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CSR stirrings in the Middle Kingdom

Michael Jarvis's picture

Recent reporting suggests that corporate environmental and social issues are increasingly debated in China. Government officials are showing growing interest in CSR, including initiatives by the State Environmental Protection Agency and the Ministry of Commerce. National CSR organizations are appearing with government support, such as the Chinese Enterprise Social Responsibility Research Institute. This in part reflects growing pressures resulting from fast growth.

Just in the past few weeks, Victor Fung, chairman of the Greater Pearl River Delta Business Council called for the 90,000 Hong Kong-owned factories operating in the Pearl River Delta to adopt socially responsible manufacturing and sourcing - as he highlighted the problem of air pollution in the region. As reported in the Financial Times on August 28th, this follows a recent American Chamber of Commerce report in which 60% of surveyed senior executives of Hong Kong-based multinationals were “very worried” about pollution impacts on their health.

Consequences go beyond the risk of asthma, raising concerns over attracting and retaining top talent.

A few days earlier the Association for Sustainable and Responsible Investment in Asia called for better disclosure of environmental, social and governance issues by local manufacturers, following a review of firm IPO prospectuses in A Cat and Mouse Game for Investors: Assessing ESG Disclosure of Supply Chain Listings in Hong Kong. Poor disclosure poses risks for investors given that a company could lose contracts over failures to meet standards required by international buyers or the Chinese government.

As concerns and interest grow, we could see the emergence of Middle Kingdom-style CSR that is backed by government as supporting a “harmonious society” and by local firms as a business opportunity. Felicia Pullam’s recent piece on Corporate Responsibility as China Strategy in China Business Review urges multinational firms to move fast to extend CSR programs to Chinese operations, not least as they help build good relationships and a lasting positive reputation with the emerging consumer base. Delays could mean the loss of advantage to Chinese firms that are starting to embrace CSR themselves.


Uniform Manufacturing Regulations Will Deter Externalities from Pollution It is nice to finally see officials such as Victor Fung, chairman of the Greater Pearl River Delta Business Council embracing policies that put pressure on Chinese manufacturers to practice environmentally responsible operations. However in a society driven by wealth and affluence this may be a difficult task, unless the Chinese Government steps in and creates mandatory regulations for all manufacturing companies. It is hard to imagine these Chinese companies along the Pearl River Delta relinquishing their competitive advantage within the industry. Adhering to such regulations would require costly upgrades which would unfortunately increase the cost of production. If a competitor were to continue their manufacturing ways the competitive advantage would now belong to their competitor. Although big investors can threaten to revoke contracts with large polluting manufacturers, their bottom line is without doubt their first priority. Without Government enforcement of this timely issue there is no real motivation within the Chinese companies to increase their costs and lower their margins to reduce pollution.

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