This year, the Chinese Ministries of Commerce and Environmental Protection jointly released guidelines for Chinese companies doing business abroad on how to operate sustainably and responsibly and comply with host country regulations and international standards. The guidelines directly respond to concerns from the international community and help Chinese companies more effectively target the international market. The guidelines consist of 22 comprehensive provisions for corporate responsibility that Chinese companies should take into account when they operate overseas. The main points include:
- Environmental conservation: Analyse potential local environmental impacts, including a baseline survey of the ecosystem, and develop an environmental risk management plan and monitoring, assessment, and reporting mechanisms.
- Community development: Create a long-term local community development plan based on potential areas of impact and build monitoring, assessment, and reporting mechanisms—including implementation of a social impact assessment.
- Stakeholder engagement: Communicate with local stakeholders and involve them in business strategy as much as possible and secure the social license to operate from local civil society.
The guidelines are not compulsory, but that doesn’t mean companies should not implement these recommendations. Many cases have illustrated that neglecting corporate responsibility seriously affects business goals and economic growth, particularly if companies don’t adhere to international standards or fail to achieve the promises agreed to with host countries. For example, acquisition of the Nexen oil sands project by the China National Offshore Oil Corporation still faces challenges from local stakeholders in Canada, although the company has received permission from the Canadian government to proceed.
Chinese companies are increasingly expanding their presence abroad, which has a great potential for economic growth—but the risks are also high. To successfully develop and implement robust corporate social and environmental sustainability strategies, we recommend the four following steps:
- Identify and align issues: Understand local issues and risks. Support due diligence for new country entry or capital project expansions, enhance local economic development, and meet local content expectations.
- Formalise impact assessments: Understand project footprints, meet regulatory expectations, and identify local employment and procurement opportunities.
- Develop integrated policies and procedures: Establish principles and policies for social performance management, and design approaches to minimise adverse impacts and maximise local benefits.
- Implement monitoring and reporting structures: Execute community-based programs and ensure long-term accountability through the development of key performance indicators and reporting.
The challenges and opportunities facing Chinese companies looking to invest overseas are too great not to get sustainability “right.” With the announcement of its new guidelines, the Chinese government is sending a clear message to companies, providing further impetus for meaningful action. It is now time to take an integrated, systems-based approach to project development.
This post originally appeared here. Chengbo Wang is the director for advisory services at BSR.