Greening corporate disclosure
Dec 25th, 2007 by Julian
Publicly listed Chinese companies will soon be subject to heightened environmental disclosure requirements. It is reported that the State Environmental Protection Administration (SEPA) is developing a set of disclosure rules that may go further than their Western analogues, potentially requiring the reporting of SO2 and CO2 emissions and energy efficiency indices (see, e.g. current efforts in the U.S. for heightened climate change-related disclosures). Click here for a more detailed analysis on corporate environmental disclosure in China.
Source: AshwiniBhatia.com
This is yet another example of the Chinese government deploying gatekeeping mechanisms in the debt and capital markets, building upon its green credit policies. Viewed another way, it is also another addition to regulatory tools employing information strategies to encourage environmental compliance. Earlier, we have seen name-and-shame tactics that form the basis of the China Air Pollution Map and China Water Pollution Map. Other efforts are underway to build environmental technology databases to help companies and governments to adopt greener technologies and practices.
But mandatory self-reporting is different in that the data is self-generated, encouraging self-awareness and increase self-reflection (a “reflexive law” approach as environmental law scholars would term it). Investors and consumers are logical target audiences of such green disclosures. However, recognizing that the jury is still out as to whether superior environmental performance necessarily correlates with superior financial performance and that consumers make choices based purely on the greenness of products, the most important target audience of such data are the reporting companies themselves. In many cases, these enterprises do not fully appreciate the extent of the environmental impact of their activities; requiring such companies to conduct environmental and energy audits will bring such information to bear, and if mandatory environmental reporting regimes in other countries are any indication (case in point, the U.S. Toxics Release Inventory program), the public scrutiny of such disclosures is alone enough to spur the reporting companies to improve their environmental performance voluntarily, without any additional regulation.
While the establishment of a disclosure regime is a promising start, such information strategies are not much use if the information is not effectively disseminated or analyzed. The public availability of such information must be complemented with the analysis and comparison of such information across companies in like industries, and therein lies the opportunity for information aggregators and sustainability consultancies to explain to the public, and the reporting companies themselves, whether the reporting companies have met the grade.
[...] will be made to provide minimum levels of disclosures on environmental and energy performance (see previous post). SEPA recently completed a review of 37 companies seeking to raise funds on the capital markets [...]