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The Role of Information Disclosure for Promoting Corporate Environmental

Management: The Case of China

Dr. Xianbing LIUSenior Policy ResearcherKansai Research Centre

Institute for Global Environmental Strategies

5 November, 2010IGES, EUIJ-Kansai & Kobe University Joint

Symposium, Kobe, Japan 2

Presentation Structure

� A brief explanation of the background;

� Voluntary EID in China with listed companies as the case;

� Government-oriented mandatory EID program of China;

� The reactions of company’s stakeholders: neighboring communities and general consumers;

� Summary



Target Countries of CEM Project at KRC/IGES (FY2007-09)

2006 2007 Projections

Actual Prev New

Japan 2.2%

USA 3.3%

Euro-zone 2.8%

World 5.5%

China 11.1%

India 9.7%

Thailand 4.2%0 2 4 6 8 10

Economic Growth (Source: IMF)

Project Title: j Proactive Policies and Business Strategies for Strengthening Corporate Environmental Management in Developing Asia



Overall Policy Frame for Enhancing CEM

Enhancing CEM by EID is one focus of our project



Objectives and Components of CEM Project

Objectives:Overview current CEM

practices in target countries;Identify proactive

strategies for improvingCEM;

Examine advantagesand challenges of selectivepolicy tools for enhancing CEM;

Motivate policy-makersto recognize the importanceof studied tools.

Topics

of th

is pre

senta

tion

focus

on th

e cas

e of C

hina



Research Methodologies

� Comprehensive overview of CEM policies;� Consultation with local experts;� Analytical framework development for discussing

environmental behaviors of individual companies and selected policy tools;

� Preparation and pilot test of survey documents;� Data collection by field works like questionnaire surveys and

hearing interviews;� Database construction and econometric analyses;� Outreach activities: arrangement of international seminars and

local roundtable meetings, presentations in external conferences.



Example Pictures of Data Collection

Preparing meeting for questionnaire survey

Hearing from firm’s owner Onsite visit of companies



Firm’s Voluntary EID in China

7

5

3

2 2

1 1 1 1

0

1

2

3

4

5

6

7

Num

ber

of c

ompa

nies

Electronic &Telecom

Energy &Power

Metals Auto Finance Chemistry Machinery Logis tic UtilityFactors of voluntary EID

Source: (Guo, et al., 2007)

Number of companies with annualenviron. reports (as of Apr., 2007)

Source: www.syntao.com

5

3

2

1

Very limited number of leading

state-owned companies

0

2

4

6

8Enhance profile

Strengthen communication

Stimulate CSR implementation

Attract investment

Raise risk management ability

Raise management performance

Attract elite employees

Promote innovation 6

88Enhance profile

Strengthen com

Highly motivated

by externally social factors



Voluntary EID of Chinese Listed CompaniesItems specified in GRI guidelineAspects Item examples

Materials, energy and water

EN1: Materials used by weight and volume;EN2: Percentage of materials that are recycled input materials;EN3: Direct energy consumption by primary energy source;

Biodiversi ty

EN11: Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas;

Emissions, effluents and waste

EN16: Total direct and indirect GHG emissions by weight;EN20: NOx, SOx and other significant air emissions by type and weight;EN21: Total water discharge by quality and destination;EN22: Total weight of waste by type and disposal method;

Products andservices

EN27: Percentage of products sold and their packaging materials that are reclaimed by category;

Complian ce

EN28: Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations.

Items specified by SEPA (Now MOEP)1. Firm's environmental protection policies, yearly objectives and achievements;2. Yearly total consumption of resources;3. Firm's environmental investment and development of environmental technologies;4. Type, quantity, concentration and destination of emissions and effluents;5. Construction and operation of environmental facilities;6. Disposal and treatment of generated waste, recycling and integrated utilization of by-products;7. Voluntary agreement with environmental authority for performance improvement;8. Information on the activities for corporate social responsibility;9. Other environmental related information voluntarily disclosed by the firm.

Items selected in this analysisI1: Firm's environmental protection policies, strategies and goals;I2: Consumption of energy, water and other resources;I3: Type, quantity and destination of emissions and effluents;I4. Construction and operation of environmental protection facilities;I5: Environmental investment and the cost for pollution control;I6. Other environmental related information.

Objective:jTest three hypotheses



Usable Samples and Disclosure Status

Sector Number of samples

Percentage

Mining 6 3.4

Food & beverage 9 5.1

Textile & clothing 9 5.1

Paper 5 2.9

Petroleum, chemicals and plastics

28 16

Electronics 6 3.4

Metals & non-metals 26 14.9

Machinery & equipments 25 14.3

Pharmacy 15 8.6

Power generating 11 6.3

Others 35 20

In total 175 100

0%

20%

40%

60%

80%

100%

I1 I2 I3 I4 I5 I6

Environmental disclosure item

Perc

ent

No information Descriptive information Detailed quantitative information

One from every five companies on the database list was randomly selected.

30% disclosed environ. investment and pollution control cost;

37% described their environ. efforts;Reluctant to show environ. impacts.



Characteristics of EID of Listed Companies

Panel A: Item 3 (I3): Type, quantity and destination of emissions and effluents

0 GP SP CP LC AGE PLACE ROE LSIZ

Coefficient 0.365 0.256 -4.194E-02 -0.150 -0.111 6.741 E-03 0.213 -7.773E-02 8.462 E-02

t-statistic 1.613 3.084 -0.121 -0.700 -0.537 0.615 2.680 -0.139 2.636

p-value 0.109 0.002 0.904 0.485 0.592 0.540 0.008 0.890 0.009

R2: 0.177; Adj. R2: 0.137; F: 4.457; Sig.: 0.000

Panel B: Item 5 (I5): Environmental investment and the cost for pollution control


Coefficient 0.136 0.997 -0.767 0.351 0.213 -1.368E-02 -6.478E-02 1.731 0.104

t-statistic 0.395 7.861 -1.450 1.072 0.671 -0.817 -0.535 2.027 2.114

p-value 0.693 0.000 0.149 0.285 0.503 0.415 0.594 0.044 0.036

R2: 0.368; Adj. R2: 0.338; F: 12.106; Sig.: 0.000


Coefficient 2.064E-02 0.102 -1.995E-02 2.751E-02 -2.928 E-02 -1.53 E-02 1.029 E-02 -6.608 E-04 3.007 E-02

t-statistic 0.533 7.196 -0.336 0.748 -0.823 -0.815 0.757 -0.007 5.471

p-value 0.595 0.000 0.737 0.455 0.412 0.416 0.450 0.995 0.000

R2: 0.434; Adj. R2: 0.407; F: 15.916; Sig.: 0.000

7.196 -0.336 0.748 -0.823 -0.815 0.757 -0.007ESI and large companies more likely disclose

0.150 -0.111 6.741 E-03 0.213

3.084 -0.121 -0.700 -0.537 0.615 2.680 -0.139 2.6

0 485 0 592 0 540 0 008

Companies in eastern coastal regions are more likely to disclose emissions data

0.351 0.213 -1.368E-02 -6.478E-02

7.861 -1.450 1.072 0.671 -0.817 -0.535 2.027 2.1

0 0.149 0.285 0.503 0.415 0.594 0 044

The higher ROE, more available information ofenvironmental investment and cost



Functions of Mandatory EID Strategy

Information asymmetry(Legal/Factual)

Information collection and processing by the firm and government

Information disclosure

Information receipt and processing by

the users

Change in user behavior

Change in firm behavior

Reflexive function

Deterrent function

Enhancementfunction

Process & disclose environ. information make the companies to be self-critical of its environ. performances

Firms anticipate the reactions of information recipients and alter their activities

Pressures due to actual reactions of information recipients

Quantity and qualityof information

Interventions:1. No action;2. Market pressure;3. Complain to the

government;4. Both 2 and 3.



Rating Criteria of Mandatory EID Program in China

Pilot of EID program in Jiangsu & Inner Mongolia

As of June, 2008, 16,464 companies participated in

the program in Jiangsu

Shortage indaily CEM

Can not comply withemission standards

Good CEM

ProactiveCEM



Behavioral Changes of Participating Firms in Study Area

Ratingresultsof 2005

Rating results of 2006 In total

Black Red Yellow Blue Green

Black 0 0 0 0 0 0

Red 7 19 20 3 0 49

Yellow 0 7 60 27 0 94

Blue 0 0 21 29 1 51

Green 0 0 1 2 4 7

In total 7 26 102 61 5 201

Sector 2005 2006

Number Percentage Number Percentage

Dyeing and textile 90 43.9 107 43.1

Chemicals 33 16.1 37 14.9

Metal processing 20 9.8 22 8.9

Pulp and paper 7 3.4 7 2.8

Power plant 8 3.9 10 4.0

Sewage plant 14 6.8 17 6.9

Others 33 16.1 48 19.4

In total 205 100.0 248 100.0

0 0

3 0Promoted: 51

0 0

0 0Demoted: 38

19 20

7 60 27

21 29

2

Maintained: 56%

textile 90 43.9 107

cals 33 16.1 37

essing 20 9.8 2270% shared by top three sectors

Distribution of programparticipating firms(Data provided by Changshu EPB)

Changes of rating results of 2005 and 2006(Data provided by Changshu EPB)



Monitored Functions of the Mandatory EID ProgramFunction items Obs. Mean Std. dev. Min. Max.Panel A: Program effects perceived by the firmsa. Enhanced enforcement by environmental bureaus 32 3.22 1.13 1 5b. Complaints and protest of neighboring communities 32 2.69 1.26 1 5c. Complains and boycotts from environmental NGOs 30 2.31 1.38 1 5d. Boycotts of individual consumers 30 2.16 1.53 1 5e. Decreased trust and cooperation of business partners 32 2.59 1.04 1 4f. Reduced investment from the investors 31 2.38 1.39 1 5g. Stricter checking or suspend of the loan from banks 29 2.94 1.64 1 5Panel B: Actual pressure felt by the firms after the disclosurea. Enhanced enforcement by environmental bureaus 31 3.45 1.26 1 5b. Complaints and protest of neighboring communities 31 2.68 1.40 1 5c. Complains and boycotts from environmental NGOs 30 2.19 1.30 1 5d. Boycotts of individual consumers 30 2.19 1.33 1 5e. Decreased trust and cooperation of business partners 32 2.94 1.29 1 5f. Reduced investment from the investors 32 2.72 1.44 1 5g. Stricter checking or suspend of the loan from banks 31 3.59 1.58 1 5Panel C: Role of the program to firm’s internal modificationsa. Better processing of internal environmental information 31 3.19 0.95 1 4b. More aware of the environmental compliance status 31 3.61 1.12 1 5c. Better coordination of internal organizational units 31 3.26 1.12 1 5d. More self-critical of environmental performance 31 3.32 1.11 1 5e. Making environmental efforts proactively 31 3.61 1.09 1 5

ement by environmental bureaus 32 3.22 1.13 1 5A moderate response anticipated by the firms for environ. bureaus2 2.69

Os 30 2.31 1.330 2.16 1.53

rtners 32 2.59 1.0431 2.38 1.3929 2 94

The firms do not thinkthe other stakeholderswould seriously react

31 3.45Moderate

31 3.59Moderate

30 2.1930 2.1932 2.94

Weak

ce status 31 3.61 1.12 1tional units 31 3.26 1.12 1 5

rmance 31 3.32 1.11 131 3 61 1 09

Help the firms be clearer of environ. compliance status and

performance improvement

Due to green credit

policy?



Model of Environ. Behaviors of Individual People

GINTENTIONis formed as the 1st stage

BINTENTION is formed as the 2nd stage

Individual behaviors:Environ. protests;Green purchasing.



Area of Questionnaire Survey to the Individuals

Survey area:Suzhou city, Jiangsu Province;The city has a land of 8488.42 Km2;Over six Mill. of population;Per capita GDP was 91,297CNY (around 12,000USD) in 2007;

Suzhou city

Direct interview to two group of people;343 valid respondents of firm’ssurrounding residents;336 valid samples of urban citizens as general consumers.



Firm’s Neighboring Residents InterviewedVariables Options Count Percentage Cum. percentageGENDER Male 178 51.9 51.9

Female 165 48.1 100.0Total 343 100.0 --

AGE <18 20 5.8 5.818-30 234 68.2 74.031-40 39 11.4 85.441-60 37 10.8 96.2

61 13 3.8 100.0Total 343 100.0 --

EDUCATION Under junior high school 11 3.2 3.2Junior high school 56 16.3 19.5Senior high school 116 33.8 53.4Undergraduate degree 156 45.5 98.8Graduate degree 4 1.2 100.0Total 343 100.0 --

INCOME 1000 70 20.4 20.41001-2000 122 35.6 56.02001-3000 92 26.8 82.83001-5000 42 12.2 95.0

5001 17 5.0 100.0Total 343 100.0 --

20.435.626.8

33.845.5

68.2



Protest Activities of Firm’s Neighboring Residents

Description and abbreviationComplain to environmental agencies by letters or phone call (EA1)

Directly visit environmental agencies for complaints (EA2)

Directly negotiate with polluting companies (EA3)

Arrange or participate in the protest against polluting companies (EA4)

Assist in the investigation of firm’s pollution (EA5)

Sue the polluting companies to the court (EA6)

Refuse to buy the shares of the polluting companies (EA7)

Refuse the products of polluting companies (EA8)

Not apply the employment of and work in polluting companies (EA9) 0

10

20

30

40

50

60

70

80

90

100

EA1 EA2 EA3 EA4 EA5 EA6 EA7 EA8 EA9

Items of environmental activisms

Fren

quen

cy

YES NO

Low participations

Higherparticipations

Observations:People behave differently for different EA items;Residents prefer the protest actions under their own control.



Findings of Residential Environ. Protest Activities

Goal intention

Behavioral intention

Perception of information

0.424a

0.134b

0.231b

0.117b

0.261b

Overall EP level

Evaluation of social norm

Perception of neighbor s

participation

Note: a significant at 0.01 level; b significant at 0.05 level.

0

Observation B:Informationavailability greatly increases people’s readiness of EP practices

Observation C:The residents would act collectivelyagainst the polluters

Observation A:Strong influences of certain attitudinal components on EP level



Concerns of Firm’s Process-based Information

Description of optional itemsPercentage of the answers

YES NOPanel A: Corporate environmental information concerned by the respondents

a. Firm’s environmental management strategy and goals 25.7 74.3

b. Overall environmental management and compliance status 20.1 79.9

c. Consumption of resources and energy 25.9 74.1

d. Types and amounts of pollutant emissions 29.2 70.8

e. Impacts of pollutant emissions to surrounding environment 57.4 42.6

f. Risk of pollutant emissions to people’s health 57.1 42.9

g. Construction and operation of pollution control facilities 12.5 87.5

h. Investment and cost for pollution control 13.4 86.6

i. Environmental activities in a voluntary manner 6.4 93.6

j. Environmental information related to the products 25.9 74.1

Panel B: The sources of corporate environmental information for the respondents

a. Corporate environmental performance rating and disclosure program operated by local EPB 18.7 81.3

b. Onsite visit and direct observation 14.9 85.1

c. Public media such as television and newspapers 74.1 25.9

d. Corporate environmental information disclosed by NGOs 22.4 77.6

e. Website of local EPB 15.2 84.8

f. Website and annual environmental report of the companies 11.1 88.9

g. Hearing from neighbors 39.4 60.6

57.4 42.6

57.1 42.9

74.1 25.9



Willingness-to-pay for Residential Protest Activities

16.6

10.5

2129.2

14.6

8.1

Unwilling at all < CNY10 CNY10-50 CNY50-100 CNY100-500 > CNY500

Observations:Less cost is preferable;Nearly 80% of respondents

would like to pay less than 100 CNY;

Using average wage as a convertor, most people wouldspend less than half a day forEP;

Low willingness-to-pay confirms the marginal level of EP



Usable Samples as General ConsumersVariables Options Count Percentage Cumulative percentage

GENDER Male 196 58.3 58.3Female 140 41.7 100.0Total 336 100.0 --

AGE < 18 16 4.8 4.818-30 223 66.4 71.231-40 52 15.5 86.741-60 17 5.0 91.7

61 28 8.3 100.0Total 336 100.0 --

EDUCATION Under junior high school 3 0.9 0.9Junior high school 46 13.7 14.6Senior high school 87 26.0 40.6

Undergraduate degree 191 57.0 97.6Graduate degree 8 2.4 100.0

Total 335 100.0 --INCOME 1000 61 18.2 18.2

1001-2000 113 33.6 51.82001-3000 95 28.3 80.13001-5000 43 12.8 92.9

5001 24 7.1 100.0Total 336 100.0 --

66.4

26.057.0

18.233.628.3



GP Behaviors of Individual Consumers

0

10

20

30

40

50

60

70

80

90

100

GP1 GP2 GP3 GP4 GP5 GP6 GP7 GP8 GP9 GP10

Items of green purchasing behaviors

Perc

enta

ge

YES NO

GPactivities

Component1 2 3 4

GP6 0.788 -- 0.243 --GP7 0.736 -- 0.185 0.207GP2 0.466 0.380 -0.256 0.317GP1 0.458 0.455 -0.165 -0.195GP3 0.105 0.720 -- 0.115

GP10 0.124 0.589 0.313 -0.157GP4 -0.118 0.564 0.119 0.488GP5 -- 0.167 0.791 --GP8 0.247 -- 0.631 0.352GP9 0.158 -- -- 0.786

Variableabbreviation Description of the sub-category Valuation

GP Public Practice level of GP items for public environment Sum of the scores of GP1, 2, 3, 4 and 10

GP Private Practice level of GP items for private living environment Sum of the scores of GP6 and GP7

GP Food Practice level of GP items for food security Score of GP5

GP Tourism Practice level of eco-tourism Score of GP9

Ene

rgy

effic

ient

app

lianc

es

Org

anic

food

s and

veg

itabl

es

Use

my

bag

for

shop

ping

Rotated matrix of factor analysis



Findings of the Path Analyses of GP Efforts

Different role of product-based information for different categories of GP

activities (altruism & egoism)



Perceptions of Firm’s Product-based Information

Description of optional itemsPercentage of the answers

YES NOPanel A: Awareness of existing logos of green productsa. China Environmental Labeling (Type ) 26.8 73.2b. China Environmental Labeling (Type ) 22.0 78.0c. China Environmental Labeling (Type ) 10.4 89.6d. China Energy Conservation Certification 28.0 72.0e. Recyclables 63.4 36.6f. Green Building Materials 11.9 88.1g. Green Foods 65.2 34.8h. China Energy Efficiency Label 39.6 60.4

Panel B: Green product related information concerned by the respondentsa. Logo of green product certification 64.6 35.4b. Categories and amounts of hazardous materials in the product 39.5 60.5c. Water saving index of the product 28.3 71.7d. Package materials of the product 23.2 76.8e. Collection and recycling of the used product and packages 29.5 70.5f. Pollutant emissions in product manufacturing processes 24.7 75.3g. Energy efficiency of the product 47.3 52.7h. Resource consumption for the product manufacturing 29.5 70.5i. Whether the product could be reused 43.5 56.5

Limitedrecognition of

eco-logos

34.8Highly aware of green foods

Simple labels interested by

consumers

Using cost and health risk are

the other concerns



Presentation Summary

� This presentation summarizes key findings of a series of empirical studies discussing EID for enhancing CEM in China;

� Obviously large gap exists in the quantity and quality of available information voluntarily opened by the companies;

� Chinese government tries to improve compliance of companies by a mandatory EID program, which was confirmed effective at certain degree;

� The roles of firm’s stakeholders, such as neighboring communities and urban citizens as general consumers, are still weak in promoting CEM currently;

� EI, both process-based and product-based, would greatly differentiate reactions of company’s stakeholders, which could become drivers for better CEM;

� The government shall play a key role in closing the information gap between the supplying and receiving sides;

� Minimum requirements and guideline are necessary to regulate firm’s EID;� Successful cases of firm’s stakeholders in pushing CEM shall be strongly

supported;� EID shall be combined with existing CEM policies to work more effectively.



Thank you for your attention!

Contacts:Xianbing LIUKRC/IGESTel: +81-78-262-6634Fax: +81-78-262-6635E-mal: [email protected]@ g jpURL: http://www.iges.or.jpp g jp

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