The Council on Ethics in China

The visit by the Council on Ethics to China to learn more about how Chinese companies view social responsibility gave the representatives of the Council a good insight into the complexity of the country. The visit also clearly marked the fact that there are foreign investors willing to take their responsibility for helping to solve China’s enormous environmental problems and improving the country’s strongly criticised working conditions in its manufacturing industry.

Focus on the environment

China’s enormous environmental problems and criticised working conditions in its manufacturing industry have been in focus in recent years. These issues are increasingly attracting attention in pace with the growing engagement of companies, investors and consumers in corporate social responsibility (CSR) around the world.

The environmental problems that have attracted most attention from the central authorities are water shortages and air and river pollution. At present some 80 percent of China’s energy comes from fossil fuels (mainly coal), leading to environmental pollution both in mining (heavy metals) and through very large carbon dioxide emissions. According to the World Bank, air and water pollution costs 5.8 per cent of China’s GDP, mainly due to the large number of cases of illness and deaths.

The responsibilities of the local authorities

Central regulation has begun to be tightened, a number of measures have been taken and more are planned to reduce air and water pollution and to cut energy consumption. But it is clear that the measures taken so far have been insufficient; the smog in major urban areas and breathing difficulties are evidence that much still remains to be done.

A large part of the problems are attributable to the local authorities, which have the task of monitoring central regulation, but where corruption and inadequate monitoring are not unusual. Directives from the central government seem to be followed in an arbitrary way at local level as long as they are not accompanied by strong sanctions for deviations. In its new environmental directives, the Chinese government has introduced a compulsory system of sanctions so that environmental issues will be given priority.

As regards working conditions, central regulation is also increasing in this area even though this is happening more slowly. While 400 million Chinese have been lifted out of acute poverty in the past 20 years, the social gaps have increased. Migrant workers from rural China are not covered by the safety nets and are the people with the most dangerous, most strenuous and worst paid jobs. In addition, their opportunities of obtaining education and health care are severely limited. Protective equipment, statutory overtime pay and working hours, and insurance are only a few examples of areas where employers cheat and do not follow existing regulations; this mainly affects migrants workers.

The role of companies

The increased demands for environmental impact reporting were noticeable among the companies we visited. The Chinese authorities have decided that the state-owned companies have to start publishing reports on their environmental work and, in combination with growing international reporting, the pressure is increasing on other Chinese companies to also increase their awareness and reporting concerning these matters. The authorities have mainly focused on heavy industry, such as paper mills, in their demands for environmental improvements and more efficient resource use. All the companies we met – in the pulp and paper, textile and food industries – had their own wastewater treatment systems.

Social aspects and employee rights were discussed to a lesser extent in the public arena. The foreign companies we met testified to the problems they have when inspecting Chinese companies to ensure that these companies are complying with codes of conduct. Transparency is the main problem. Double accounts and fake records are everyday occurrences and replacing a supplier because it has cheated means that an opportunity to influence companies to change sub-standard conditions is lost. Instead there is more and more talk of influence via dialogue, repeated visits and a focus on improvements rather than zero tolerance for failings. It is quite clear that Western companies have a positive impact on Chinese companies and are able to exert influence.

The Swedish companies we met took the view that they would not be able to compete in a global market, if they did not have proper codes of conduct and monitored ethical and environmental factors in their own operations and those of their suppliers. In other words “responsible” business is also a competitive advantage if you want to export goods from China.

all Chinese companies can have a good manufacturing environment

Foreign investors a new feature

Only one out of the dozen companies we met during our visit to China had previously had visits from investors discussing CSR. There is a high level of awareness that foreign customers attach great weight to CSR, but the fact that foreign investors like the Swedish AP Funds prioritise this issue seemed to be news to many.

This is a response that confirms that the Council on Ethics is at the forefront. As foreign investors we must therefore continue to be active in taking responsibility and continue our dialogue with Chinese companies, in order to promote sustainable development on several fronts in the country.

Need for foreign pressure

One Swedish company we met was emphatic that “all Chinese companies can have a good manufacturing environment”. Another said that “there is no excuse for bad working conditions”. These are comments that inspire hope, while requiring foreign customers and investors to continue to make high demands on Chinese manufacturing companies.

After our visit to China it is very motivating to be working in the framework of the Council on Ethics for better environmental and working conditions in that country. It is quite clear that foreign customers and investors play an important role in accelerating China’s development in these areas.