Chinese companies going global have key projects in developing nations, yet they often pay scant attention to corporate social responsibility (CSR) guidelines. For future success, CSR is indispensable.
China has attracted a large amount of inward foreign direct investment (FDI) for the past decade or so, and in the recent past it has started to become a major source of FDI for other countries. China’s overseas direct investment (ODI) has seen remarkable growth since the 2008 global financial crisis. According to the Ministry of Commerce, last year China’s ODI in the non-financial sector rose 28.6% year-on-year to $77.2 billion. Chinese companies going global mainly focus on exploring oil and other natural resources, processing, manufacturing and construction in African and Southeast Asian countries. The most notable recent overseas investment is the purchase of Nexen, a Canadian firm, by CNOOC earlier this year. These acquisitions have demonstrated that companies from China are playing a more prominent role in the global economy.
With its ever-increasing expansion, China’s overseas investments have repeatedly come under the scanner, especially when they have had a negative impact on the local communities both environmentally and socially. In some cases, not only were the projects or operations reported by the media and non-governmental organizations, but the companies also lost “the license to operate” or had to suspend operations.
For example, in 2007 Sinohydro, the world’s largest hydropower company with more than 50% of the international hydropower market, among other dam builders, came under fire. Both the press and the UN Rapporteur on Human Rights exerted pressure on Sinohydro to halt the construction of Merowe Dam in Sudan due to deep concern over human rights violations.
Another example would be the construction of hydropower stations and dams on the upper Irrawaddy River in Myanmar. China Power Investment Corporation (CPI) has been involved in the construction of the Myitsone Dam when it signed the deal with the Myanmar authority back in December 2006. However, the construction of the dam was suspended by the Myanmarese President U. Thein Sein in September 2011 owing to opposition from the local Kachin people, key gaps in information about the dam’s environmental impact and other social risks. Although both governments have carried out dialogues, construction of the Myitsone Dam remains suspended. CPI doesn’t expect that the construction can be resumed until 2015.
But a refreshing change is underway.
Beginning in 2011, Sinohydro adopted a company-wide sustainability framework, which covers environmental, social and safety aspects in its environmental and social policies. The framework guides Sinohydro’s operations not only in China, but also in more than 47 countries. Other examples of Chinese companies that are trying this out include the Haier Group, China Southern Airlines, China Mobile, China International Marine Containers, China National Petroleum Corporation and ICBC. They have all agreed to commit to environmental protection and social responsibility while investing or operating abroad.
Up to the beginning of this year, China lacked comprehensive environmental protection and CSR policies in its overseas projects despite the fact that investment has expanded substantially. After much discussion since 2008, however, the Central Government has issued a set of overarching guidelines for Chinese companies investing in overseas countries. Both the Ministry of Commerce and the Ministry of Environmental Protection released the Guidelines on Environmental Protection for China’s Outbound Investment and Cooperation in March this year. The guidelines aim at enhancing Chinese companies’ CSR performance and compliance in host countries while operating abroad.
Twenty-two provisions that relate to the key aspects of how CSR should be implemented by the companies while operating abroad are covered in the document. In general, the guidelines include compliance of local laws and regulations, stakeholder engagement, capacity building, employment creation, as well as the systematic management of corporate sustainability. In particular, the guidelines highlight the following core aspects:
- Respect local culture
- Enhance local or community development
- Protection of labor rights through environmental, health and Safety standards
- Bio-diversity management
- Environmental and heritage conservation
- Green procurement
- Partner with local communities and authority on sustainability agenda
- Adoption of international and best practice standards
This voluntary set of guidelines provides a good example for China’s corporations that do not readily have CSR policies when investing and operating in overseas countries. Those that do not enforce CSR practices abroad would find themselves being the target of media, pressure groups, and local community. More importantly, some incidents that involved Chinese investments or operations would result in financial and reputational risk, if CSR is not managed well. With the right guidance from the domestic authorities, Chinese companies should seriously consider having better environmental and socially responsible policies and practices while investing and operating both at home and abroad.
(Photo Credit: Bert van Dijk’s Photostream)
Anson Wong is Assistant Director, Research Center – Sustainable and Inclusive Development, CKGSB