China firms see financial benefits from carbon footprinting

by Harry W.S. Lee for chinadialogue

Top Chinese companies are starting to see why scrutinising their carbon footprint can make good commercial sense, says Carbon Disclosure Project’s China Director.

Corporate sustainability is based on the idea that companies can best fulfil their social commitments by running their core business operations sustainably, not merely through charitable donations. Six years ago only 5 out of 100 top China-listed companies responded to the Carbon Disclosure Project’s survey but 45% replied last year. China director Li Rusong talks to chinadialogues’s Harry Lee about the latest developments.

(CD): Your CDP China 100 Climate Change Report 2014 found better
quality answers to CDP’s questionnaire and more corporate initiatives on
climate change. Is corporate sustainability catching on in China?

Li Rusong (LR): There has been both behavioural and mindset
changes especially from the banking and ICT sector. In particular,
mobile phone companies are realising carbon disclosure is a very good
platform for them to be doing an exercise to improve energy efficiency,
and save money.

One of them invited us to their office three times to go through those
questions one by one to understand their rationale. They also asked us
to put them in contact with global peers like BT and Vodafone, and
worked hard at studying BT’s responses [to CDP’s survey]. They want to
compete with them.

I am enthusiastic about this. The policy push is there; companies have
to comply with government regulations. The market incentives are also
there. Consumers’ environmental awareness is awakening, though
individual consumer power is limited.

But collective power from multinationals as huge purchasers will play a
big role. Institutional investors are increasingly looking at
sustainability. Even with Chinese investors, we see a trend towards
engaging in dialogue with their investees.

HL: What has been the most important factor behind this growing interest in corporate sustainability?

LR: Investors are one of them, but there is a larger driving
force, and that is the purchasing power of multinationals. . As buyers,
they’re in a very good position to pressure Chinese suppliers to make
their services more environmentally friendly.

A small company in Zhejiang province told us that, previously, they
considered environmental concerns to be very remote, until
multinationals pressed them to solve their water wastage problem. They
had to shut down some of their production lines because they didn’t have
advanced technology at the time. But, during that process, they shut
down out-dated production lines and, in the end, managed to find new
technology to really improve their performance. Of course, government
regulations are also important.

HL: Despite progress, companies revealing their data are a minority. How
can you get more firms to disclose their data? And how does CDP ensure
data is genuine, not green-washing?

LR: We have to convince the government that disclosure is
useful for China’s competitiveness. At the same time, we have to
convince the companies that disclosure is useful for them too. Otherwise
there is no way forward.

Some organisations are watchdogs. We are not one of those – we try to
design a framework or methodology to help companies find problems and
solve them. CDP works with market-shapers – with institutional
investors, and multinational purchasers. If a company has a motivation
to hide something, or report false information, it will be no good in
the long run, because CDP’s supporters are their shareholders. And if
they lie, eventually they will be found out and punished by watchdogs
and auditors.

HL: Does disclosure lead companies to automatically change their
behaviour? How does disclosure actually drive corporate sustainability?

LR: When you have the data, you’ve got insight into where to go
next, either by asking for CDP for feedback, or a third party
consultation. You have points on which to base your future improvement,
and behavioural changes. Disclosure is in itself a competitiveness
exercise; they get to know their strong and weak points, and their
sector’s trends. It allows them to see their potential risks and
identify innovation points. Of course, companies won’t deal with
problems automatically; it’s still up to the company leadership’s
determination to take this forward. But disclosure is a very good
foundation for possible change.

HL: How important is it for NGOs to work with companies in pursuit of transparency and corporate sustainability?

LR: The large percentage of pollution comes from
companies themselves. At the same time, they have the capacity to solve
the problem. Corporations will play a very important role in
sustainability, as much as the government. Soo if NGOs really want to
solve problems and be a positive force, rather than sitting there just
to criticise, they should work with corporations. And I do see a lot of
Chinese NGOs are beginning to see this point, and they already started
working with corporations in different ways.

HL: Green credit is important in encouraging
environmentally-friendly practices. Do you sense that Chinese banks are
turning in this direction?

LR: Previously

there has been very little progress

on this front. But this year, the China Banking Regulatory Commission
(CBRC) convened up to 20 state-owned banks and invited us to hold a
half-day workshop with them. We shared insights from international
peers, like the World Bank Group’s IFC, about how they can reduce their
environmental footprint and leverage their financing power to convince
investees to do something. Some pension funds, state-owned banks,


and China Construction Bank are all learning from their international
peers who have pioneering programmes. The People’s Bank of China and
other state-owned banks have been cooperating with the British Embassy
on green credit initiatives for a few years. They have also researched
into green credit policies in the EU and the U.S., even sending their
staff there to learn.

HL: You talked about the importance of convincing government officials. How do you engage them, and how interested are they?

LR: Chinese government officials are
very clever. Before they have a 100% trust in certain organisations, or
certain ideas, they will wait and see, as they can patiently They watch
and listen to what you do and say. We have to take a very practical
approach, to reach out to them. We need to show a track record that
shows [data disclosure to CDP] will benefit companies and China.
Finally, CDP has to prove that it is a trustworthy organisation. Here,
in China, organisations consist of people, so if the people within this
organisation can be perceived as trustworthy, that’s good enough for
first step. It is a very human relationship.

Previously we received heavy suspicion about CDP’s
mandate and because we are a foreign-based NGO. We went step by step to
convince those Chinese government bodies, with case studies, dialogue,
and information provided by other countries and by bcompanies, to show
how disclosure is a positive thing to do. Less and less people maintain
suspicion; more and more people are willing to talk with us to gain a
better understanding and explore opportunities to work with us. But, I
don’t want to pretend everything is perfect. We are still in the process
of winning the trust of the government. Rather than a turning point, it
is an evolving process – it really is a work in process, I still feel
that way.

HL: Local governments may fail to implement central government’s environmental policies fully. How do you deal with this?

LR: There is a gap between the
awareness of central government and provincial governments. But
provincial governments’ limitations are not due to a lack of drive to
learn, but to tough realities . Sometimes, they just feel that revealing
information could lead to an unknown situation They are unsure about
the utility of CDP’s data, and concerned it will jeopardise Chinese
corporate secrets, or even their position. For example, the Zhejiang
government mentioned concerns to me about their companies releasing
information. It’s very understandable for a Chinese government official
without a deep understanding of CDP to be unsure what the benefit of
this kind of exercise is. 

photo by Flickr user “Jesse Varner”


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