Chinese companies must have a “code of conduct” overseas

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Chinese companies must have a “code of conduct” overseas

In the Chinese market, voluntary sustainability standards, particularly for food, are increasingly being applied by global companies like Starbucks and Mars. However the majority of Chinese companies rarely use, or are unaware of, these standards, despite their potential to generate commercial, environmental and social rewards and help the country set the rules for a greener global economy. Similarly, most Chinese consumers seem to have little awareness of the application, let alone the significance, of such standards, compared to those in some European Countries.

As the Chinese government has committed to deepening domestic reforms by giving more weight to market mechanisms and more Chinese state-owned and private companies are encouraged to go abroad under the “One Belt and One Road” initiative, voluntary sustainability standards will safeguard China’s national image and overseas reputation as a responsible power.

Why standards matter

Sustainability standards, which set best practice in an industry, can be effective tools for verifying socially and environmentally friendly goods and services along global supply chains – such as for forest products or fisheries. Most voluntary standards, such as those of the Rainforest AllianceUTZ and Forest Stewardship Council (FSC), have been set up by private multi-stakeholder initiatives or large companies with global membership to attract high-value market segments and respond to ethical concerns. Nowadays, they have become de facto mandatory standards in a commercial sense as they are driven largely by consumer demand.

As an emerging power, China has set out to adopt voluntary sustainability standards at its own pace. The country has increasingly realised the role of voluntary sustainability standards as essential elements of competitiveness, corporate social responsibility and new modes of low-carbon, resource-light prosperity.

Despite its lack of experience, China’s involvement in the sustainability certification process can contribute to the transformation of the global economy. The implementation of the United Nations (UN) 2030 Agenda has offered China an unprecedented chance to shape social and environmental standards. This process proposes to revitalise the global partnership for sustainable development, which requires joint action from public and private stakeholders in the global North and emerging countries in the South.

Against this backdrop, Chinese government and business leaders, working with domestic and international NGOs could explore meaningful ways to develop voluntary sustainability standards that are suitable to national circumstances and have international implications. The Sustainable Development Goals (SDGs) will be harder to achieve without China’s proactive participation in numerous aspects including the formulation of sustainability standards.

Huge opportunities have emerged at the domestic level. China’s booming market with rising demands from high-end consumers for quality food and other commodities calls for certification and traceability services. Although several governmental departments such as Ministry of Industry and Information Technology (MIIT) and National Development and Reform Commission (NDRC) have issued official guidelines for green procurement and consumption, there is a lack of action plans to put these into practice, which leaves some room for international voluntary sustainability standards to fill in the gap. Given China’s centralised political culture and authoritative traditions, voluntary sustainability standards will be more convincing for consumers and businesses if relevant international organisations get endorsement from the government.

Chinese “code of conduct” for infrastructure

China possesses certain comparative advantages in the infrastructure-building, engineering and manufacturing sectors and is driving international cooperation on building industrial capacity. Considering the existing voluntary sustainability standards are mainly focused on forest, agricultural or fishery products, China needs to take the lead in setting a common code of conduct for sustainable development in the infrastructure sector too.In particular, it should embed resilient and sustainable principles into the life cycle of key infrastructure projects.

China’s “Belt and Road” initiative has raised some environmental concerns, but it also provides opportunities for developing a common code of conduct for sustainable infrastructure projects. This would fit well into the initiative’s Vision and Actions, which points out that China will make efforts to promote green and low-carbon infrastructure construction. Existing international standards relevant to infrastructure such as the Equator Principles have yet to be widely accepted by Chinese companies and banks It is high time for leading Chinese infrastructure companies, in cooperation with China Development Bank and Export and Import Bank of China, to explore a common code of conduct for sustainable infrastructure based on best available practices. Meanwhile, new multilateral financial institutions such as the Asia Infrastructure Investment Bank (AIIB) and the New Development Bank among BRICS countries need to prioritise their investment considerations in the projects that abide by this code.

A few major challenges lie ahead. The most prominent one may be enforcing standards in different local contexts, which has become the common concern of international sustainability organisations operating in China. Taking the application of Forest Stewardship Council (FSC) standards as an example, China launched the draft of its FSC national indicators in 2013 for discussion by the FSC international board of directors. Although this is regarded as a positive move, there are still problems. For instance, in comparison with Beijing or Shanghai, applying FSC standards in other provinces will face different challenges. It remains to be seen how the interests of local farmers can be protected and included in the process. The FSC certification program in Linyi, Shandong province, requires each family to allocate 10% (about 1 acre) of their forests for protection and restoration purposes, which might reduce household income and thus be difficult to carry out. When it comes to labour rights, FSC standards cannot be fully applied since China is not signatory party to all International Labor Organization (ILO) conventions, Therefore,  FSC standards could be incompatible with China’s domestic laws and regulations.

Besides this, the low consumer awareness of sustainability in China, especially in less developed regions, also hinders the promotion of voluntary sustainability standards, which demand more effective community engagement at the local level. What’s more, small and medium sized enterprises are extremely sensitive to increases in supply chain costs. They are reluctant to adopt new practices unless many of their peers also take action. The fact that only a handful of Chinese companies have a global footprint in terms of product and market share also renders them less motivated to implement voluntary sustainability standards.

Despite these challenges, it is encouraging that cooperation between international sustainability standards bodies and the Chinese government has deepened in recent years. To showcase how voluntary standards increase corporate competitiveness, the China Certification and Accreditation Institute (CCAI) in collaboration with the ISEAL Alliance (the global association of sustainability standards) hosted a high level forum on June 22, 2016 in Beijing. It was in this forum that the two groups launched the Chinese translation of “Setting Social and Environmental Standards: ISEAL Code of Good Practice”, to better guide Chinese stakeholders to set and improve voluntary sustainability standards in a fair and transparent way.

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