China Water Risk looks at the differences in disclosure between the Top 10 Chinese & Global companies on the Fortune Top 100 Socially Responsible List

Although growing, China CSR disclosure still lags behind their global counterparts
Top Chinese SOEs take the lead in CSR
Inconsistency in water reporting persists domestically and globally

The table below shows the Fortune China Domestic CSR Top 10 v. Fortune Global CSR Top 10.

At a glance, a couple of interesting points to note:

  • The majority of both Chinese and Global companies improved their CSR rankings within the Top 10: Seven out of the ten Chinese and Global companies improved in their rankings. In China, COSCO and Sinopec retained their positions with only China Mobile slipping from #2 to #9. On the Global side, three companies slipped in their ranking:   BASF from #5 to #8; Nokia from #8 to #9 and Toshiba from #3 to #10.
  • In China, there is further improvement: six of them were not in the Top 10 last year compared to four out of ten Global companies.
  • Top Chinese companies take the lead in CSR: Five of China CSR Top 10 are also in the Top 10 of Fortune China 500 whereas none of the Global CSR Top 10 are in the Top 10 of Fortune Global 500.

So we could safely say that China is improving in CSR disclosure and the larger state-owned enterprises are leading the way. Or are they? … given that only China COSCO would make it into the Global Top 10 list, ranking an equal 7 with BMW, if the two lists were combined.

Conspicuously Absent

The Top 10 is electronics biased, including 5 top global electronic brands but there is only one Chinese electronic manufacturer, ZTE,  in sight. Since most of the manufacturing of these brands has been outsourced to China, do the global electronic brands deserve to be in the Top 10 considering their supply chains? Foxconn springs to mind. In a survey performed by an alliance of Chinese NGOs that eventually led to the breaking of the Foxconn scandal, all five electronic companies in 2012’s Top 10 list were listed as polluters. Since then, efforts have been made by the companies in answering questions from the NGOs and you can track their progress in this summary table or read about it here). However, some question if true progress really has been made when household giants Apple and LG Electronics are obviously missing in the Global CSR Top 50 let alone the Top 10.

China chemical and automobile companies are also conspicuously absent. Instead, surprisingly it is the dirty industries in China which are making the effort … construction, petroleum and steel, compared to the “brands” on the global side. This may be surprising but they are state-owned enterprises, which in China are appearing to taking the lead in CSR.

SOEs take the lead

According to CSR Asia’s recent article on Reporting & Disclosure in China, “reporting is on the rise and leadership being shown by many state-owned enterprises will have a “trickle-down” effect on other businesses in China.”

CSR Asia also highlighted that the State-Owned Asset Supervision and Administration Commission (SASAC) had published a report about the status of reporting and disclosure of Central Enterprises in China: 2011 Analysis Report of the CSR Reports of Central Enterprises ”.

According to the report:

  • 21 companies published their first 2010 CSR reports in 2011
  • 71 out of 117 Central Enterprises in China published a 2010 CSR report in 2011, Five Central Enterprises previously producing CSR reports have yet to publish them at the time of the report
  • Of the 71 published reports:
    • 62 (87%) were called CSR reports and 9 (13%) Sustainability Reports
    • 22 (31%) reports were bi-lingual (Chinese & English), the remaining 69% were in Chinese only
    • 43 (61%) companies disclose negative information in their CSR reports, whilst 28 did not contain any negative information in them
  • Average number of report pages was 69
  • Only seven central enterprises sought third-party assurance for their 2010 CSR report whilst 25 invited experts to make public comments on their reports

What about water disclosure?

Only one company each on both the Global and Chinese CSR Top 10 lists has signed the UN CEO Water Mandate – Dow Chemical and Baosteel. Both have disclosed water-specific GRI indicators. With regards to the CDP Water Disclosure Questionnaire, Dow Chemical was surveyed – they opted to provide information instead of answering the questionnaire. Baosteel on the other hand, cannot be faulted on this front as it was not surveyed. Only one of the Chinese companies, PetroChina was surveyed regarding CDP Water Disclosure. PetroChina did not respond.

In general, Chinese companies provided less water-related GRI information than their global counterparts.  Only three out of the Top 10 CSR China list have water-related GRI information in their CSR report or on their website, compared to seven on the Top 10 CSR Global list. The three Chinese companies with water disclosure data are China Cosco, ZTE and Baosteel – they also happen to be the Top 3 on the China list. On the contrary, there are only two global list companies with minimal water disclosure – 3M and Nokia.

With regards to using standard reporting guidelines, China is lagging behind. Indeed, according to the SASAC’s “2011 Analysis Report of the CSR Reports of Central Enterprises”, only 49 or 69% of the 71 Central Enterprises produced CSR reports used the GRI framework in 2011.

 

So it looks like there is still much room for improvement on water disclosure in China and globally. Given that everything requires water to make, including our clothes, food and power and that water scarce regions in China contribute 45% to the country’s GDP, adequate water disclosure should be top of the agenda. With globalization and China’s position as the factory of the world, water disclosure should be a priority not only for Chinese but  global companies and investors.

 

Going all the way

China Water Risk believes that there is a growing shift in perception and this trend will move sustainability away from being viewed as a “costly distraction” to potential cost savings and business opportunities, prompting many leaders in sustainability to integrate their sustainable development numbers into financial reporting.

None of the Chinese companies on this top 10 list have done so. In HK, Swire Pacific just started incorporating sustainable reporting into their Annual Report –  read why they did this here. There are two companies that have done this on the Top 10 CSR Global list. Interestingly, they are the two chemical companies, Dow Chemicals and BASF; chemicals is one of the top five most water polluting sectors in China.

What about polluters?

Most companies on both lists are not without pollution incidents. For example, BASF and 3M both have had large water pollution incidents: 3M was sued in 2010 by the state of Minnesota for the contamination of local water systems through the release of chemicals;  BASF, on the other hand was involved in an incident as recently as February 2012, when an ammonia leak forced evacuations in Chattanooga, Tennessee.

In China, PetroChina’s epic chemical spill in the Songhua River in 2005 caused 4 million residents to lose access to water and served as a springboard for the redraft of the Prevention and Pollution of Water Pollution Law (more pollution incidents here).

The question here is whether or not companies should be marked negatively for pollution. Some Chinese banks appear to be starting to think so. According to a report on the Environment Record on Chinese Banks”, recently published by eight Chinese NGOs, there is a “growing tendency” for Chinese banks gradually to reduce loans to companies with high energy consumption and/or highly polluting industries. The report, which tracks the environmental performance of 16 Chinese banks, also found that despite the lack of consistent reporting, Chinese banks appeared to be seeking more environmentally friendly projects. This would be in line with central government policy support for “Energy Efficiency and Environmental Protection” as one of the seven Strategic Emerging Industries highlighted in the 12FYP.

Slowly, slowly …

All this is encouraging news indeed. China does seem to have improved and is continuing to make an effort to disclose. Many commentators have even expressed surprise at the information available in Chinese CSR reports. However, despite some movement toward embracing GRI reporting, consistency remains an issue – there is room for improvement in using a standard set of reporting guidelines on water disclosure – domestically and globally (read more here). Chinese companies have a chance to set the pace on water disclosure; as Debra Tan says, “Perhaps a water crisis and increased risks are not just the winning formula for the water sector but for disclosure as well” (read more here). The outlook remains positive – China is moving ahead, albeit slowly.


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Additional Reading

Not sure what everyone is doing globally and locally? Check out Who’s Doing What

Want an at-a-glance summary on disclosure? Check out Big Picture: Water Disclosure

Need more disclosure: opinions, reviews, interviews, research, reporting guidelines etc  … click here

China Water Risk
Author: China Water Risk
We believe regardless of whether we care for the environment that water risks affect us all – as investors, businesses and individuals. Water risks are fundamental to future decision making and growth patterns in global economies. Water scarcity has emerged as a critical sustainability issue for China's economy and since water powers the economy, we aim to highlight these risks inherent in each sector. In addition, we write about current trends in the global water industry, analyze changes occurring both regionally and globally, as well as providing explanations on the new technologies that are revolutionizing this industry.
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