On 22 September, Chinese President Hu Jintao announced at the UN climate summit in New York that his country would increase its efforts to improve energy efficiency and curb the inexorable rise in carbon dioxide emissions. His words were not accompanied by figures, an essential prerequisite for a “cool deal” at the critical Copenhagen climate change conference in December, which will review and hopefully revamp the Kyoto Protocol.
The Kyoto Protocol is the result of a multi-actor decision-making process that implies the innovation of entire business systems and the emergence of new regulatory frameworks on a global level. One of the many problems with the current protocol is that while developed countries are aiming for a 5% reduction below 1990 levels by 2012, developing countries have no restrictions. To a great extent, this is because developed countries are largely responsible for the problem. However, given the level of accelerated economic development in India and China over the last decade, it is essential to get these countries to the negotiating table and to take responsibility for curbing their harmful emissions.
Photo: Natalie Behring / Bloomberg
So how is China positioned to actually back up words with action and take the giant step required? Research carried out by IMD’s forum for corporate sustainability management (CSM), a learning initiative involving a membership of global companies, throws considerable light on the readiness of Chinese companies to confront the challenge of climate change.
CSM carried out a study together with the University of Science and Technology of China six years ago on perceptions of Chinese environmental managers on the state of environmental management and managerial awareness of environmental threats. While Chinese managers admitted their companies’ significant environmental impacts, they felt that economic and employment factors were impeding progress in environmental performance. Inadequate environmental awareness among mainstream managers was prevalent, and a lack of technical expertise prevented integration of environmental criteria into processes along value creation chains. Furthermore, management development practices were not evolving rapidly to alleviate these factors. There was considerable ambiguity around regulatory enforcement owing to multiple factors: protectionism, job threats, and not enough enforcement personnel. A general “laissez faire” attitude to environmental compliance prevailed, often due to feelings of inertia and powerlessness because of economic and political barriers to progress.
Since 2003, when the research ended, climate change has taken centre stage as one of the most prominent sustainability issues.
In 2008, CSM worked on the World Wide Fund for Nature (WWF)’s Climate Savers partnership strategy, producing a case that can be used for learning in IMD’s mainstream programmes. Climate Savers is a group of firms that came together in 2000 from multiple industries and that focuses on establishing emission inventories and reduction targets certified by a third party.
However, by 2008, WWF had a problem. While the Climate Savers had set themselves relatively aggressive targets and had achieved them, the volume of effort was far too low to make a real difference and not enough companies were following the leaders.
Few Chinese companies are first movers or leaders in the area of climate change. This does not mean that there are none; another IMD/CSM research project on sustainable supply chains which ended in 2006 showed that, in developing economies in particular, new and up-and-coming companies can take opportunities to virtually “leapfrog” technologies relative to longer established US and European firms that find themselves hanging on to old technology and running down their assets for longer than is good for the climate change dilemma.
But because of the systemic problems that IMD had identified in the Chinese business context, WWF is increasingly concerned that companies there will not move fast enough to a clean economy. Large, state-owned Chinese companies dominate not only Chinese industry but in some cases even the world economic stage, depending on the industry. State-owned companies tend to be even less proactive than privately owned ones in introducing technology or carrying out a profound rethink of business systems.
Will Chinese companies be capable and willing to apply and commercialize technologies that can stabilize climate change on a vast enough scale? We contend that in China, the additional layers of complexity in the business environment compared with, for example, the already complex European or US business environment will slow things more substantially than any of us would like.
Even in the developed world, global companies tend to opt for cautious incremental improvements in carbon saving as a response to this challenge. While this is definitely better than nothing, more radical processes and product innovations are still scarce.
In China, changing businesspeople’s mindsets, filling substantial knowledge gaps among managers and enforcing legislation will be even more formidable challenges than they already are in Europe and the US.
Aileen Ionescu-Somers is deputy director, forum for corporate sustainability management, IMD, Switzerland. Comments are welcome at firstname.lastname@example.org