Be Green and Prosper

By Dawn McGregor, Hongqiao Liu 4 February, 2016

CWR's McGregor & Liu show why future prosperity in China is 'green' with trends from 2015 & future plans

To prosper in China this year and onwards one needs to be green, so says the Chinese government, business, laws and global agreements such as the Paris Agreement at COP21 (see our on-ground takeaways here and what the event means for China here).

‘Green’ – be it development, growth, finance and so on – has been popping up for some time now but the frequency and pervasiveness has intensified over the last year, especially in government and business contexts. ‘Green’ came up in this year’s No. 1 Document, which states the central government is exploring solutions and new models through structure reform to “realize green development and sustainable resource utilization”.

The pervasiveness of ‘green’ – be it development, growth, finance and so on – has intensified over the last year, especially in govt & business contexts

The word ‘green’ came up 21 times in the approved suggestions from the Communist Party to the CPC Central Committee for the 13^th Five Year Plan. President Xi Jinping recently stressed the need for green economic development along the Yangtze River. The Central Economic Work Conference last month reinforced that green development is one of its main targets.  In December 2015, China released rules for green bonds. The list goes on.

Given this ‘green’ fixation it’s not surprising that government officials and businesses not going ‘green’ are being called out and are facing material consequences. It’s hard to prosper, let alone continue operations when you’re being jailed, fined, taken to court, shamed or a combination of all.

Laws and polices proving a backbone to deal with those not going ‘green’

China’s revised environmental protection law has been in force just over a year now, it was released January 2015. Last year also saw the release of the ‘Water Pollution Prevention and Control Action Plan’ (“Water Ten Plan”), which set stringent industry standards and very tight compliance deadlines. Various other environment or ‘green’ related regulations and standards were also passed. Over the year we have seen these laws and policies in action:

• Three people were sentenced to prison and fined for polluting water in central China; one of the companies involved was also fined  RMB1.7 million;
• 10 company officials were detained over fabricated pollution data; some of the companies involved may face criminal lawsuits; and
• A China Coca-Cola bottling executive was held for five days after a Coca-Cola facility was accused of falsifying pollution data.

The courts have also seen some action:

• In a first, Chinese prosecutors in Shandong filed a lawsuit against a county-level environmental protection department;
• Two environmental groups have become the first NGOs in China to win a lawsuit against polluters on behalf of the public; and
• The Supreme People’s Court (China’s top court) upheld the record penalty of RMB160 million against six companies in compensation for discharging waste acids into two rivers sentenced in late 2014. It was the biggest environmental penalty imposed in China arising from a public interest case concerning polluters. It was also the first time that the Supreme People’s Court had heard such litigation.

It’s not just businesses feeling the tighter wrath of ‘green’ policies, government officials are too. Given the government is stepping up enforcement on itself business can assume they will face the same if not more in the future:

• In October 2015, the MEP announced an environmental impact assessment for three major economic powerhouses was launched, Beijing-Tianjin-Hebei, the Pearl River Delta  and the Yangtze River Delta;
• State Council announced in December 2015 that it will start claiming compensation from polluting companies and individuals, particularly those who damage state property, over the next two years;
• On January 4 2016, a one-month environmental protection inspection of Hebei Province began at the behest of central authorities. It will examine the implementation of Party and state environment policy by the provincial Communist Party of China committee and local government, including their handling of environmental problems and what they are doing to improve the situation; and
• Central authorities plan to inspect each of the provincial regions in China every two years, “China Environment News” reported in December 2015.

“This year should see big increase in China’s environmental law enforcement capabilities & efforts…”

Wang Hua, researcher at MEP’s Policy Research Centre for Environment & Economy

According to Wang Hua, researcher the MEP’s Policy Research Centre for Environment and Economy we can expect to see more of this 2016. “This year should see big increase in China’s environmental law enforcement capabilities and efforts… This year will see further improvements at the central government level, with stronger central oversight and coordination with local governments. Both government and the courts will be coming down harder on businesses that break environmental laws”, said Wang.

It’s not all doom and gloom, ‘green’ also means opportunity 

New markets are sprouting and small ‘green’ ones growing – China green car sales are set to double to 700,000 units in 2016; Apple is working with its suppliers in China to help them achieves achieve zero waste, while promoting clean water and solar power programmes. Meanwhile, old industries are being given avenues for new life by going circular. Technologies, business models and resources that help to make this linear to circular shift stand to profit greatly.

“Being sustainable is good business”

William Xu, Global Head of Strategy and Marketing & Board Member at Huawei Technologies

“Being sustainable is good business”, said William Xu, Global Head of Strategy and Marketing and Board Member at Huawei Technologies.
Xu’s sentiment was the case at COP21, which saw the largest ever delegation of Chinese entrepreneurs.

Wang Wenbiao, CEO of Elion Resource Group, showed at COP21 how his company’s business model on desertification control (being ‘green’) makes money. In the last 27 years, the Elion Resource Group has repaired and greened 1.27 million km² of desert in the Kubuqi Desert, the seventh largest desert in China. The model was highly awarded by the United Nations Convention to Combat Desertification. There are applications and benefits for this model globally as Wang said, “We found a comprehensive solution rooted in China to combat desertification and it will benefit the world as well.”

Another example at COP21 was from China National Cereals, Oils & Foodstuffs (COFCO), China’s largest food processing, manufacturer and trader. COFCO is already promoting biogas in Brazil and Argentina in place of fossil fuel. COFCO CEO, Ning Gaoning said at COP21 “Climate change has impacted food supply and food price. As a world leading oil & foodstuffs corporation, COFCO will improve its food supply chain efficiency and reduce the environment impact of food processing.”

There is no question, ‘green’ is the only way forward

China’s 13FYP starts this year. We expect to see more focus on the environment and holding “ecological red lines” than ever before, as well as policies supporting systemic change towards a low carbon future.

One of the other approved suggestions from the Party for the 13FYP is that ‘green’ is marked as one of the key development concepts for future growth and should also be considered at the same time with innovative, coordinative, open and sharing.

The Chinese government is encouraging business to go out of China, which falls into some of the suggested growth concepts above, but according to Xu from Huawei Technologies, “For Chinese companies wishing to win trust in markets outside of China, they must build credibility as responsible corporate citizens. This means extending their focus beyond mere profitability, to include softer, but no less crucial, aspects of business: social responsibility, environmental stewardship, and transparency among them.” Clearly, ‘green’ will play an important part in future international expansion.

Chinese companies considering being listed abroad also need to be aware of increasingly more ‘green’ listing conditions. The Hong Kong Stock Exchange in December 2015 strengthened the Environmental, Social and Governance (ESG) Reporting Guide in its Listing Rules. Issuers are now required to state in their annual reports or ESG reports whether they have complied with the “comply or explain” provision, and if they have not, to give considered reasons in their ESG reports.

“More Chinese enterprises should dedicate themselves to a green and low carbon future and to increase investments in low carbon technology R&D, as well as market applications.”

Xie Zhenhua, lead negotiator of the Chinese delegation at COP21

Green consumption – be it as a consumer or business – is also being encouraged in China, as is green production green finance and green lifestyle. See here for 8 sustainable behaviours the Chinese government is promoting from bicycling to work to not golfing.

China is hosting the 2016 G20 Leaders Summit in September. In the lead up to this there are already various green finance and climate finance study group meetings scheduled, as well as sustainable energy working group meetings. The future direction is clear – ‘green’.

I’ll leave it to Xie Zhenhua, lead negotiator of the Chinese delegation at COP21, to sum it up (best to hear it from the horse’s mouth), “More Chinese enterprises should dedicate themselves to a green and low carbon future and to increase investments in low carbon technology R&D, as well as market applications.”

Further Reading

• China Water Risk’s 5 Trends for 2016 – Prioritizing environment alongside employment signals a reshuffle. To show it’s serious, China will “kill a chicken to warn the monkey”. The Year of the Monkey brings with it wild swings, so check out our top 5 trends in water for 2016 for it is better to be in a position to disrupt than be disrupted
• Developing A Global Water Stewardship System – Alliance for Water Stewardship’s Zhenzhen Xu, Ma Xi & Michael Spencer introduce the first ever global water stewardship standard and share lessons learnt from Ecolab’s pilot at their Taicang China chemical plant
• Comparing Chinese Hydropower Overseas – Who’s better at building dams overseas? Datang, Huaneng, Three Gorges or Huadian? International Rivers’ Jenson-Cormier shares their benchmarking study on seven Chinese hydropower co’s
• Renewable Energy: Bigger Than You Think -Renewables surge as coal wanes but the bulk of the renewable energy boom is yet to come. CWR’s Thieriot on why this aggressive surge won’t be enough to solve the climate-energy nexus

Being ‘green’ & water

• COP21: What Paris Means For China – All eyes are on China, the largest contributor to global emissions as it transitions to a low carbon future. See what Paris means for China from carbon trading, peak emissions to carbon-intensive industries
• Green Finance Revolution: China Can Lead – Can financing required to meet targets laid down in Paris be met? WRI’s Shouqing Zhu & Andrew Steer on how China can lead with five recommendations
• China Water-nomics – Will China’s economic development be hampered by limited water resources? Can the Three Red Lines limit GDP growth at 5.7%? Read on for more on China water-nomics
• Incorporating Environment Into Business – Companies are incorporating environmental performance into business, so suppliers need to follow suit or risk losing customers. BEPI can help both parties as Flavia Micilotta explains
• Water Stewardship: Actions Must Match Risk – Despite acknowledgement of water risks, 58% of companies in CDP’s 2014 Global Water report do not have a public commitment to water. We expand on actions needed in China & globally to match the risk