Top 10 CSR Trends in China 2022
By Syntao 24 April, 2022
What's different in this year's Top 10 CSR Trends in China? SynTao expands on what China's common prosperity policies mean
This article was first published by Syntao on their website in Feb 2022, you can see the article here.
Trend 1: Carbon neutrality target leads to a new development stage
In 2021, China issued two important policy documents, “Guidance on the country’s work to achieve carbon peaking and carbon neutrality goals under the new development philosophy” and “Action Plan for Carbon Dioxide Peaking Before 2030”, which initially formed a “1+N” policy system for carbon peaking and carbon neutrality goals. The former is the “1”, which is the top-level design and governs the overall long-term development; the latter is first of the “N” series policy documents, which guides carbon peaking works by 2030. We expect that in 2022, various ministries, business associations and local governments will formulate their own guidance and actions based on these two documents. The transition path will be clearer, and multi-level pilot projects of carbon peaking and carbon neutrality will be carried out. Companies should pay closer attention to the policy update of their industries and regions, and respond in a timely and positive manner.
Governments & businesses will include carbon targets in their policy goals…
Zero carbon transition should happen in an orderly way. It cannot go too fast and it is not a one-time effort. We expect that governments at all levels will begin to include carbon targets in their policy goals and create incentives in markets. 2021 witnessed the launch of the green power trading pilot, and we expect 2022 will continue to deepen and expand the scale. Following the first year of smooth operation, Chinese national carbon trading market is likely to expand and bring in more pilot industries in the coming years.
Trend 2: Companies compete in the zero carbon transition movement
Setting a carbon peaking and carbon neutrality timeline and planning a zero carbon transition roadmap are becoming the “new standard” for leading companies in China. Under the guidance of the “1+N” policy system, we expect more large companies to develop zero carbon strategies. The State-owned Assets Supervision and Administration Commission of the State Council (SASAC) has incorporated carbon into the evaluation of central-level state-owned enterprises. For multinational companies, their branches in China are expected to contribute significantly to their headquarters’ carbon targets. The leading private companies will also accelerate their zero carbon transition, and more “carbon-neutral solution” providers will emerge.
SASAC has incorporated carbon into the evaluation of state-owned enterprises
In 2021, many companies already set carbon neutrality targets and transition pathways, including traditional industry firms such as Baowu Group and GAC Group, internet companies such as Tencent, Alibaba and Baidu. We expect that more firms will announce carbon neutrality targets in 2022, especially in sectors of energy, transportation, manufacturing and finance. More attention will be paid to science-based target setting and high-quality development.
Trend 3: Sustainable development is the consensus between China and the Western world
The world will continue facing a number of challenges ranging from epidemics, economic recovery to political frictions and trade competitions. Nevertheless, China adheres to multilateralism and international cooperation. Under this context, we expect that sustainable development, especially climate change, will continue to be the very consensus between China and the Western world. That means, in 2022 China will continue to deepen international cooperation in areas of climate change and biodiversity, and will actively advocate green development along the “Belt and Road”.
Cross-border supply chain conflicts will continue to increase…
Meanwhile, cross-border supply chain conflicts continue to increase. On the one hand, several countries in Western world are accelerating long-arm jurisdiction legislations. Some misuse CSR issues and link them to trade barriers. On the other hand, individual countries are abusing business and human rights principles and imposing barriers improperly on goods associated with Xinjiang areas in China. We estimate such conflicts will increase, extending from international trade to capital markets. We suggest that companies should respond properly to protect China’s national interest.
Trend 4: Common prosperity is to balance efficiency and fairness
In 2021, Chinese government reiterated that the focus of promoting people’s well-being should be put on boosting common prosperity to strengthen the foundation for the ruling Party’s long-term governance. To realize this goal, we need to make a better balance between efficiency and fairness, and to build a better institutional arrangement for primary distribution, redistribution and the third distribution. Actually, all distributions are related to CSR: primary distribution is mainly related to labor conditions, redistribution is mainly related to tax paying, and third distribution is mainly related to corporate donations.
Common prosperity policies will enhance China’s CSR initiatives – especially on the social side
The policy advocacy of common prosperity will greatly enhance corporate awareness of social responsibility, guiding them to improve employee welfare, paying taxes properly, and actively engage in philanthropic activities. As a result, we expect that more companies and entrepreneurs will contribute to common prosperity in a more systematic and professional way, e.g., investing in poor regions, corporate giving by establishing private foundation, etc.
Trend 5: Workers’ rights and interests are better protected
Driven by multiple policy factors, the protection of workers’ rights and interests will be improved to some extent. First, because of common prosperity policy, government will work hard to grow the size of the middle-income group. Second, the precondition of encouraging young people to have two or three children is to protect and enhance their compensation as working class. Third, government will find ways to make blue-collar workers’ jobs decent to revitalize manufacturing industry, and attract students to study at vocational schools. Finally, government is enhancing regulations on internet companies including the overtime problem and deliverymen’s social security.
Therefore, we expect that decent labor will become a hot topic of CSR in 2022. Companies should follow this trend and improve the employment relationship. Apparently, this may push up the labor cost in some industries and create long-term impacts on the value chain. However, it will also stimulate new types of job formats such as flexible employment.
Trend 6: Rural revitalization accelerates the modernization of agriculture and rural areas
Rural revitalization is also an important part of common prosperity. In 2021, the State Council’s Poverty Relief Office was reorganized as the National Administration for Rural Revitalization, which marked the beginning to rural revitalization in China. The work of rural revitalization will be carried out in an orderly manner. According to “the Opinion on Accelerating the Modernization of Agriculture and Rural Areas by Comprehensively Promoting Rural Revitalization” and other policies, currently, the rural revitalization work focuses on building rural infrastructure and public service systems, improving rural living environment and accelerating agricultural and rural modernization. We suggest companies focus their efforts in these areas.
Co’s will advantage if they cooperate with rural revitalisation efforts…
In the long run, industry development is the foundation of rural revitalization. According to the National Rural Industry Development Plan (2020-2025), Ministry of Agriculture and Rural Affairs proposes to vigorously develop the agricultural products processing industry, rural specialty industries, leisure agriculture and new rural service industries. Therefore, companies can make good use of their business advantages and develop some “creating shared value” projects with local farmers rather than just donations.
Trend 7: Financial market further embraces ESG and responsible investment
Statistics from domestic and international markets in the past two years clearly show that ESG and responsible investment are growing fast. This trend will continue in 2022. Addressing climate change and contributing to the carbon peaking and carbon neutrality targets will be the main theme of ESG and responsible investment in China. In terms of market size, credit market and bond market dominated by commercial banks still represent the biggest part of the market. Green finance policies by regulators such as carbon reduction re-financing facility, environmental stress testing, and green finance evaluation for financial institutions will contribute to this trend.
Carbon peaking & carbon neutrality targets will be the main themes of ESG
In this context, the awareness of listed companies on ESG rating will keep increasing and there is still great potential for further improvement. We suggest listed companies establish ESG management system and enhance disclosure in order to improve ESG rating.
Trend 8: More ESG disclosure requirements will be released
Ministry of Ecological Environment (MEE) is actively implementing relevant policies to strengthen corporate environmental disclosure. MEE released an administrative measure at the end of 2021 and a format guideline at the beginning of 2022. With a clear attitude of being both proactive and prudential, China Securities Regulatory Commission (CSRC) is taking a voluntary disclosure approach first rather than mandatory approach. Meanwhile, China’s Company Act is under revision, which proposes for the first time to encourage companies to “publish social responsibility reports”.
Cutting-edge developments with further ESG disclosures…
We expect that ESG disclosure will take several small steps forward in 2022, with a few cutting-edge developments. First, high carbon sectors and financial sectors will develop faster. Second, players in green bond market and green credit market will face higher disclosure pressures. Third, existing and future green finance pilot zones are more active on promoting disclosure work. Fourth, financial institutions and listed companies are more likely to disclose carbon emission data and climate risks. We suggest companies take a more proactive approach, disclose ESG information and release ESG report as soon as possible, and then continuously improve the quality.
Trend 9: Diversity and inclusion receive more attentions
Several negative cases in 2021 have brought the topic of Diversity & Inclusion (D&I) to the public. D&I can be divided into two categories. First, diversity in the workplace and business environment, i.e., respect and care for minority groups such as women. Second, diversity at board level, i.e., representation of minority groups such as women board of directors. In Europe and the U.S., diversity issues are on the rise, with NASDAQ requiring “at least two diverse directors” for listed companies in 2020 and the Norwegian Government Pension Fund releasing a gender diversity policy in 2021. Proponents believe that D&I measures can bring a multidimensional perspective to corporate decision-making, help manage risks and recruit talents.
China joins the bandwagon on D&I discussions – primary focus on protecting women’s rights
In China, D&I discussion has focused on the first category, namely the protection of women employees and the respect for women in marketing. However, the second category is also emerging. Shenzhen has organized the Board Diversity Forum for three consecutive years. Hong Kong Exchange is suggesting listed companies promote gender diversity in their boards and employees. Companies should pay attention to this in order to create a diverse and inclusive business place and governance structure.
Trend 10: Generation Z is changing consumer and job market landscape
Growing up in the internet era, Generation Z (born after 1995) is changing behaviors in consumer and job markets. Compared with other generations, Generation Z is more confident and rational. The rise of China’s native fashion trends in 2021 is an example that shows Generation Z has a balanced view on the differences between domestic and foreign brands. In terms of green consumption, a survey conducted by SynTao indicates that Generation Z has a relatively high awareness of green consumption and is most willing to share their choices. In terms of workplace, a survey conducted by ZhaoPin indicates that Generation Z pays more attention to such factors as values, compensations, working hours and office environment. They care their own feelings caused by these factors.
Co’s are expected to evolve their business approach to growing Gen Zs’ green consumer demands
This is an unavoidable trend and companies have no choice but to follow. First, companies can develop responsible products, even specially for Generation Z. Second, companies can tell responsible stories to shape a sustainable brand. Third, companies can develop themselves as responsible employers in order to attract talents of Generation Z.
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