Corporate values, green governance

The failure of companies to report environmental pollution in China exposes challenges for governments in the developed and the developing world, writes Tang Hao.

Eighteen multinational and Chinese companies, all of them listed in last year’s Fortune Global 500 or Fortune China 100 – including Shell, Samsung, Nestle, LG, Kraft, Motorola, Denso and Bridgestone – failed to report environmental pollution at 25 different sites in China, according to a survey by Greenpeace last month.

The eight non-Chinese firms on the list would not be so bold in their countries of origin: they would worry that the government, the media or the public would complain about the environmental effects. However, they are braver in China, and can remain unconcerned even when the environmental authorities accuse them of breaching rules on pollution.

Besides the issues around the lack of enforcement of China’s environmental regulations, we should also understand how such environmental double standards arise from larger failings in the international political economy. Only when we clearly understand the interests at work behind polluting multinationals can we solve the problem at its root, and identify the responsibilities of governments and those who export pollution.

Overseas investment in China by developed countries has largely been in polluting sectors. This is no accident, but a deliberate strategy. Developed nations place ever-stricter restrictions on polluting manufacturing processes, which hinders the multinational companies at home – as does competition from overseas manufacturers who do not face these same costs. For these firms, fierce global competition means it makes sense to export the environmental costs of manufacturing.

In the past, researchers concluded that foreign direct investment flowed into China thanks to abundant cheap labour. But other Asian markets with cheap labour costs, such as India, are not as attractive. Clearly, something other than the cost of labour attracts multinationals to China. Academic Qin Hui has described this as the “low human-rights advantage”. But that is more from the point of view of the developing nation, rather than the multinational company. From the corporations’ angle we could see this as “low public-interest cost”: meaning cheap labour, cheap resources and low environmental costs.

The cross-border relocation of pollution is one serious consequences of the governance lag between developing and developed nations. As western economies have developed, their market environments have transformed: profit is not the only goal, and balance is sought between the market, companies, society and nature. But the opening up of markets in developing nations such as China have given multinational companies the chance to return to a profit-orientated environment.

China’s local government officials are evaluated by their economic successes – and so powerful companies are often treated leniently. From the point of view of many firms, law enforcement is the exception rather than the rule; any official who does otherwise will be seen as a trouble-maker. In this particular case, 18 firms found themselves on local environmental authority blacklists – yet not one of them released details about their pollution by the deadline. Nor were any punished. This demonstrates lax enforcement of environmental law. And it is not only the multinationals that enjoy this free pass; 10 of the firms named were Chinese, including household names like Sinopec, China Aluminium Corporation, Dongfeng Motor Group and China Resources.

In developing nations, the growth of civil society – an important environmental force – is restricted. In China it is hard for an environmental organisation to register, let alone act. And civil society has no right to enforce the law; even if a problem is identified there is rarely anything that can be done.

The current international regime presents no solution to the cross-border movement of polluting firms. Worse, there is a tacit agreement between the governments of rich and poor countries and corporations; the chain of interests that links them operates and strengthens of its own accord. Governments in poor countries – particularly local governments – welcome polluting multinationals to improve economic performance and strengthen their own positions. The multinationals, with the support and tacit consent of local government, earn the huge profits that low environmental costs allow.

It is the environment of developing nations that is damaged. The victims are the citizens – who are already exploited as cheap labour for companies – and lack channels to express themselves and influence government policy.

The firms listed in the report had all been identified by the local environmental authorities as causing pollution and ordered to rectify the situation. But only a few took the orders seriously. This was not a case of accidental oversight: allowing system failures to generate profits has become a long-term investment strategy for all involved.

Fixing these problems will be a slow process, but we need a starting point. The market will not solve environmental issues on its own, certainly not in an export-orientated economy. A balance is needed between economic development and environmental protection. Each nation should pay its share of environmental costs.

China’s government should welcome greater international oversight and adopt international environmental standards. China should not stress its unique situation and be content with a lax environmental policy. The country has already paid a heavy cost. As the environment continues to degrade and multinationals continue to relocate their polluting factories to China, this cost will only increase. The sooner we adopt a firmer environmental policy, the sooner we can ensure China’s long-term development.

The rise of civil society will give new impetus to the search for a solution. The market environment cannot be changed overnight, but public interest or civil litigation could be used alongside campaigning by environmental groups to open a legal route to building better systems, with visible results that can encourage further social action. China needs a long-term strategy for dealing with companies’ quests for “low public-interest costs” and passive government environmental policy.

Tang Hao is an associate professor and a columnist. He is currently Fulbright scholar-in-residence at Randolph-Macon College.
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