Video: Mark Wehling on CSR and SMEs in China

Mark Wehling is a visiting international CSR scholar at Peking University in Beijing. In this interview with Dr Wayne Visser, Director of CSR International, he discusses the insights he has gained during his time researching CSR in China, especially among SMEs. The interview took place on 7 June 2010 in Beijing.

Video: Sam Lee on CSR in China

Sam Lee is the Founder and CEO of InnoCSR in China. In this interview with Dr Wayne Visser, Director of CSR International, he talks about trends in CSR in China. The interview took place in Shanghai on 9 June 2010.

Video: Jacylyn Shi on Sustainability & Women in China

Jacylyn Shi is a CSR consultant, academic and founder of Women in Sustainability Action (WISA) in China. In this interview with Dr Wayne Visser, Director of CSR International, she talks about progress on sustainability in China and the role of women in advancing the agenda. The interview took place in Shanghai on 9 June 2010.

Reflections on CSR in China

By Wayne Visser

It was a great pleasure for me to be back in China in May this year. On my first visit in 2008, it was shortly after the Sichuan earthquake and one of the fascinating things to see was how Chinese bloggers were publicly ranking (and rankling) companies on their response to the disaster. For me, that represented good news and bad news – good news because it meant that civil society was becoming more active and bad news because it was entrenching a philanthropic understanding of CSR. The other experience I had during that visit, which confirmed my fears, was my role on a judging panel for an MBA competition on CSR, where the project we selected (which involved setting up an e-waste recycling facility) was passed over for a philanthropic project (which involved giving money for setting up a school).

During my more recent visit, a number of things seem to have changed. As my Chinese colleagues kept reminding me, two years is a long time in China. The first thing I noticed is that the country is awash with CSR conferences, workshops and training. So much so that generic meetings no longer pull the crowds. Companies know what CSR is and now they want to know how to implement it. Not surprising then that the CSR reporting trend has finally taken off in China as well. For now, this is seen by many companies as an end in itself – often to satisfy Western critics – rather than a first step on a much longer journey. However, along with the reporting trend, there is at least more talk of Strategic CSR, even though the evidence suggests this is more the exception than the rule. A company like State Grid is among this progressive minority, but most large companies are still stuck in a philanthropic, project-based mode of CSR.

The main drivers for CSR seem to have shifted as well. Whereas before, it was mainly Western pressure through the supply chain, now the two main advocates seem to be the Chinese government and the workers themselves. The government has latched onto the CSR concept and is bedding down many elements in legislation ranging from labour conditions to cleaner production. There are also increasing numbers of protests by workers that are dissatisfied with the status quo. Sam Lee mentions the story that was in the headlines recently of an irregular number of suicides in a particular company, which has added impetus to this growing workers' movement. As China rises as an economic superpower and begins to dominate many industries, there is also far more emphasis on safety and quality of products.

Apart from CSR management, China is investing heavily is in the market opportunities provided by CSR issues, especially clean technology. Already in 2006, the richest man in China was reported to be Shi Shengrong, CEO of the solar company Suntech, and the richest women, Zhang Yin, made her fortune from recycling. A 2010 report published by the Pew Environmental Center found that in 2009, China invested $34.6 billion in the clean energy economy, while the United States only invested $18.6 billion. This explosive growth was brought home to me when, at an event of the Women In Sustainability Action (WISA) in Shanghai where I was speaking, I got talking to a supplier of wind turbines to Europe. Simply put, he cannot keep up with the demand. He is turning customers away because there is already 12 months of orders in the pipeline.

In a related trend, I heard far more on this trip about environmental issues. In fact, visiting CSR scholar at Peking University, Mark Wheling, believes that the green issues are what are getting companies away from philanthropic CSR. World Bank estimates put the cost of environmental and associated health costs in China at 3% of GDP, with water pollution accounting for half of the losses. These costs have not escaped the attention of the Chinese government, who is driving environmental legislation and incentives much more strongly now. Many Chinese talk about the Olympics as some kind of watershed. As you may remember, the government shut down many factories around the city and restricted vehicle access. As result, Beijing enjoyed unprecedented blue skies during the 2008 Olympics. When the Olympics was over and the government prepared to go back to business-as-usual, the public objected – they wanted to keep their blue skies – and so at least some of the pollution control policies remained in force.

So, yes, there have been changes over the past two years, and there has been some movement towards Strategic CSR. However, my overall impression is that most companies still view CSR as a philanthropic and public relations exercise. As Jacyclyn Shi reminds us, CSR awards schemes are booming, which is a sure sign of progress, but also immaturity of the market. Perhaps she is right to place her hope in the women of China to be the new pioneers. There has been no shortage of testosterone-fuelled growth in China – and the world – which remains at the heart of the problem. We could benefit from less male yang, and more female yin, in China and in the CSR movement more generally.

Reflections on CSR in Kenya and China in Africa

By Wayne Visser

Last week, I was hosted by Ufadhili Trust to deliver a 2 day workshop on CSR in Nairobi, Kenya. As I was last in Kenya 20 years ago when I attended an AIESEC African Leadership Development Seminar, it was wonderful to return and compare my impressions.

The biggest changes have been political. In 1990, Daniel Arap Moi was still president (from 1978 to 2002) and ruled a one-party state with an iron hand. My impression back then was of relative stability, but no great sense of prosperity or advancement. I recall that the hotel we stayed at on the coast in Mombasa had a water-cut and the security guard carried a bow and arrow. Also, it took 9 hours to drive the 440 km of pot-hole ridden road between Nairobi and Mombasa.

Today, Kenya has a multi-party democracy under President Mwai Kibaki, although the disputed 2007 general election (and post-election violence) has led to a coalition government in which Raila Odinga shares power as Prime Minister. Apart from changes in politics, the economy is stronger (despite unemployment estimated at 40%) and the roads are noticeably improved.

In fact, the roads sparked one of the first lively debates in the workshop. Why? Because they are built by Chinese contractors. The "Chinese in Africa" topic is a real hot potato, and fascinating from a CSR perspective. The Chinese are bringing massive business investment to Africa (especially in infrastructure), but at what cost? They are accused of low labour, ethical and environmental standards, as well as taking away local employment.

I don't fully buy the "evil China" story (and I fear a new xenophobia is taking hold around the world), for a number of reasons. First, I would far rather see investment in infrastructure than development aid going to Africa. Second, the Chinese government is starting to show concern about its tarnished reputation abroad, so I expect pressure and standards to rise in the coming decade. And third, the Chinese are not all about low costs and poor standards. They have an incredible work ethic and high productivity level, which I believe introduces healthy competition and challenges attitudes of entitlement in countries like Kenya.

The other theme that emerged strongly in the workshop was corruption, although there was less "fight" in this debate. I almost sensed a feeling of resignation among most of the participants. How do you fight a disease that - like cancer - is so endemic in government, business and society at all levels?

One refreshing voice in this debate was Ken Njiru, Executive Director of Uungwana Resource Institute and one of the leading proponents of business ethics in Kenya. He believes that corruption needs to be branded in the public and business consciousness as "ushenzi", which means "barbaric", “primitive” or “backward”. This is contrasted with "uungwana", which means "civilised" or "advanced" or "righteous". (See my video interview with Ken)

As far as general CSR goes, Kenya is still mostly stuck in the PR/philanthropy mode. However, there are inspiring examples of CSR 2.0 practice, such as Vodafone/Safaricom's M-PESA scheme, which allows the unbanked to transfer money by mobile phone text. Similarly, Equity Bank, which has successfully targeted the poorest sectors of society and now, with 4.1 million accounts, makes up over 52% of all bank accounts in Kenya.

I look forward to watching how Kenya can continue to develop and inspire, both within Africa and the world, as it takes its CSR agenda forward. Thank you to Director Mumo Kivuitu and everyone at Ufadhili. (See my video interview with Mumo), Keep up the great work!

Eco-Cities; Does it Pay Off?

This is my first post since I've been invited to contribute this blog in last December. Hence, I wanted to share an interesting phonemenon in China these days, country where I work at, also the country where a lot of media thinks that is the next land of opportunity.

I've recently been contacted by one of the local media company that has been outsourced a job from a medium sized city to set up a showcase event to attract FDI (Foreign Direct Investment) to their city.

They obviously came to me since I had credible contacts at different country's chambers of commerce in China and my simple answer was "no" to them and I gave a reason that this is not my scope of business and that I cannot utilize my contacts for other reasons.

Then they came back to me few days later with a concept of "Eco-City" and justified my involvement as Environment is one of the issues that we do deal with. Now, I must confess that although we deal with it, it's done through our partners and also we usually take care of the overall marketing/communications side of it, rather than technical side, hence I did not see a correlation between the concept of "Eco-City" and my firm. However, it was an interesting topic in a long run and I decided to utilize the chance to learn. Afterall, if it turned out to be a good project, I can simply toss it on to our environmental consultacy partners.

They requested a proposal and an overall explanation/examples of eco-cities to show to the Gov leaders at that city. While I was working on the Proposal and different research on eco-cities, I found out that there were a lot in development, not only outside of China but also with-in China. Dongtan, in Shanghai was a big issue till the leader of the gov was jailed for corruption/ Sino-Singapore Tianjin Eco-City is becoming a big issue with an initial investment of 8billion RMB, and there were at least 3-4 others that were preparing themselves to be eco-cities.

Tonight, Since we take part in the environment consortium project of the German Chamber in Shanghai, I had a chance to attend a media appreciation dinner. Unlike other press conferences and media appreciation dinner, we decided to brainstorm and ask the reporters about "Green Industry" to understand their perception towards the industry and the German green technologies. Out of many interesting things we found out, there was a comment on the eco-city; that it will never pay off and that ROI is expected to be negative.

That got me thinking of the Eco-City project proposal. Perhaps the concept of the eco-city is unrealistic? No doubt that it will take years to break even and that it is a long-term project. So should this trend continue? Not to mention the current situation of the financial crisis? I am curious to find out other successful cases but all of them seem to not have clear answers. Perhaps we need to wait few years to find out. Currently, my thoughts are more supportive of reporters....

CSR Lessons from China's Milk Scandal

This is a guest column by Professor Richard Welford, Chairman of CSR Asia.

The scandal that has already claimed the lives of four babies and sickened some 60,000 after they were fed the powder, made by the once-prestigious Sanlu Group, has huge implications for corporate social responsibility. The milk, which had been laced with the industrial chemical melamine, used in plastics and glue, gave children kidney stones.

The Chinese government has said that officials in Shijiazhuang, where Sanlu is based, had covered up the extent of the problem for more than a month while China was hosting the Olympic Games. There, a local government spokesman, revealed that Sanlu (43 percent owned by New Zealand’s Fronterra Group) had approached them for help in managing the media response on August 2nd, six days before the games opened.

In fact, local media had known that problems were being reported by parents of babies across China who had been fed Sanlu formula. However, the reporters were unable to publish their findings because of strict media controls imposed by the government during the games.

Industrial experts are now predicting the bankruptcy of Sanlu. It is unlikely a single company will be able to take over Sanlu as its debts total more than 700 million yuan, not counting massive compensation claims.

But as well as highlighting yet another cover up, the scandal has also revealed, once again, the deficiencies of industry oversight and the weakness of regulatory bodies and ongoing problems associated with corruption. Despite orders from China’s central authorities to recall all milk produced before September 14th, banned milk from two of China’s biggest dairies was still being sold this week at a discount to students in the southern city of Guangzhou through stores and milk dealers. The incidents call into question whether China’s central government can deliver on its promise to clean up the country’s dairy industry after contaminated infant formula sickened tens of thousands of children.

The government has now admitted that although contamination of milk had occurred at dairy companies, the government was responsible for monitoring the industry at the heart of the crisis. The important steps in the dairy industry, including production of raw milk, collection, transportation, processing, formulation and manufactured goods, will all need to have better standards and testing requirements, according to the government.

A nationwide check has now found melamine in 31 milk powder products. Large brand name companies including Cadbury’s, Heinz, Nestle and Unilever have had to recall products where milk was watered down by farmers who then added melamine to raise the protein levels.

But milk contamination, it seems, is nothing new in China. In 2004, the China Dairy Product Quality Inspection Report found that adulteration was very widespread and found urea, soap powder and starch being added to milk. It also found high levels of antibiotic residues in milk.

Just who is responsible for the mess we are now seeing is still far from clear. At first, milk processors such as Sanlu were in the spotlight for spiking the milk. It now seems that much of the adulteration was being done by farmers. But a number of media reports have pointed out that much of the problem might be associated with the fact that Sanlu had lowered the prices being paid to farmers at the same time as the price of animal feed was going up substantially.

China’s President Hu has called for lessons to be learned from the scandal. So in keeping with his request, here are my top ten lessons and forecasts from the perspective of CSR:

1. THE CRISIS WAS NOT INTENDED AND THERE'S THE RISK 

Those who contaminated the milk may not have known what the risks were when they added melamine to increase protein levels to pass tests. There was probably no malicious intent but rather a practice was adopted to enable a little more money to be squeezed out of milk processors by poor farmers. So what are the supply chain risks associated with cutting corners, cheating a little bit here and there and trying to extract just a little bit more money when prices are rising and incomes falling? If people’s incomes are squeezed in an inflationary environment so much that they cannot longer make a living, don’t be surprised if they start finding ways to recoup some of their losses. If large brands continue to want cheaper and cheaper products, when costs are rising, something has to give somewhere. It did, and this time had disastrous consequences. Wake up to the inevitability of having to pay higher prices for goods.

2. THIS IS A WHOLE NEW LEVEL OF COMMUNITY PROTEST

For years, people in China have put up with rising levels of pollution and impacts on their health as a trade-off for higher incomes, better housing and access to more products. But making adults sick is one issue, making people’s (one child policy) babies sick is something altogether different. The outrage coming from the Chinese public is probably unsurpassed by any other recent event and that is not going to go away any time soon. And as one father of a sick baby said, “this is now just too much to tolerate.” Some journalists have even gone so far as to argue that this could be a tipping point in terms of public dissatisfaction because this is one case where the public panicked and did not receive the information they needed to take action. Engaging the Chinese public has probably never before been as important. In fact, I would argue that you no longer have a choice. Engage your stakeholders or face the consequences: The parents of a Chinese infant allegedly sickened by tainted baby formula have launched what could be the first (but not the last) lawsuit in the nation’s escalating milk scandal. Product liability lawsuits have become more common in recent years and look set to increase.

3. YOU CANNOT SILENCE THE SOCIAL MEDIA

Many mainstream Chinese websites are being questioned about the manner in which they are handling the keywords related to companies in trouble in the Sanlu milk scandal. Among the doubts, the biggest one is about Baidu, the search engine with the largest market share in China. Ever since the Sanlu milk powder affair broke, some think that the number of pages found on Baidu is far less than its competitor Google. A document released online by one blogger claimed that Sanlu had promised 3 million yuan (in advertising) to get Baidu to filter out all negative news about the scandal. In the end, Baidu admitted that a public relations company acting for milk producer Sanlu asked it to screen out negative news about the contaminated milk scandal. Attempts to control online sources of information do have a habit of backfiring. Honesty and transparency is the name of the game and some public relations companies would do well to remember that.

4. THE "MADE IN CHINA" BRAND IS AGAIN DAMAGED

Whether it is milk products, toys, dog food, toothpaste or whatever, the China brand is once again looking tainted. Many countries have decided to suspend imports of Chinese milk products or to withdraw them from their market. Consumers are now increasingly scrutinising the sources of products on the shelves of supermarkets (and that does not only include milk products). The China brand may have rebounded quickly after lead paint was found in toys but many more scandals on this level are going to have longer-term repercussions - and the government knows it. But more damaging, in the longer term, than the tainting of dairy products with melamine is the cover-up of the scandal by Chinese authorities, a number of journalists have argued. If there is no confidence in the governance of the regulatory system, how can there be any confidence in Chinese supply chains?

5. PRODUCT RESPONSIBILITY IS HIGH ON THE AGENDA NOW

The milk problem shows how big food companies struggle to impose food-safety standards on suppliers in the developing markets they increasingly rely on for sales growth. A lot of attention has now switched from manufacturing processes that might be described as sweatshops, to processes (and the products themselves) that can cause harm to human health. This is going to require increased attention by brands not only to first-tier, supply-chain processes but also those further down the supply chain where, in the case of both milk products and toys, the problems occurred. One might now ask whether only conducting first-tier audits will be sufficient to manage product responsibility risks in the future. And ensuring product responsibility in poorly regulated environments is going to be expensive.

6. THE WHOLE SUPPLY CHAIN IS AFFECTED

Spare a thought for people trying to run responsible businesses. Some farmers may have spiked their milk but many did not. Yet many dairy companies and farmers are now facing bankruptcy because of the scandal. Media reports are saying that many farmers can no longer sell their milk and are simply tipping it down drains. Others are said to be contemplating slaughtering their cows. It seems that the government is willing to step in to help, but what obligations do the makers of products have to those suppliers unwittingly embroiled in the scandal and possibly facing financial ruin?

7. EXPECT A TOUGHER REGULATORY ENVIRONMENT

It is clear from what has already been said by the central government that the regulatory environment is set to become tougher. Laws are often good but not enforced for various reasons, including a lack of regulators, inept regulators and corrupt regulators. But if government is to be believed, much of that may now change and companies may face a stricter enforcement of the law. The milk industry could actually emerge much stronger, mirroring recent advances in the toy industry. Many brands may well welcome increased enforcement of regulations, but it still poses a threat where that brand’s products are made in facilities that also produce for the domestic market or non-branded goods. If a facility is closed for an infringement in its non-brand lines, where is the brand going to find the capacity to continue production? The likelihood of that happening has just become greater.

8. INVESTORS ARE RUNNING SCARED OF CHINA

New Zealand’s Fonterra Corporation, the world’s largest trader in dairy products, has undoubtedly learned much from its 43 per cent ownership of a China venture which has created a financial disaster. This latest food tragedy may make some foreign investors conclude that the risks of manufacturing in China outweigh the potential rewards. Yet, such is the allure of the China market, most multinational firms will probably want to maintain their interest. The challenge is how to do it better. But ensuring that investments are safe might be even more problematic than ensuring products are safe in the sorts of joint venture arrangements we have see in the Sanlu case. Shareholders might be increasingly asking whether China is a safe haven for their money.

9. EXPECT INCREASED TESTING

It is increasingly looking like many suppliers simply cannot be trusted to put the systems in place to ensure product safety, or if they do, fail to properly manage those systems. The inevitable consequence of this is that we are likely to see a return to more testing. That comes expensive and the inevitable question is who is going to pay and what will that do to product prices?

10. ANOTHER NAIL IN THE COFFIN OF OUTSOURCING? 

This week the Wall Street Journal noted that the Chinese milk-safety scandal exposes one of the pitfalls of a key strategy of the world’s big multinational food companies: relying on local suppliers in emerging markets. Add to the scandal, the reality of increasing raw materials costs, increasing labour costs, increasing fuel and transportation costs and an increasingly worried consumer base and, all together, the future for the outsourcing model might not be looking so clear.

CSR in China: Cause for Hope or Despair?

China, like its ancient philosophy of Taoism, is full of apparent contradictions, a dance of yin and yang, light and shadow, miracles and disasters.  This is equally true for China's social, environmental and ethical dilemmas, and its recently acquired appetite for CSR. 

This article looks at some of the mind-numbing facts and recent developments in CSR, as it wrestles with the question of whether to feel hopeful or depressed about the future of China and world. Let us begin with the facts ...

10 BAD NEWS FACTS

• An estimated 207 million people still live in poverty. (source: World Bank, 2005 figures)
• Of the 20 most polluted cities in the world, 16 are Chinese, and between 2001 and 2020, China will experience 590,000 premature deaths per year due to air pollution. (source: World Bank)
• China’s primary energy demand is projected to more than double from 2005 to 2030, overtaking the US to become the world’s largest energy consumer soon after 2010. (source: IEA)
• Increased fossil fuel use is expected to more than double Chinese CO2 emissions, which overtook the US in 2007, from 5.1 gigatonnes today to 11.4 Gt in 2030. (source: IEA)
• Nearly two thirds of China's rural population (more than 500 million people) use water contaminated by human or industrial waste. (source: National Geographic)
• On average, 17 miners lose their lives everyday in Chinese coal mines, with coal mine accidents killing 4,746 people in China in 2006. (source: State Administration of Work Safety)
• Groundwater usage has almost doubled since 1970, and today, two thirds of total consumption comes from aquifers, resulting in sinking water tables. (source: National Geographic)
• Environmental damage robs China of 5.8% of its GDP every year. (source: World Bank)
• There are 1,000 additional cars on Beijing roads every day, adding to the 11.5 million already owned. (source: National Geographic)
• China ranks 163 out of 169 nations in terms of press freedom. (source: Reporters Without Borders)

10 GOOD NEWS FACTS

• Between 1981 and 2005, China’s poverty rate fell from 85% to 15.9%, or by over 600 million people. (source: World Bank)
• Public protests rose by 50% in 2007. (source: National Geographic)
• China's clean technology market is expected to increase to $186 billion by 2010 and $555 billion by 2020. (source: China Daily)
• China has 220 million internet users, more than the US. (source: National Geographic)
• China's wind energy capacity has doubled in size in each of the past three years and is forecast to be the biggest in the world by the end of 2009. (source: Guardian)
• 45% of Chinese women do not want to give up their careers to get married. (source: National Geographic)
• The new Chinese auto emissions standards are more stringent than Australia, Canada, California, and the United States. (source: Pew Centre for Global Climate Change)
• The SA 8000 labour standard has certified 224 facilities covering 197,593 employees. (source: SAI)
• In 2006, China had the 18,842 ISO 14001 certifications, the second highest number in the world. (source: ISO)
• China is aiming for a 30% reduction in water consumption and 10% decrease in pollution discharges by 2010. (source: National Geographic)

CSR PERSPECTIVES

So much for the facts. What about CSR? Well, the first question we should ask about CSR in China is: What do we (or more importantly, what do the Chinese) mean by CSR? China has only fairly recently begun to use the CSR label, partly because it resonates with the government policy on creating a "harmonious society", and partly because it seems to placate Western investors and supply chain owners.

Disappointingly, however, in China CSR is still used almost exclusively as a synonym for public relations and philanthropic activities. They have completely failed to heed the lessons of the West, which spent the past 100 years evolving the CSR concept into something that has more to do with the impacts of companies' core operations on people and the planet than peripheral charity or marketing spin.

We saw this limited brand CSR illustrated in the tragic aftermath of the Sichuan earthquake, where companies were ranked by Chinese bloggers on the size of their donations, as a proxy for how responsible they were. The past few years have also seen Chinese companies moving quickly to set up substantial Foundations for ongoing "CSR" investments.

By contrast, according to a McKinsey survey in 2007, the CSR issues which are expected to be most important in China over the next 5 years are: 1) healthcare benefits, 2) the environment, and 3) safer products. Workplace conditions and human rights issues rank lower, at 7 and 9 respectively. These are a far better indication of direction that CSR in China needs to move, if the movement is to avoid being completely discredited almost before it's begun.

When Mattel has to recall almost 1 million toys due to safety concerns, or when chemical contamination of milk products result in 4 deaths and more than 50,000 sick consumers, this is the real CSR battleground. When Chinese companies invest $6 billion on green energy in 2007 and plan to doubling this in 2008, making it the world’s largest green energy investor, or when microcredit programmes reach more than 3 million borrowers in China (since 1994), this is 21st century CSR.

Now, as we witness the beginning of the end for America's experiment with casino capitalism, China has the opportunity to become the testing ground for a new, more evolved version of CSR - what I call CSR 2.0. This next generation CSR has three essential features - it is Connected, Scaleable, and Responsive.

With China's Guangdong Province acting as the world's factory, it has the potential to demonstrate CSR connectivity by worker responsibility and product quality throughout the global supply chain. With its investment in clean technologies and base of the pyramid (BoP) products, it has the potential to make CSR scaleable. And with a population and government that is increasingly educated, empowered, online and proud, China has the chance to show it can be responsive to the needs of both its citizens and the global environment.

To conclude, if I look at China's current appetite for untamed capitalism and what it is currently claiming as its CSR response, I despair for their people and the world's chances of creating a sustainable future. On the other hand, if I look at the speed and scale at which China is tackling many of its social and environmental problems, combined with its growing sense of pride as the world's next superpower, I am hopeful that China can help to usher in a new form of harmonious capitalism.

It may be a journey of a thousand miles, but as the Taoist philosopher said, it begins with the first step. And the first step is for China to rethink, reform and reinvest in its concept of CSR.