Green Priorities Draw New Red Lines for Business in China

Government's Recent Focus on Sustainability Is No Passing Fad; New Report Examines Implications--and Opportunities--for Multinational Companies Operating in China

Apr 01, 2015, 12:00 ET from The Conference Board

NEW YORK, April 1, 2015 /PRNewswire/ -- For a generation, the epic transformation of China's economy seemed to put the interests—and fortunes—of its varied stakeholders in tight alignment. Years of breakneck growth lifted millions of ordinary Chinese out of rural poverty, bolstered political stability and the government's legitimacy, and fed the record profits of multinational companies (MNC). But as economic expansion has slowed in recent years—and the devastating environmental impact of China's legacy growth model becomes clear—the consensus behind unbridled growth has unraveled. Increasingly affluent and plugged-in to national and global conversations, Chinese citizens are demanding serious action against polluters, and Beijing is responding by putting sustainability at the center of government policy. For local protestors and party leaders alike, corporations in China have become obvious targets for green crusading, including multinational firms operating in the country.

China Wants to Go Green: Sustainability Imperatives for Multinationals, released today by The Conference Board, examines China's current green-policy landscape and how political priorities and public opinion will shape it in the years ahead. Informed by commercial, legal, regulatory, and diplomatic implications, the report lays out a path responsible, proactive MNCs can follow to become constructive partners, rather than targets, of China's burgeoning sustainability drive.

"By any measure—air and water pollution, soil contamination, shrinking biodiversity—China is amidst an environmental crisis," said Anke Schrader, co-author of the report and a lead researcher at The Conference Board Center for Economics and Business in Beijing. "The government is getting serious about making sustainability a centerpiece of its agenda and, with public opinion on its back, is pressured to tighten regulations, issue more ambitious new targets, and crack down more aggressively on offenders. Multinational companies—seen by some domestic pundits to have profited hugely in China's rise by 'outsourcing' pollution as well as jobs from developed countries with stricter laws—will likely come under particular scrutiny. Our research shows that so far, most multinationals have weak public environmental disclosure practices in China.

"Rather than fight Beijing's direction or passively accept coming regulations that may be ineffective or competitive debilitating, leading MNCs have a window of opportunity to take the initiative. Companies which act now to bring their environmental measurement, management, compliance, and reporting in China to global standards can help mold the shape of future environmental protection regulations—and advance their standing among increasingly savvy and environmentally-conscious Chinese consumers."

Among the key implications of China's sustainability focus detailed in the report:

  • The Globalization of Environmental Protection. China will seek to make industrial companies share the costs of environmental deterioration and remediation in the developing world. International agreements are likely to include corporate sustainability provisions, while supply-chain transparency will increase in importance.

  • Increased Government Monitoring and Enforcement at All Levels. The list of companies specifically targeted by the central government for enhanced scrutiny will continue to grow. While enforcement is likely to become fairer at the local level, high-profile "name and shame" campaigns may also become more common.

  • Higher Penalties, More Opportunities. Polluters may now face daily fines, as under the U.S. Clean Air Act, while the recent U.S.–China carbon deal should spur investment opportunities in alternative energy.

  • Changing Expectations of Legal and Social Compliance of MNCs. New rules allow qualified NGOs to initiate and drive public-interest environment cases, adding a "bottom-up" legal pathway to China's typically "top-down" regulatory system. Like the rise of social media, this development means that building trust at the community level will be a growing priority for MNCs that may once have mostly focused on building good relations with the levels of Chinese officialdom.

  • Increased Public Disclosure Requirements. A growing proportion of companies operating in China will face mandatory public sustainability reporting. This and other pressures will help increase the quality of sustainability metrics for the Chinese market, which remain fragmentary and unreliable.

For complete details:

Report: China Wants to Go Green: Sustainability Imperatives for Multinational Corporations
Research Report R-1577-14-RR, By Anke Schrader, Minii Xie, and Melinda Zhang

About the Conference Board
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SOURCE The Conference Board