The future of environmental management

China's companies are cleaning up their act, writes Guo Peiyuan, but many in business still harbour misconceptions. Rather than hindering growth, environmental standards can save money and open up new markets.

China’s attitude to corporate environmental management has developed in three stages. From the foundation of the People’s Republic in 1949 to the start of the reform era in the late 1970s, the government regarded environmental pollution as a consequence of capitalism – something that socialism would simply not suffer from. The role of enterprises was to manufacture goods in accordance with government planning. There was no need for them to consider environmental issues, nor was there any conception of what corporate environmental management might be.

During the second phase, from the reform era up to the mid-1990s, the government realized the importance of dealing with industrial pollution and put many environmental laws and regulations in place – but their implementation was not strictly enforced. Businesses were unwilling to take the initiative, while the exploitation of loopholes was rife. Also, some local governments opted to tolerate pollution for the sake of maintaining income, and so failed to enforce environmental law. Business paid lip-service to environmental management, but it was not actually implemented.

During the third stage, from the mid-1990s to the present day, industrial pollution has reached a level where it cannot be left untreated and the government has taken a firmer attitude, using stoppages, closures, company mergers and changes in production to force enterprises to make real improvements in their environmental management. Finally, businesses are starting to face up to environmental management issues.

It seems that Chinese companies have only changed their environmental performance when they are forced by external pressures. In the past, this pressure came mostly from government, but the situation now is more complex. For instance, pressure may come from overseas purchasers and investors. If a company’s products or technologies do not meet specified environmental standards, buyers may refuse to purchase and investors can pull out. Chinese companies may have no option but to spend on improving their methods and keep the other party happy. Pressure may also come from civil society, including the media and NGOs. When people become better-off, they are no longer willing to tolerate dust storms or polluted waterways and will protest to the companies responsible. In some areas, locals have blockaded factories. Meanwhile, NGOs and the media have taken on a supervisory role, repeatedly exposing offending factories. These voices of society may not have binding force, but their influence cannot be underestimated.

In China, a company’s response to environmental concerns differs according to its size. Large firms are relatively responsive as their corporate image directly affects profits. This is mainly true for state-owned companies and the China-based subsidiaries and joint-ventures of multinationals. State-owned companies are closely associated with government, and at least have to take a stance in support of the government’s sustainable development strategy. Companies owned by multinationals need to consider the parent company’s global image, and so take environmental concerns into account at every stage for fear that a mistake could set off a chain reaction in the global media and markets.

But corporate image is of less value to small and medium enterprises (SMEs), and the majority of them do not pay adequate attention to external pressure about environmental concerns. Many of these are Hong Kong and Taiwan-invested SMEs and local firms in heavily-polluting low-tech industries such as fur, clothing, paper-making and metallurgy, which present a serious threat to China’s environment. Over the past decade, areas where these firms are concentrated – such as the Pearl River delta – have already suffered serious damage. These companies are unwilling to change, believing that environmental management will bring nothing but increased costs. This leads them to attempt to evade government regulations or purchasers’ requirements. It has also lead to some bizarre situations – water treatment plants are installed and never used except during government inspections, or companies wait till nightfall to discharge their waste.

This is not to say that every business owner is at fault. Apart from a few corrupt bosses, I’m sure most would like to run a safe, environmentally-friendly operation. The mistakes they make are due to a lack of knowledge about environmental management and what they can do beyond buying new equipment.

I once heard an electroplate manufacturer complain that to meet environmental standards, he had needed to build a new factory, equipped it with modern, imported machinery using overseas technology, and installed a water treatment plant. The cost of his products rose greatly and sales went down as a result. He was extremely discontented and put the blame squarely on environmental standards. But in fact he was harbouring two key misunderstandings about corporate environmental management.

Firstly, he mistakenly believed that becoming an environmentally-friendly company required nothing more than the purchase of new equipment. Corporate environmental management is not just an issue of equipment and technology – the most crucial factor is the management itself. The equipment can be bought, but the management needs to be learnt. Generally speaking, good environmental management combined with decent technology can cut operating costs by saving energy, materials and human capital.

Secondly, he failed to target a new group of customers to match his new circumstances. In producing environmentally-friendly products, his customers should not have been restricted to China. He should have looked to global markets to find customers willing to spend the extra. Perhaps on the other side of the world, companies were complaining that they could not find an environmentally-friendly electroplate supplier. Bringing together the needs of both buyer and seller could have covered the additional costs of production, and his products would have remained competitive. 

If a company can change its attitude towards the environment, it will see wider markets and increased competitiveness, not increased costs – something too few Chinese businesspeople have realised. But the government must also bear some of the responsibility. In the process of dealing with industrial pollution, the government has treated it as a public good. As a result, people feel the government is ordering business to sacrifice its own interests in order to protect the public interest. The government uses crude measures, such as inspections, punishments, stoppages and closures, which may scare a company, but cannot persuade it to change. Companies will always look for ways to get around the government. It becomes a never-ending game of cat and mouse. 

To turn the situation around we should change our old ideas about dealing with pollution – particularly end-of-pipe treatment – and make competitiveness a starting point. Environmental management should be part of the essence of corporate management itself. Many Chinese companies use a low level of technology, and management techniques are often coarse – there is great room for improvement. But with the correct guidance, these firms could be given a new lease of life, becoming both environmentally friendly and more competitive.

China already has some innovative prospects. For instance, a Sino-German environmental consulting project in Zhejiang now helps local firms adopt the environmental management tools used in German companies. Profits have improved, and so have the environment and the company’s organisational management. It is an example worth learning from.


Guo Peiyuan is a researcher and PhD candidate at Qinghua University, focusing on finance, sustainable development and corporate social responsibility. He is the co-founder of Syntao.

Also about sustainable business on chinadialogue: Green grows the opportunity

Homepage photo by Astrid B