The Evolution Of Chinese Corporate Social Responsibility

By Asit Biswas, Cecilia Tortajada 19 March, 2020

Water gurus Biswas & Tortajada share their optimism on China's CSR & ESG landscape

CSR began to gain traction in China after the Sichuan earthquake & keeps growing as the new middle class expects safer products & environment; beyond public pressure, the govt is stepping up
Co's that fail to meet ESG standards now face higher fines & senior officials face jail sentences; external rules have also helped along with stock exchange reporting rules for listco's
As a result, the number of CSR reports grew 8.5% y.o.y in 2011-2018 but the quality has gone down as local govts remain focused on GDP & protect polluters; this is set to change with new 2020 rules

The article was first published in Project Syndicate in December 2019. Click here to view.

Over the last decade, Chinese businesses have made significant strides in incorporating environmental, social, and governance (ESG) issues into their decision-making. But they still have a long way to go, and they will not get there on their own.

The idea of corporate social responsibility is relatively new in China. Among the Chinese public, CSR began to gain traction in 2008, after a magnitude 8.0 earthquake struck Sichuan province, killing 69,181 people, injuring 374,171 more, and leaving 18,498 unaccounted for. More than 15 million homes were destroyed, leaving ten million people homeless. The total damage was estimated at USD150 billion.

After the so-called Great Sichuan Earthquake, the Chinese public demanded that business contribute to the recovery. Companies responded, offering USD1.5 billion in support – and setting a new precedent for philanthropic CSR in China.

When Sichuan suffered another serious, though less devastating, earthquake in 2013, major multinationals were quick to offer support. Samsung’s RMB60 million (USD8.5 million) contribution, and Apple’s RMB50 million (USD7 million), confirmed that social responsibility had become an integral part of doing business.

As China’s new middle class flourishes, demands for CSR will only grow

As China’s new middle class flourishes, demands for CSR will only grow. Well aware of global norms and developments, middle-class Chinese expect safer products, better services, and a healthier environment. They are no longer willing to tolerate companies that prioritise profits over human and environmental welfare.

Recently, China’s govt introduced harsher punishments for co’s that fail to meet ESG standards…

…e.g. higher fines & jail sentences for officials

But, as powerful as public pressure is, it is no substitute for regulations. In 2006, Chinese corporate law was revised to include the concept of CSR, and the Shanghai and Shenzhen stock exchanges issued guidelines for disclosing CSR performance. More recently, China’s government introduced harsher punishments for companies that fail to meet ESG standards, including significantly higher fines and jail sentences for senior officials.

External rules have also helped. For example, in 2003, the European Union adopted new regulatory requirements on waste electric and electronic equipment and reduction of hazardous substances, which apply to the entire supply chain of any company operating in, or exporting to, EU countries.

Moreover, in 2016, the Hong Kong Stock Exchange made ESG reporting compulsory for listed companies. The HKSE followed up in 2018, when it introduced more stringent disclosure requirements.

From Jan to Oct 2018, co’s issued 1,676 CSR reports – an 8.5% YoY increase from 2001

These measures have had a powerful effect. From 1991 to 2005, Chinese companies issued just 22 CSR reports. In 2006-2009, the total rose to nearly 1,600. In 2018, that number was matched in just ten months: from January to October, companies issued 1,676 CSR reports – an 8.5% year-on-year increase from 2001.

Listed state-owned or state-controlled companies – which are more likely to incorporate the government’s priorities, from poverty alleviation to pollution control, into their business models – issue the most CSR reports. Government priorities are also reflected in the ways companies implement CSR: for example, in 2004, when China’s state forestry administration launched its “National Forest City” program, many companies focused their CSR efforts on tree-planting.

Yet as the number of CSR reports has risen, the share that can be considered good has declined

But the ESG record of Chinese business remains mixed, at best. For example, the quality of CSR reports varies widely, as do their rates of publication. And, in fact, as the number of CSR reports has risen, the share that can be considered good has declined.

This should not be surprising, since CSR reporting is still not mandatory, and there no penalties for failing to disclose ESG information, let alone for issuing poor-quality reports. Companies listed on the HKSE generally offer much higher-quality sustainability reporting than their counterparts listed in Shanghai and Shenzhen.

Local govts have remained focused on GDP & many provincial govts have openly protected their biggest corporate polluters

Local governments further undermine China’s ESG record. Despite Chinese President Xi Jinping’s  2012 declaration that economic growth should no longer be pursued without regard for its social and environmental consequences, local governments have remained focused on GDP. (A strong growth record can, after all, lead to promotions for Communist Party officials.) According to China’s former deputy minister of the environment, Pan Yue, many provincial governments have openly protected, and even actively supported, their biggest corporate polluters.

New regulations will make ESG disclosure mandatory for 3,000 of China’s listco’s & bond issuers in 2020

The good news is that this seems to be shifting, as the central government sustains – and, indeed, deepens – its commitment to ensuring that companies embed ESG objectives in their operations. Next year, new regulations will make ESG disclosure mandatory for 3,000 of China’s listed companies and bond issuers.

China’s CSR landscape has changed almost as much as its urban skylines over the last decade. But the next ten years should bring even faster progress. China’s people and their leaders are no longer willing to allow companies to shirk their social and environmental responsibilities.

Further Reading

  • 5 Trends For The Year Of The Rat – Will the rat bring more outbreaks or will we get sunk like a drowned rat by water and climate risks? Or can we stay ahead with our wits and cunning to win the rat race? Find out what the lunar new year has in store for us in our 5 trends
  • Dirty & Thirsty – Not Just A Paper Tiger – China is the world’s largest paper producer but the industry is a Top-3 polluter. Pollution crackdowns have led to cuts across provinces and water quality has improved. With rising enforcement, is this just the beginning?
  • Top 10 CSR Trends For 2018 In China – 2018 is a landmark year for China on numerous fronts – what does this mean for CSR? SynTao highlights key trends to watch out for from their new report, including Xiong’An, the Greater Bay Area & mandatory disclosure
  • Where Is The E In ESG Disclosure In China? – China is moving to mandatory environmental disclosure with a tentative 2020 deadline, but where are listco’s now? China Water Risk’s Dawn McGregor & SynTao’s Dr. Peiyuan Guo share 8 key takeaways from their newly released joint report, “CHINA PRIORITISES ENVIRONMENT: More Disclosure Needed To Match Rising Risks”

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Asit Biswas
Author: Asit Biswas
Professor Biswas is a leading authority on water, environment and development-related issues. He has been an advisor and confidant to Presidents, PMs and Ministers of 19 countries, six Heads of UN Agencies, two Secretary-Generals of OECD and several heads of IGOs and MNCs. He was also Director of Canada’s Department of the Environment. Asit co-founded the International Water Resources Association (IWRA), the World Water Council and the Third World Centre for Water Management and currently sits on the International Advisory Board of Pictet Asset Management and the Indian Institute of Technology and is Strategic Advisor to Singapore International Water Week as well as Distinguished Visiting Professor to the University of Glasgow. Asit is a distinguished Academician. With 950+ publications, his h-index of 44 makes him an ‘outstanding scientist’ and a Research Gate score of 41.89, puts him into the top 2.5% of all scientists across all disciplines globally. He founded the International Journal of Water Resources Development and is the author or editor of 88 books; his works have been translated into 41 languages. He has also seven Honorary Doctorates plus numerous prestigious global environment and water awards, ranging from the Aragon Environment Prize to the Stockholm Water Prize; Canada even named him Person of the Year in 1996.
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Cecilia Tortajada
Author: Cecilia Tortajada
Dr Tortajada is a leading international authority on urban water and wastewater management. She currently focuses on ensuring water future in terms of food, energy and environmental governance and ensuring water security through coordinated policies, which include water and natural resources management and water reuse. Dr Tortajada has advised major international institutions like FAO, UNDP, JICA, ADB, OECD, IDRC and GIZ, and has worked in numerous countries in Africa, Asia, North and South America plus Europe. She received the prestigious Crystal Drop Award and has been the only woman President of the International Water Resources Association during its 50 years of history. Dr Tortajada is currently a member of the OECD Initiative on Water Governance and juror for the Finnish Academy’s Euro One Million Millennium Technology Prize. She is also the Editor‐in‐Chief of the International Journal of Water Resources Development; Associate Editor of Water International; member of the Editorial Boards of the International Journal of Water Governance, Journal of Natural Resources Policy Research, and Urban, Planning and Transport Research Journal; as well as Editor of book series with Routledge, Springer and Oxford University Press. Cecilia has also authored and edited over 40 books by major international publishers. Her work has been translated into Arabic, Chinese, Farsi, French, German, Hindi, Japanese, Mongolian and Spanish.
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