Sustainability is now firmly on the corporate agenda in China. This is reflected in the development of Environmental Health & Safety (EHS) guidelines, corporate social responsibility (CSR) reporting, energy conservation and emissions reduction, and greenhouse gas reduction programs.
Moreover, there is growing consensus that actions to date have not been nearly ambitious enough to tackle the environmental challenges the country faces. This is spurring the Chinese government to accelerate the pace of change with the introduction of new policies, regulations and initiatives.
The government push is creating a truly dynamic and evolving market for companies operating in China, in which risks and opportunities go hand in hand. Companies that are adaptive and resilient will be able to respond quickly and positively to the new requirements of this market, and survive and grow. Those that don’t will find themselves marginalized by the operating requirements of the green economy and, resultantly, be in danger of falling behind.
The impetus for change
The focus on sustainable business in China is being driven by both domestic and international considerations.
Domestically, growing environmental problems, fears over energy security and social unrest emanating from health, food security and other environmental concerns have resulted in much greater awareness among both policymakers and the general public of the implications of unsustainable business operations on the country’s citizens and its environment.
Internationally, pressure brought to bear on multinational corporations in their home markets is being felt right across the global supply chain, including in the “factory of the world” – China. For many multinational corporations, this means embedding change across their whole operations, including China. This is having a knock-on impact on Chinese companies. At the very least, their continued licence to operate is going to depend on their ability to defend their reputations and respond to both peer and market pressure to adopt more sustainable business practices.
Striking out on a new path
In many respects, the largest challenge for China in making the shift to a green, sustainable economy is that the country will need to tread a new pathway to get there. For the first time, there is no defined road map for China to follow and, instead, it must strike out at the same point as other countries in defining the rules for sustainable economic growth. Choosing “growth first and clean up later” is no longer an option. Instead, China has to increase efficiency and de-carbonize itself while continuing to industrialize. With the largest population in the world and second largest economy, the pressure on China to succeed at this transformation is immense.
The price of failure
If China fails, the environmental implications for the rest of the world are immense. The country’s ever-increasing energy use, together with its position as the world’s biggest greenhouse gas emitter, will have a huge impact beyond its own borders and have a key influence on the world’s ability to limit global warming. Moreover, if China fails, the progress made in many developed countries may lose some of its positive impact as their sustainability success is partly due to shifting their polluting industries offshore to China and other developing nations. If China is not able to address the detrimental impact of these industries on the environment through the development and enforcement of effective policy and regulation, then its environmental problems will become the world’s problems. There is also the danger China may take a similar approach to that of the Western world as it expands investment into Africa and other developing countries.
The prize for success
If China’s ambitious plans succeed, this could create a model of sustainable economic growth that can be mirrored in many other developing nations. As China makes continued progress in diversifying its energy mix, innovating with green technologies, implementing laws and regulations around pollution control, and moving its manufacturing sector up the value chain, it will stand as a great example for many other developing nations on how to achieve sustainable economic growth and how to avoid pitfalls.
John Barnes is a partner in PricewaterhouseCoopers’ (PwC) risk and controls assurance practice. He joined PwC’s Beijing practice in 2005. He is responsible for managing key clients of risk and controls solutions in PwC China.
