Greening Business in China
Featuring: Rick Bunch, World Resources Institute; Virginia Barreiro, World Resources Institute; Heather McGray, ECOLOGIA; Ann Weeks, U.S.-China Business Council (Discussant)
By Timothy Hildebrandt and Jennifer L. Turner
In recent years, businesses in the United States and Europe have begun to embrace environmental causes to boost their profits in an increasingly environmentally conscience market. Those corporations with the most uphill battle in recreating themselves green moved quickly: Upon its acquisition of U.S.-based AMOCO, British Petroleum shed its traditional shield in favor of a green and yellow sunflower reminiscent of the familiar Green Party mascot and adopted the progressive-sounding slogan "bp: Beyond Petroleum" to highlight the company's clean energy activities; in recent years Waste Management, the largest waste collection service in the United States, abandoned its customary brown trucks for green vehicles while also trumpeting its small recycling service in ad campaigns. Beyond a change of image, more U.S. and European corporations are beginning to see that promoting sustainable development is good for the environment and makes good financial sense. This environmental awareness is also rising among businesses in China, which are trying to distinguish themselves in an increasingly crowded market.
To achieve their green goal, some Chinese companies have gone beyond just re-branding. Indeed, businesses in China intersect with the environment on three different levels, according to Ann Weeks of the U.S.-China Business Council:
At this Wilson Center China Environment Forum meeting, representatives from nongovernmental organizations discussed the interaction of business with the environment in China. Rick Bunch outlined World Resource Institute's (WRI) efforts at integrating environmental issues into the curriculum of business schools, while his colleague Virginia Barreiro profiled WRI's program that supports environmental-related business ventures. Heather McGray from ECOLOGIA reflected on her study of environmental certification and the rising popularity of ISO 14000 in China. This was the first of many future meetings in which the China Environment Forum will examine these signs of increased corporate responsibility and, more specifically, the trend of the involvement of businesses in environmental movements.
Learning How to Make Green
In the past decade, more Chinese than ever have been taking the Deng Xiaoping adage, "To get rich is glorious" to heart. Not surprisingly, the number of students enrolling in MBA programs has skyrocketed. While the total number of accredited businesses schools in China, 62, still pales in comparison to the 700+ in the United States, it is clear that more and more of China's best and brightest are choosing to continue their education in the field of business administration. It is this trend that led Rick Bunch and WRI to make China the most recent area of focus for their successful "BELL" (Business Environment Learning Leadership) program.
BELL was founded on the notion that, provided with appropriate training, business leaders of tomorrow also could become environmental leaders. Indeed, echoing Ann Weeks, Rich Bunch suggested that the activities of business almost organically intersect with environmental issues. Presumably, an environmentally aware business leader would undertake policies that keep both the interests of the company and the environment in mind. Acknowledging that the vast majority of U.S. businesses leaders hone their skills in business schools, WRI began in 1991 to target these institutions of higher learning. Environmentally themed curriculum is the means by which BELL has aimed to achieve its goal of teaching future business leaders about the environment-business nexus. The general strategy, according to Rick Bunch, is threefold:
WRI's activities in China began with a faculty training conference in Hong Kong in 1999. The conference was well attended by deans from China's most prestigious business schools, leading WRI to set up another meeting a year later. The 2000 meeting was more substantive and less exploratory; professors and administrators from China's 62 nationally accredited business schools were asked to identify what environmental issues might be addressed in new environmentally-themed curriculum. Professors used materials and ideas introduced at the conference to begin creating modules of course material. In April 2002, this preliminary curriculum was presented at the latest China BELL conference. The modules, while not perfected final products, have already had an impact—China's national MBA supervising committee is using the modules as part of their mandatory training conference for business school professors.
Challenges to Greening China's Business Schools
Although BELL has a decade-long history and a substantive effect on "greening" business schools in the United States, its program in China has run into some roadblocks. Most problematic for the program, according to Bunch, is the lack of curriculum developed in China. Certainly, a wealth of English-language materials exists that describe business case studies applicable to the United States. But, to make the material more meaningful to Chinese business students, significant time and money must be devoted to creating curriculum in Chinese with cases that reflect China's realities. In addition, while deans across the country have appeared to show great interest, there has yet to be significant adoption of the curriculum created by the Chinese professors for the BELL conference. Rick Bunch insists that for the BELL program to have a real impact, the business school leaders must move beyond pleasant nods to true action.
While BELL in China has laid the beginning foundations, Rick Bunch is hopeful for the future. He notes that China's business schools strive to be like their U.S. counterparts; therefore it is imperative that links be created between U.S. and China schools. To this end, BELL has brought Chinese business school leaders to the United States in hopes of demonstrating successful environmental programs and encouraging future exchanges and partnerships. In addition, WRI, in collaboration with the National MBA Education Supervisory Committee, is creating a first of its kind environmental management textbook, published in Chinese and based upon China-relevant case studies. WRI also hopes that their newest China program, New Ventures, will provide an opportunity for students to see the possibilities of engaging in business activity that is both economically successful and environmentally friendly.
Green Business in Action—WRI's New Ventures Program
As the world's largest multinational corporations are drawn to China by the promise of great profits, WRI also sees the country as an opportunity to promote the viability of environmental entrepreneurship among Chinese companies through its New Ventures program. This program supports sustainable enterprise creation by accelerating the transfer of venture capital to outstanding investment opportunities that incorporate social and environmental benefits. Those coordinating WRI's New Ventures program in China see many opportunities for investment: Virginia Barreiro pointed to a 22 percent jump in foreign direct investment (FDI) in just one year—and China's distinction as the number one recipient of FDI worldwide. Moreover, New Ventures is entering a market already open to the idea of supporting environmental enterprises. Estimates suggest that China will invest $85 billion to address industrial pollution, while clean energy industries are experiencing double digit annual growth.
An October 2002 meeting in Shanghai marked the official launch of WRI's New Ventures China program, which aimed to demonstrate the significant role that small- and medium-sized enterprises (SMEs) could play in sustainable development. Twenty 20 Chinese SMEs (mainly from China's east coast), a wide range of Chinese government agencies, multilateral organizations, and multinational corporations such as Citigroup attended the launch. This China initiative is building on the Latin American roots of the New Ventures program. Beginning first in 2000 in Brazil, and a year later in Mexico, New Ventures seeks to act as a "business accelerator." New Ventures links promising entrepreneurs who are devoted to balancing business and sustainable development with potential investors. Creating this link involves more than simply introducing those who need funding to those who provide funding. The New Ventures program empowers entrepreneurs by providing assistance in drafting business plans and helping to hone their business skills. The newly created New Ventures China program will include four primary stages:
- During the identification stage from October 2002 to March 2003 an extensive network of on-the-ground "nominators" will find sustainable enterprises appropriate as candidates for the program;
- A diverse group of experts and analysts will then evaluate possible companies and select finalists in March 2003 emphasizing three key criteria: (a) creating a viable business model, (b) assembling an appropriate management team, and (c) demonstrating a commitment to sustainable development;
- Mentoring, the heart of the New Ventures program, involves pairing technical and financial experts, business consultants, and MBA students with the finalists who together develop a business plan over the span of five months, April to August 2003; and,
- At the end of the mentoring period, WRI will convene a September 2003 investor forum meeting in which participants will present their business plans to potential investors and learn more about market opportunities in environmental sectors.
Despite some challenges, Barreiro suggests that WRI has reason to be optimistic about New Ventures China. Indicative of opportunities for environmental entrepreneurship is China's burgeoning "green foods" industry. In 2001, more than 1,200 Chinese enterprises produced $6 billion worth of food products that met the Chinese government standards for "green food" (foods free from harmful chemicals). While such green food products accounted for only 3 percent of China's food market last year, its share should increase rapidly in years to come. Pointing to their work in Brazil and Mexico, Barreiro noted that in just two years New Ventures has lead to $4.4 million in investments for over 50 companies. WRI's devotion to building local partnerships has built a strong and growing New Ventures program in Mexico and Brazil will remain—Barreiro was confident that this history of success will continue in China.
Measuring Green, from the Inside and Out—ISO 14000
Since Deng Xiaoping assumed power and declared the country open for business, Chinese leaders have strived for international recognition of China as a great economic power—from the less significant, for instance Shanghai securing the 2010 installment of the beleaguered "World Expo" series, to the momentous, such as China's ascension into the World Trade Organization. Key in expanding its global economic power has been China's rapid adoption of international technological and management standards, particularly certifications from the International Organization for Standardization (ISO).
Originally intended to internationalize technological standards to help facilitate international trade after World War II, ISO certifications have evolved to cover management, quality assurance and, most recently, environmental management. The basic concept of this new certification, according to Heather McGray, is to integrate environmental considerations into day-to-day management. Known as ISO 14000, these environmental standards were authored by representatives of ISO's 160 member countries. The most common certification for environmental management system (EMS) standards is ISO 14001, which requires companies to undergo a five-step process of certification:
- First businesses are expected to create an environmental policy,
- Then assess the environmental aspects of their businesses;
- Set objectives and implement an EMS;
- Once the EMS is underway, the business is expected to perform an internal audit that then leads to the granting of the ISO 14001 certification; and,
- Each certified business is expected to constantly reassess and improve their EMS.
This relatively straightforward system makes the certification accessible for SMEs and thus is particularly useful in large countries like China dominated by these smaller enterprises.
The entrance of ISO 14001 into the Chinese market already has proved to be an early success. The first five months of 2002 saw a 50 percent increase of certifications in China, ranking seventh in the world for number of ISO 14001 certifications; during the same time period, the United States saw a more modest 24 percent increase. McGray suggested that external pressure and domestic policies help to explain this great interest in ISO 14001:
- The Chinese government is strongly involved in ISO 14000 certification by promoting it through national legislation (e.g., the most recent Five-Year Plan) and through limits on fees for certification and EMS consulting to make the certification financially accessible to enterprises.
- In some cities (Shanghai, for example) municipal governments promote ISO 14000 through monetary awards to certified companies.
- The Chinese government is attempting to use ISO 14000 in a semi-regulatory capacity. Unlike many countries, China requires that enterprises meet national emissions regulations as the first step to ISO 14000 certification.
Many businesses also are compelled by the opportunity to increase international trade. In the past, various other ISO certifications have been proudly displayed as a badge of honor, a validation for Chinese businesses that hope to engage the global marketplace. More importantly, the World Trade Organization is increasingly deferring to international standards in trade disputes. By promoting EMS certification, China hopes to be ahead of the curve and on the winning end of trade conflicts with ISO 14001.
Not surprisingly, McGray reports that the vast majority of certifications have been issued in industries most closely involved in international investment—electronics, chemicals, mechanical, construction—and in regions where global trade is commonplace—Guangdong, Jiangsu, Beijing and Shanghai. Moreover, businesses with a close connection to multinational corporations tend to be more proactive in getting this certification—for example, joint ventures account for 67 percent of ISO 14001 certifications; by contrast, state-owned enterprises (SOEs) compromise 18 percent.
ECOLOGIA and ISO 14001 in China
Based on its long history of capacity-building for environmental organizations in the former Soviet Union, combined with a growing interest in environmental management among its US staff and board, ECOLOGIA decided to test out ISO 14001 implementation in Russia. Together with a Russian NGO, Ecoline, ECOLOGIA convened a series of EMS training courses for a handful of small- and mid-sized companies, and the simple, inexpensive ISO 14001 EMS proved to be very appropriate and useful for enterprises that had never engaged in environmental management before. EMS consulting also showed promise as a possible source of income and stability for NGOs like Ecoline. The successes of ISO 14001 in Russia resulted in ECOLOGIA being asked to replicate its work in China. ECOLOGIA currently is exploring a variety of models for training projects to strengthen and spread the word on environmental management systems in China. ECOLOGIA also could show ISO 14001 certified companies how decreasing pollution emissions could enable them to save money, which would encourage them to improve their environmental management system.
Good monitoring and evaluation has a critical role to play in shifting the market from "green passport" certificates to a "real" EMS with cost-savings and environmental benefits. The Chinese government is attempting to improve ISO 14001 EMS compliance monitoring, but like many other governments it is finding monitoring to be a huge, expensive, and technically difficult task. The Chinese government is expected to issue national regulations for environmental performance evaluation in the near future. Although the scope of these regulations is currently unknown, Heather McGray views these regulations as an opportunity for ECOLOGIA and other organizations to get involved in how evaluators are trained. ECOLOGIA also envisions a future role in EMS monitoring and evaluation efforts and may explore the use of EMS consulting as a tool for capacity building of Chinese NGOs,
Despite the popularity of ISO 14001 in China, the certification system is not without flaws. Most notably, ISO 14001, while comprehensive, is based only on the implementation of a system for environmental management—ISO certification does not imply industry compliance of a country's environmental laws or emission standards. While the Chinese government is trying to use ISO 14001 to push enterprises to comply with national pollution emission regulations, because so few Chinese enterprises are currently capable of complying with China's fairly stringent emissions regulations, this push for "ISO plus" may discourage efforts to create high-quality environmental management systems. Moreover, the combination of pressure to be certified, meet unattainably high emissions standards, and the absence of good monitoring creates a strong incentive for enterprises to find ways to cheat on their emissions compliance. Another weakness of the certification is the fact that ISO 14001 does not require an outside audit. Nonetheless, McGray noted that China is attempting to remedy this potential shortcoming by requiring an independent, third party audit of EMS.
In the future, China's embrace of ISO certification will be put to the test. Certainly, continued rapid economic growth will make it necessary to modify previously authored environmental management system plans. McGray wondered if certified businesses will continue to devote themselves to the continual improvement clause of ISO 14001—or will Chinese industries follow the lead of Taiwanese companies and simply pay lip service and let their outdated EMS flounder.
In spite of the uncertain future of ISO 14001 in China and other countries, ISO continues to expand the scope of its environmental standards and is venturing into new territory—a new greenhouse gas emissions standard. ECOLOGIA has been enlisted to help create this new environmental ISO standard for greenhouse gas emissions, which will standardize the measuring, verification, and reporting of emissions. Based upon its enthusiasm for past standards, ECOLOGIA hopes to involve developing countries like China in the development of this and future ISO standards.