Causing a stink in Shanghai (2)

Angry residents have long been battling to rid their neighbourhood of foul odours caused by Richina Group tanneries. In the second instalment of a three-part article, Xu Shuda reports that change is in sight.

I ask an official from the Baoshan Environmental Protection Bureau about the Richina Group. “The company has indeed made changes,” he says. “Since 2004, they have invested more than 10 million yuan (US$1.5 million) in environmental improvements. And, after they closed down the leather production line, pollution from Richina Leather fell by 80%. But the results are still not ideal.” Moreover, the changes are largely restricted to the Richina-branded facility. While this plant has significantly cleaned up its act, Richina’s smaller subsidiaries, which do not carry the company name, are still polluting.

He explains that the basic process of tanning leather makes it impossible to completely eliminate bad smells. “There’s no way the residents can put up with it, so we monitor the firm closely and keep up the pressure, going out looking for problems from time to time,” he says. He believes the crux of the issue is the location of Richina Leather’s plant – at the time of construction, there was no system of environmental-impact assessments in place in China and the company was free to build in a residential area. “If Richina was located in an industrial zone, rather than a residential one, then it could carry on,” says the official. “It is one of the industry leaders, after all.”

For the residents of Baoshan, however, there are signs that life could be about to change for the better. The official reveals that the Shanghai authorities have big plans for the area. In the future, there will be a beautiful, big park, modern service enterprises, post-processing bases and residential zones. He says: “They’ve made up their minds that, since there’s no hope of solving the problem and the impact on local residents is so great, they have to bring in some big changes – and not just pollution controls. This could transform life for the residents.”

He goes on to say that Richina owns the land the plant is on, which limits what the local authorities can do. Pressure on the firm to change its ways, therefore, has to come from the municipal government, which holds greater powers than local government and is better equipped to press the issue.

The official adds that his bureau has already held talks with Richina about bringing the company’s plans and those of the district into alignment. “Land is expensive here and the company will be able to make more money through property than producing leather,” he says. A source inside Richina also tells me that the firm will soon be shifting its focus to property development.

The company is also planning to move the smelliest parts of Richina Leather’s tanning activities to Liaoning province, in north-eastern China. Chief executive of Richina Industries, Bob Moore, says: “We’re going to invest 800 million yuan (US$117 million) in a new processing plant in Fuxin to handle the processes that create foul odours. The Baoshan plant will become a world-class facility for final processing, creating finished products without using any polluting techniques.” For the residents of Baoshan, this is good news; the reaction of locals in Fuxin, however, remains to be seen.

Ma Jun is director of the Institute of Public and Environmental Affairs (IPE) and the developer of China’s first water pollution database. He says that some of Richina’s clients are already worried about the pollution being caused by their suppliers: “For example, Timberland has said it will gradually reduce and eventually eliminate sourcing from Richina.”

Such pressure is beginning to bear fruit. While Ma’s earlier requests for Richina Leather to undergo a systematic, third-party audit went ignored, the company has now contracted a firm to carry out a monthly inspection of its operations, according to the British Leather Council, which audits the environmental performance of international leather suppliers on behalf of major corporations. Furthermore, while Ma Jun says such “monthly inspections” fall short of the rigorous checks his organisation and others have been demanding, he understands that Richina Leather is now preparing to undergo a more comprehensive third-party audit.

But, for Ma, this is a small victory in the context of a much wider problem. “The most important thing to realise is that Richina is not an isolated case,” he says. “Lots of leather firms have similar issues with pollution.” He believes that China’s system of environmental supervision is not strong enough and this is one reason why Richina continued to violate pollution regulations for so long. “China’s environmental authorities have very few tools at their disposal – usually just administrative sanctions and fines that are capped at a low level,” he says. “The cost of breaching regulations is therefore low, particularly as companies are only ever fined once per year for any single breach. In many countries, such as the United States, the penalties are more severe and can be applied on a daily basis, with fines of US$25,000 (170,000 yuan) per day until the problem is solved.”

Another reason for better pollution control overseas is the imposition of punitive fines by courts, according to Ma. In many countries, victims can ask the courts to order firms to pay compensation for infringing their rights and the courts can impose higher penalties than the environmental authorities. Major polluters could face fines of hundreds of millions of US dollars – or even be shut down. And so it makes more sense for the firm to solve the problem than to risk a fine.

Ma Jun thinks the outsourcing of manufacturing’s dirtier parts has made corporate environmental responsibility more complex. “China is playing the role of the world’s factory, with many major brands sourcing products here,” he says. “The most power-hungry and polluting stages of manufacturing are transferred to Chinese firms – in much the same way as Richina purchased Shanghai Leather Industry and then transferred the most polluting parts of the manufacturing process to its subsidiaries.” His solution would see Richina’s corporate customers bolster management of their supply chain. Big brands such as Nike and Armani must screen suppliers carefully, says Ma. Otherwise, their environmental commitments are just a sop to trusting consumers.

Another key reason for Richina’s longstanding pollution breaches was a failing in oversight by the British Leather Council and the Leather Working Group, according to Ma. These organisations have developed a protocol for the environmental audit and assessment of leather suppliers, but Ma believes it was not sufficiently rigorous to raise the alarm about Richina. The Leather Working Group is made up of corporate customers of the world’s major leather producers and sets environmental standards for those producers. Auditing is entrusted to the British Leather Council, which carries out an environmental inspection of producers once every 18 months, with the date agreed in advance. “As long as there are no breaches on the actual day, they are fine for the next year and a half,” says Ma. “And neither historical records nor public complaints are covered by the audit.”

For global brands with a lot to lose, such a weak auditing system is potentially disastrous. The problems with the current system – and the bad publicity they have created – have caused companies like Timberland and Nike to take stock. After the Hong Kong-based South China Morning Post ran an article on the problems at Richina Leather in July, 2009, Timberland and Nike both got in touch with the Leather Working Group: “They wanted to tighten up the British Leather Council’s auditing process and have the working group review its standards,” says Ma. In late 2009, Timberland’s representative in China, He Xu, said that, if the British Leather Council failed to improve its auditing methods, Timberland would update its own processes to make up for the inadequacies of the existing system – by tracking the past environmental records of suppliers, for example.

The Leather Working Group admits there have been weaknesses in its system but insists that it has worked hard to address these since Timberland and Nike raised objections. It has updated its protocol and is preparing to launch a new version next week. “There has been some corrective action to try to prevent this happening again,” says the group’s spokesman, Adam Hughes. “The audit is a snapshot in time – it’s not a background audit. But what we do now insist on is that a senior person on site signs a declaration that the assessment provided is true and accurate. In addition, they will get a negative score if they have had any convictions or warnings. If they have had a verbal warning plus a conviction, they will potentially fail the audit.”

The impact of Richina Leather’s pollution breaches has, it seems, stretched beyond the neighbourhoods of Baoshan. “This is one of the biggest black marks against the Leather Working Group’s process,” says Hughes. “But we reacted to it very quickly. We have taken significant steps forward.” Hopefully, the lessons learned will not stop there.

Xu Shuda is a reporter based in Shanghai.

NEXT: Who runs Richina?
Homepage image shows products from Timberland, which has said it will gradually cut Richina out of its supply chain.