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China’s growth has come at an environmental cost, but it is taking steps to ‘green’ its economy, says ACCA global forum member Anne Copeland

After three long decades of industrialisation and urbanisation, China has become the world’s second-largest economy and the largest carbon contributor. Development continues apace. By 2015, for example, China aims to have over 230 airports handling 450 million passenger journeys a year.

Growth in both China’s population (expected to peak at 1.5 billion around 2030) and its economy has created huge pressure on energy and water supplies, and on the environment. According to a 2012 World Bank report, China’s level of environmental degradation and resource depletion is estimated to be around 9% of gross national income.

The government’s position is that China’s per capita emissions remain well below those of countries such as the US and Canada, and criticism from Western, high-consuming nations is unwelcome. Nevertheless, as highlighted in a recent report commissioned by ACCA, The green economy: pushes and pulls on corporate China, China is making real efforts to curb emissions through a range of policy changes. Momentum begun in the 11th Five-Year Plan (for 2006–10) has continued. The current, 12th Five-Year Plan devotes huge financial resources to decarbonisation, energy-efficiency and water-saving policies aimed at ‘greening’ the currently fossil fuel-based ‘brown’ economy. With brown job opportunities expected to gradually peak and then start to fall, the government also wants to use the brown-to-green transition to create green jobs.

 

Carbon challenge

Investment in new energy-related sectors is set to total around US$770bn in the period from 2011 to 2020, including an estimated US$231bn for wind power. Nevertheless, China will continue developing all forms of power – coal, hydro, nuclear, biomass, solar and wind – in order to meet its huge energy needs and support further economic development.

Decarbonising China’s energy supplies will be a challenge. Coal is responsible for 80% of the country’s carbon emissions and, given China’s substantial coal reserves, will continue to be the dominant fuel source for the foreseeable future. China is also planning to exploit non-conventional fossil fuels, such as shale gas and coal-bed methane. Meanwhile, it is importing increasing quantities of fossil fuels and other natural resources in order to satisfy local demand.

 

complementary policies

Those policies that complement China’s decarbonising efforts include replacing small, inefficient coal plants with more efficient ones, extending the energy grid, mandating energy-efficiency and carbon-reduction targets for industries and provinces, piloting emission-trading schemes, and reforming energy markets and prices. Coal production could possibly even be capped in the next few years. At the same time, policies are in place to try to encourage ‘green’ transportation; for example, through the development of hybrid and electric vehicles and the building of rail networks.

Alongside energy, demand for water is another key issue in China. The country only has 7% of global water resources, and its per capita water resource is a third of the world average. The lack of clean water supplies for industrial, agricultural and municipal use is a key constraint on development. Improving water management has become a top priority in the current Five-Year Plan, with specific improvement targets set and funds allocated.

The Chinese government is pushing Chinese companies, particularly those state-owned enterprises under its control, to improve sustainability practices. The central authorities set the tone and direction of policy, which forms the foundation of regulation and enforcement. Over the past decade, government measures have resulted in:

 

·         accounting rules on pollution-related costs;

·         opportunities to ‘name and shame’ companies violating environment laws;

·         legal changes to emphasise social and moral responsibility and to hold polluters liable;

·         pressure on companies seeking initial public offerings to improve environmental performance;

·         green procurement policies;

·         green lending, credit, securities and insurance initiatives; and

·         coordination with Chinese stock exchanges to push state-owned enterprises to publish corporate social responsibility reports.

 

Alongside government-led sustainability practices, multinational buyers of Chinese-manufactured goods are increasingly asking about environmental practices and seeking to ‘green’ their supply chains. Typical efforts focus on reducing energy, water and natural resources consumption, cutting greenhouse gas emissions, increasing the use of cleaner energy sources, decreasing pollution and waste, and treating waste properly. International brands are also aware of the reputational risk associated with low pay and poor working conditions.

Multiple pressures are therefore stimulating the transition of the Chinese economy towards a greener, more sustainable model. While the foundation for change is profound, implementing the changes required to transform China’s economy remains a significant challenge. The accountancy profession has a role to play in helping Chinese business to adapt to the changing operational and legislative landscape. The Big Four firms are already providing sustainability and climate change services to their clients in China, providing assurance over non-financial reports, and factoring environmental and social risks into corporate valuations.

Anne Copeland, a member of ACCA’s Global Sustainability Forum and an independent consultant, has over 20 years’ experience in environmental and social due diligence, sustainability strategy development, implementation, training and reporting, and stakeholder engagement. Copeland has worked for consultancy firms in Hong Kong and Canada, the International Finance Corporation, been a member of the Global Reporting Initiative (GRI) Stakeholder Council, and business and government organisations in Hong Kong. She has lectured at the University of Hong Kong.

This article first appeared in Accountancy Futures, Edition 6, 2013

 

Published: 1 Sep 2014