China firms see financial benefits from carbon footprinting

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? 

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? 

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?

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, ICBC, 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.