The story of China’s journey from a centrally planned to a market-oriented economy is now familiar to all. Yet while the norms of doing business in China are becoming ever more understood, the most populous country in the world still retains the capacity to surprise. It may challenge conventional assumptions, but the number of organizations in China that disclose information about their economic, environmental, social and governance performance and impact in an open and transparent way is growing. And it is growing fast.
China will soon, by some indicators, have more companies publishing sustainability reports than any other country, with the figure for the last 12 months alone standing at over 1 700. But why has China the potential to become a leader in what was once an almost exclusively European and North American pursuit? The answer is simple, and it is not just down to the size of the economy. Institutions and actors in China increasingly understand the sheer extent of the environmental, social and political realities that all states face. The status quo is untenable, and pressures such as resource scarcity and energy demands, together with the fight against corruption, are all shaping Chinese thinking and policy-making. In short, growth and business must be made sustainable, and that means action.
So who is doing what in China? Stock exchanges in Shanghai, Shenzhen and Hong Kong are among the most prominent protagonists, and now ask that businesses disclose sustainability information, including, for instance, details on energy consumption and pollutants. The government is also increasingly active, and since 2008 the Assets Supervision and Administration Commission (SASAC), which oversees all central government-owned enterprises, has required that all companies under its jurisdiction produce a report – often based on Global Reporting Initiative (GRI) guidelines.
Only a decade ago, however, the situation not just in China but across the world was very different indeed. Sustainability reporting was still in its infancy and the very idea of disclosing information about environmental impact in, for instance, the supply chain would not only have been viewed by many as radical, but reckless. Even five years ago when I met with business leaders at Davos, the level of understanding about sustainability challenges could be described as mixed at best.
Today, thousands of companies worldwide publish reports, including over 95% of the world’s largest 250 companies and over 50% of the S&P 500. This does not, however, eliminate risk – be it operational or reputational. Tragedies such as the death of over 1 000 workers at the Rana Plaza garment factory in Bangladesh only serve to underline that many businesses, including some of the world’s leading brand names, have not fully grasped that risks are often submerged and obscured in the ever more complex supply chains that characterize today’s global economy. The result? They failed to mitigate not only the risk of accidents, but of supply chain-induced share price deflation too.
Sustainability reporting is coming of age, and just as with financial reporting, the key word is materiality – i.e. ensuring that there is material substance behind the rhetoric. Publishing a glossy report that extols all the virtues and highlights none of the risks that a business faces is “greenwash” pure and simple. True sustainability reporting enables not only everyone from markets to consumers to learn more about companies’ social, economic and environmental footprints, it also enables businesses to learn more about themselves. Reporting alone may be no guarantee of success in the economy of tomorrow, but having the data is certainly a precondition to being able to think and act strategically. In this regard, China still has some way to go. Yet while many reports still only reveal success stories, it has nonetheless taken a positive first step in the right direction.
International buyers could potentially have a hugely positive role in this respect by incentivizing good behaviour, for instance through guaranteed orders for responsible suppliers. Companies such as Walmart, Levi and Adidas have already required that Chinese suppliers become more water and energy efficient and reduce their environmental footprint. It would be a massive step forward if other international buyers in China and beyond were to require the transparent reporting of material environmental, social and governance information.
There cannot be a sustainable world without a sustainable China. And there cannot be a sustainable China without sustainable companies – state-owned, Chinese or multinationals. Indeed, the challenge to become sustainable will be played out in every country, on every continent, and it will increasingly affect every company. The winners, be they from Europe or China, other BRICS or the N-11 economies, will be those who, among other things, successfully integrate sustainability into their business model, strategy and culture. It is for that reason that sustainability reporting is no longer a minority pursuit. And it is for that reason too that it will soon be part of the mainstream.
Author: Ernst Ligteringen is the chief executive of the Global Reporting Initiative (GRI). He took part in the session Building Urban Competitiveness at the World Economic Forum’s Annual Meeting of the New Champions in Dalian, People’s Republic of China.
Image: A woman walks past a wall with an image of Beijing REUTERS/Kim Kyung-Hoon.