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  1. Presentation Pack Corporate responsibility and business success in China

  2. Structure Sustainable development Facts about China Sustainable development in China Business role and responsibilities Business implementation

  3. “Sustainable development meets the needs of the present without compromising the ability of future generations to meet their needs” Brundtland Commission, “Our common future”, 1987 Getting started • Who has previously heard about sustainability? In what context? • What would be your definition of sustainable development? • How important is sustainable development: • To you? • To your company? def·i·ni·tion "de-f&-'ni-sh&n Q

  4. Human activity = impacts Global Warming Ozone Depletion Water, Air, & Land Pollution Reduction of Biodiversity Resource Depletion Population Increase & Economic Growth

  5. Sustainable development covers many topics • Demography • Wealth • Nutrition • Health • Education • Consumption • Energy • Pollution • Emissions and waste generation • Efficiency • Ecosystems • Climate change • Agriculture • Human rights • Water • Urbanization • Mobility • Communications • Labor • Democracy • Accountability • Privatization • Biodiversity

  6. A changing global landscape “In a world of instant communications, whistle blowers, inquisitive media, and googling, citizens and communities routinely put firms under the microscope.” Tapscott and Ticoll (2003) • Issues include: • Communications – CNN world • Changing expecations of consumers • Valuation – including intangibles and knowledge • Free movement of goods and services • Finite nature of resources – carrying capacity • Changing demographics – haves and have nots • Changing role of business and government

  7. Context: Demography • Today: 6 billion human beings on Earth • 2030: population will reach 8 billion, of which 7 billion will live in the developing world • Populations will increasingly move towards cities, creating megalopolises

  8. Context: Natural resource needs Poverty eradication & population growth lead to a rising demand for materials and natural resources OIL, GAS, URANIUM, MINERALS, CLEAN, WATER … are finite and limited resources, and could become rare in the near future

  9. Land pollution • Land Pollution: • Agriculture +industrial activities + waste generation • Intensive use of chemical fertilizers • Intensive land exploitation x 4.5 in 40 years

  10. Air pollution • - Main environmental threat to human health • - SO2and NO2emissionsAcid rain

  11. The Greenhouse Effect

  12. Biodiversity • Global biological diversity is decreasing, due to direct and indirect human activity: hunting, loss of natural habitat (deforestation, desertification), etc. • The continuous decrease in animal and plant populations results in a loss of genetic diversity

  13. Roles and responsibilities Globalization goes together with the emergence of a growing number of stakeholders (more demanding and powerful) PRESERVE PEACE & STABILITY SEEK GLOBAL LONG-TERM SOLUTIONS POWER TO RULE, INCITE, TAX Institutions DEMAND MORE TRANSPARENCY, INFORMATION AND ETHICS; INCLUDE SOCIAL & ENVIRONMENTAL PERFORMANCE IN BUSINESS NOTATION POWER TO PROVIDE FUNDS Investors DEMAND TO BE CONSULTED AND ASSOCIATED POWER TO INFORM AND DENOUNCE (MEDIA, INTERNET, JUSTICE, …) NGOs Individuals SEEK QUALITY OF LIFE AND SECURITY DEMAND FREE CHOICE POWER TO VOTE, DENOUNCE, BOYCOTT Businesses CONTRIBUTE SERVICES, PRODUCTS AND TECHNOLOGY TO SOCIETY BALANCE ECONOMIC PROFITS WITH THE LONG_-ERM SUSTAINABILITY OF THE BUSINESS

  14. Increased awareness VALDEZ 1948: Declaration of human rights 1961: WWF, amnesty international 1970s: Environmental movements 1980s: 1984: Bhopal; 1986: Chernobyl; 1989: Exxon Valdez… 2002: Enron, WorldCom…

  15. Global frameworks and initiatives SarbOx The search for solutions is happening on a global scale and is being led by both public institutions and as part of private initiatives. Solutions include new legislation, stakeholder partnerships, voluntary agreements, codes of conduct, multilateral agreements, interdependent actions, etc.

  16. Planet People Profit Key for success in sustainable development • Maintain the balance between economic growth, environment, and social aspects by: • An integrated approach for business operations; • Partnerships among stakeholders; • A Cross-disciplinary approach. Natural resources & energy Health & Safety, equity Economic growth

  17. Structure Sustainable development Facts about China Sustainable development in China Business role and responsibilities Business implementation

  18. Facts about China Population growth Population growth (%) Population (Mill.) Population • China's population is 1.31 billion people. • GDP is US$ 1.41 trillion and expected to grow 8% in 2004. • It already accounts for 13% of world output. • Largest recipient of foreign direct investment. • China produces 2/3 of all photocopiers, microwave ovens, DVD players and shoes, over 1/2 of all digital cameras and around 2/5 personal computers. • In the last two decades, almost 200 million people have been lifted out of poverty. • Every year, 10 million more people join the job market. * Ref: The Economist, UNDP and UNFPA

  19. Size matters • 60% of the population still lives in the countryside but…. • At present there is only one car for every 70 people in China, against one car for every two Americans, but…. • The Chinese government estimates that there are 500,000 HIV positive individuals in China, or a prevalence rate of less than 0.2% but…. * Ref: The Economist, UNDP and UNFPA

  20. Increasing energy needs: Coal Lack of jobs in western China 74% of electricity produced in coal plants Coal reserves mainly in western China Shortage of electricity production capacity Strain on rail transport Safety of workers in mines New coal plants built in urgency Energy shortage prevents shutdown / modernization of old coal plants Limited implementation of standards: Pollution, safety & health & health issues Health and Safety conditions Efficiency Pollution Strain on resources CO2 emissions, global warming Coal prices on the rise

  21. Increasing energy needs: Oil China is the second largest consumer of oil after the USA, and accounts for two-fifths of the increase in global consumption since 2000. China occupies the second place among the major greenhouse gas emitters worldwide (13.5%). China only has 1.7% of worldwide oil reserves. Expected % of needs to be imported: 50% in 2010; 85% in 2030.

  22. Mobility China is expected to become the world's third largest automaker by 2010. • Oil consumption for mobility has risen sharply, contributing to making China dependant on importing oil. • Air pollution in the big cities is on the rise.

  23. Electricity production capacity Current issues • Electricity demand increased 16.5% in 2003 • Shortage of production capacity in 2003 • At its peak : 40 GW • Average : 15 GW • Direct impact on the economy, as 70% of electricity is consumed by industry • 2005 forecast: to meet its 2020 economic objectives, China must build the equivalent of one nuclear plant every 15 days for the next 15 years.

  24. Energy efficiency Less than 10% of new buildings are made according to existing isolation standards Energy growth is increasing faster than GDP (= “power elasticity co-efficient”) • 2005-2020 Government objectives : • - Increase GDP four-fold • Increase electricity production capacity two-fold (Objective to improve energy efficiency by 25%) Power elasticity co-efficient should be less than 1.0 (opposite to current trend) * Ref: UNIDO

  25. Depletion of natural resources Land degradation and desertification • The use of chemical fertilizers in China is two times higher than in other countries • Continuous expansion of desert = “desertification” • 1950s – 1970s: 1,500 km2/yr • 2003: 3,000 km2/yr • Sandstorms from the Gobi desert hit Northern China every year, reaching into Korea and Japan, and sometimes even crossing the Pacific Ocean and arriving at west American shores • * Ref: UNIDO

  26. Depletion of natural resources • Water pollution and consumption • Water availability in China is between 4 and 5 times less than world average • Presently 70% of cities have water shortages • Availability Irrigation, that accounts for 60% of use of water, suffers from leakages and losses of great magnitude • Pollution 60% of rivers and 90% of urban underground water are highly polluted • Inefficiency Industrial output needs on average about 7 times more water than more sustainable economies • Requirements 30 bln US$ required to solve urban water management in all cities (> 600.000) • * Ref: UNIDO

  27. Depletion of natural resources Mineral deposits China is already the world’s largest consumer of many commodities, such as steel, copper, coal and cement. Its increased needs account for much of the 50% rise in the world’s commodity prices over the past three years. • Coal • Largest producer and consumer in the world, and… • Consumption expected to rise further from 1.2 billion metric tons (2000) to 2.2 billion (2030) • US$ 120 billion would be required to modernize mines & install clean combustion systems (IEA) Reserves = 334.5 billion metric tons (“only” 3rd in the world)

  28. Pollution of natural resources: air pollution • Caused by high SO2 emissions from coal combustion China focus acid rain as a serious problem • A growing volume of traffic results in growing NOx emissions • China is responsible for 36% of worldwide pollutant emissions • Respiratory and heart diseases related to air pollution are the leading cause of death in China Out of the 20 most polluted cities in the world, 16 are in China.Estimated annual health costs due to air pollution is 44 bln RMB * Ref: The Economist, + UNIDO

  29. Urbanization and poverty • Rural poverty: - while 60% of the population lives in rural areas, they contribute to only 16% of GDP- income ratio urban-rural estimated at 3 to 1 • Urbanization: rate of migrant workers approx. 8 million people each year • Cities are facing problems in delivering infrastructure and services • Slums may start to appear in cities • Increased urban unemployment and loss of social security tied to state-owned enterprise reform • These trends are causing a growing “urban poor class”.

  30. Structure Sustainable development Facts about China Sustainable development in China Business role and responsibilities Business implementation

  31. China launches "green storm" against forest destruction China wrestles with 'massive' environmental degradation Vancover sun 05.04.2005 Xinhua News Agency 31.03.2005 Overwork in China claims another life and a foreign MNC is to blame Ethical Corporation | 19.11.2004 China seizes the nuclear option South China Morning Post | 04.03.2005 Recent headlines

  32. Social distinctions and poverty • Urbanization • Health, safety • Labor rights • Depletion of natural resources • Land degradation / desertification • Environmental pollution (e.g. water, air) • Water supply & treatment • Regional distinctions in infrastructure • Urbanization • Energy generation & utilization • Waste: solid, liquid, hazardous Current SD issues in China Population growth and change in social demands Which sustainable development issues could result from the tension between these 3 conditions ? Limited natural resources Fast economic growth Q

  33. Striking a balance Good lasting SD practice Ecological Economic Growth Equity Imbalance Balance • How to: • Provide employment opportunities • Maintain economic growth • Remain a competitive business environment • Reduce income inequalities • Yet also… • Sustaining the environment • Improving social aspects • Main Drivers: • Population Size & Growth • Globalization • Cultural shifts

  34. Call to action…. Same issues apply to all countries; their significance in China is the rate and magnitude at which they create imbalances Resources and efforts from all stakeholders are required to correct the imbalances; Failing to act immediately only worsens the severity of the required solutions Implementation is everyone’s responsibility = NGO’s, business and government

  35. Legislation Central government recognizes the need for action. Programs initiated to counter China’s SD challenges: • Agenda 21 • Millennium Development Goals • Xiaokang (1980) & Tenth Five-Year Plan (2001)

  36. Government Key Government Organizations with EHS Responsibilities Key: (chart showing approximation of hierarchy) NPC: National People’s Congress SEPA: State Environmental Protection Administration MII: Ministry of Information Industry AQSIQ: Administration for Quality Supervision, Inspection and Quarantine MOFCOM: Ministry of Commerce SAC: Standardization Administration of China (within AQSIQ) SDRC: State Development Reform Commission ( or NDRC)

  37. National People’s Congress • China’s Clean Production Promotion Law (CPPL) • Enacted June 29, 2002, effective January 1, 2003 • Statute providing legislative authority for a wide range of materials restriction and related initiatives in China • “Clean production” defined in law to include “fundamental reduction of pollution from sources, enhancement of resource utilization, reduction in or prevention of pollution during production and in the use of services and products through continual design improvements, use of cleaner energy resources and raw materials, adoption of advanced technologies, and improvement in management to reduce or eliminate harm to human health and environment • This directive is the foundation of new regulations

  38. Environmental Regulatory Status • Legal standards similar or equal to EU legislative and policy initiatives: • Restriction on Hazardous Substances (RoHS) Directive • Waste in Electrical & Electronic Equipment (WEEE) Directives • REACH proposal on Chemicals • Eco-design of energy-using products (EuP) • Prevention and Control of Environmental Pollution Caused by Solid Waste – drafting work recently commenced to amend existing law and include: • Control of hazardous wastes • Provisions reflecting regulatory concepts such as “extended producer responsibility”

  39. Do you know about Chinese environmental legislation? I • Which of the following products must meet energy consumption standards in China? • Air conditioners • Irons • Refrigerators • Rice cookers • TV All of them have to meet legal standards! From 1 March 2005, manufacturers of energy consuming products will even have to join labels to their products including: - The name & brand of the producer - The degree of energy efficiency - The energy consumption volume - The China energy standards referenced to determine the product’s degree of efficiency. Q

  40. Do you know about Chinese environmental legislation? II Are Chinese companies required to submit reports on their energy consumption? Of course they are!!! Much more than a simple statement on their level of consumption, companies exhibiting significant energy consumption are required to periodically submit their energy efficiency and the implemented saving measures to the relevant authorities. Thus progress in energy efficiency is a legal requirement in China. The import of backward energy intensive technology is illegal… before 2008 the law will be reinforced by incentives and disincentives towards businesses in order to promote energy efficiency… Q

  41. Do you know about Chinese environmental legislation? III The approach to hazardous solid waste identification is defined by the law as the prevention and control of environmental pollution by solid waste. What about liquid waste? The hazardous waste identification approach applies to liquid as well as solid waste. • Main aspects of the law are the following : • entities engaged in the business of collecting, storing and disposing hazardous waste shall apply for licenses; • Government may impose discharge fees on those responsible for the waste discharge that do not comply with relevant environmental laws; • Hazardous wastes are listed in an exhaustive catalogue; • Changing the land use of a previously waste dedicated area is submitted to legal control. Q

  42. Do you know about Chinese environmental legislation? IV Is it legal to import waste into China? Waste import is basically forbidden (or at least highly restricted), except when it can be used as raw material. Movements of waste are strictly monitored and controlled. This is true for trans-boundary waste shipment, as well as for waste movements between Chinese provinces. Q

  43. Initiative taken in China - Sustaining natural resources • Land and soil • Actions and programs • Success and Targets • China has afforested around 46.7 million hectares since 1950, this is about 26% of total woodland • The afforested area is planned to reach 110 million hectares in 2050, around 28% of China’s total area • China has initiated a program to stop desertification between now and 2010, to start reducing desertificated areas from 2010-2030 and to redevelop desertificated areas from 2030-2050 • In some regions soil erosion has been stopped by redeveloping farmland into woodland • * Ref: UNIDO

  44. Structure Sustainable development Facts about China Sustainable development in China Business role and responsibilities Implementation

  45. Term of officefor head of state Conflicting time scales Life of major consumer items Life of energy production capital stock Time to change beliefs and habits Lock-in caused byurban design Years 0 50 100 150 200 The business environment

  46. Business demands • Doing Business in a networked world • Information,knowledge, people and goods move around the globe as never before. • Beyond compliance, businesses need to meet international agreements & standards • Investors & international market - increasing demand for sound SD practices • Trends : accountability and transparency • Companies face increasing and partly conflicting demands from stakeholders: • Shareholders - high returns • Customers - affordable and high-quality products • Public pressure groups - more environmental protection and social engagement • Trends – accountability and transparency • Employees – safe and healthy workplace with fair compensation

  47. In summary: Why is SD in China so important for businesses? • China’s environmental impact affects the whole world • Great business opportunities for both Chinese and foreign companies • Major economic growth in China: large country of (potential) consumers • Economy open to both foreign and local investors • High quality and availability of labor force • Investors increasingly demand sound SD practices • Sound SD practices as a criterion in selection of suppliers • Sound SD practice is becoming a “license-to-export” • Compliance with global environmental regulations required • Olympics scheduled in Beijing in 2008 • Opportunity to show the world that Chinese business practice includes sound environmental and social management

  48. The business case for sustainable development • The business case for sustainability is a concept promoting corporate sustainability based on economic logic. • It points to opportunities companies have to create economic value by means of improving • environmental performance e.g. increase eco-efficiency, reducing pollution • social performance e.g. engage in community development beyond compliance.

  49. Improving business performance Short term • Demand from the emerging world= huge market opportunities • Consider local needs and conditions • Cleaner & more efficient production = better industrial efficiency and cost-effectiveness • More efficient/eco-friendly products = Less use of resources and energy and less waste generation = cost effective for the business and for consumers • Transparency, social standards, codes of conduct are part of the company‘s image • SD policy is taken into account more and more by investment groups and financial analysts = providing the company more financial access (Even stock exchanges are joining the Global Compact!)

  50. From risk to opportunity Longer term • Sustainable use of finite resources • Minimizing environmental impacts of business operations • Enhance stability in the communities where the business operates • The reduction of regional inequities on a global scale is necessary to preserve the stability that business needs to make profit.