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Presentation Pack Corporate responsibility and business success in China.

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1 Presentation Pack Corporate responsibility and business success in China

2 Structure Sustainable development Facts about China
Sustainable development in China Business role and responsibilities Business implementation Sustainable development These introductory slides about sustainable development can be used as an interactive “warming up” activity. They can help the facilitator to: Take the audience’s “temperature” to judge current awareness and knowledge of sustainable development; Involve the participants in an active way and create an opportunity for them to reveal their current level of understanding.

3 Brundtland Commission, “Our common future”, 1987
“Sustainable development meets the needs of the present without compromising the ability of future generations to meet their needs” Brundtland Commission, “Our common future”, 1987 Getting started Who has previously heard about sustainability? In what context? What would be your definition of sustainable development? How important is sustainable development: To you? To your company? def·i·ni·tion "de-f&-'ni-sh&n Getting started This slide gives some examples of questions that the facilitator could ask to start off a first discussion about SD. The questions target different angles depending on who is in the room: ·   Who has previously heard about sustainability? In what context? ·   What would be your definition of sustainable development? Focus on the principles of sustainable development: future generations, balance between economic, social and environmental and holistic perspectives rather than getting bogged down in word choices. ·   How important is sustainable development: - To you? - To your company? This question is intended to find out how much the audience relates to the topic and whether there is a difference between the way people relate to the topic personally versus professionally (from their company’s point of view). There are different process techniques to collect the answers: - Splitting the audience in small groups for exchange and sharing of ideas; - Collecting individual answers (for instance with answers written on post-its, etc.); - “Keywords” description: asking each participant to give three keywords summarizing his or her understanding of SD; - Using “sticky dots” on a target or scale to indicate response. Data can be used as a feedback mechanism at the end of the session. One idea could be to repeat this same exercise at the end of the session to find out whether views have changed. The most commonly agreed definition of Sustainable Development comes from a report led by Mrs Gro Harlem Brundtland, Former Norwegian Prime Minister, and current World Health Organization Director and President of the World Commission for Environment and Development. This means a pattern of development that balances competitiveness, social development and environmental soundness or concern for: People (social development, health and safety, good working climate); Planet (conservation of natural resources); Profit (economic growth). The concept of Sustainable Development is based on: The precautionary principle: “When an activity raises threats of harm to human health or the environment, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically. In this context the proponent of an activity, rather than the public, should bear the burden of proof." A fair share for everybody; “We borrow from our children”. Q

4 Human activity = impacts
Global Warming Ozone Depletion Water, Air, & Land Pollution Reduction of Biodiversity Resource Depletion Population Increase & Economic Growth This slide introduces the environmental challenges. Those challenges may be illustrated with more details, using the "environmental issues”  sub-module (slides 8-16). If the entire environmental sub-module is not used, the facilitator should at least refer to the climate change issue, identified as a major threat for humanity in the 21st century.

5 Sustainable development covers many topics
Demography Wealth Nutrition Health Education Consumption Energy Pollution Emissions and waste generation Efficiency Ecosystems Climate change Agriculture Human rights Water Urbanization Mobility Communications Labor Democracy Accountability Privatization Biodiversity There are growing environmental, social, economic and political concerns that are having major impacts on the way that we live and may also dictate a dismal future for our planet unless we start to make some major changes. SD can be considered a state of mind that tries to address issues in a comprehensive way by considering the linkages between all issues.

6 A changing global landscape
“In a world of instant communications, whistle blowers, inquisitive media, and googling, citizens and communities routinely put firms under the microscope.” Tapscott and Ticoll (2003) Issues include: Communications – CNN world Changing expecations of consumers Valuation – including intangibles and knowledge Free movement of goods and services Finite nature of resources – carrying capacity Changing demographics – haves and have nots Changing role of business and government Communications – CNN world, access to the Internet Changing expecations of consumers – more interest in products and services with a positive social and environmental impact Valuation – including intangibles and knowledge Free movement of goods and services Finite nature of resources – carrying capacity Changing demographics – haves and have nots Changing role of business and government

7 Context: Demography Today: 6 billion human beings on Earth
2030: population will reach 8 billion, of which 7 billion will live in the developing world Populations will increasingly move towards cities, creating megalopolises This slide may be used to introduce the basic terms of sustainability issues: population growth is an incredible opportunity for business’ economic growth, but also a threat for humankind due to the pressure that will come to bear on natural resources. A few figures : Of the Earth’s 6 billion humans - 2 billion don’t have an access to electricity; 1 billion lack access to improved water supply; 2.4 billion lack access to improved sanitation. With simple figures and charts, this slide illustrates why demography is a concern. The crucial messages are the following: - The world’s population continues to grow rapidly; - Population growth is concentrated in emerging countries; - Urbanization is a general trend. Depending on the goals and the available time for the presentation, several kinds of comments may be added. 1) Comprehensive explanations about the challenges of demography. The growth of world population and production combined with unsustainable consumption patterns places increasingly severe stress on the life-supporting capacities of the earth. This affects the use of land, water, air, energy and other resources. Rapidly growing cities, unless well-managed, face major environmental problems. The increase in both the number and size of cities calls for greater attention to issues of local government and municipal management. The human dimensions are key elements to consider, and they should be adequately taken into consideration in comprehensive policies for sustainable development. Such policies should address the linkages of demographic trends and factors, resource use, appropriate technology dissemination and development. There is a need to develop strategies to mitigate both the adverse impacts on the environment of human activity and the adverse impact of environmental change on human populations: ·         The world’s population is expected to exceed 8 billion by 2020; ·         Sixty percent of the current population already lives in coastal zones; ·         Sixty-five percent of cities with populations above 2.5 million are located along the world’s coasts, several of them already at or below the present sea level. Current “lack of services” figures: among the 6 billion humans, 2 billion don’t have an access to electricity; 1 billion people lack access to improved water supply; 2.4 billion people lack access to improved sanitation. 2) More precise examples showing why the challenge of galloping demography and increasing demand for wealth and well-being in the developing world seem to be out of reach. The energy sector provides a typical illustration: - Demand for primary energy will have increased 4-fold between 1960 and 2020; - Demand for electricity in the developing world will have increased by 200% between 1990 and 2020; - Growing Chinese demand for energy equals constructing one nuclear power plant every 15 days to meet expected demand by (1 GW is a production capacity equivalent to one nuclear plant.) Forecasters at the State Power Economic Research Center (SPEC) estimate that under business as usual, China's annual electricity requirements will nearly triple - increasing from 1,638 Terawatt hours (TWh) in 2002 to 4,400 TWh in 2020. Thus the gap between natural resources, population growth and rising quality of life levels must become clear for the audience. 3) Beyond the synthetic figures, there are disequilibria resulting from this growth. - Rich countries’ populations are ageing while population growth in emerging countries is largely fed by birth rate and not by changes in life expectancy. Thus tomorrow’s population in the emerging world is younger than today’s. - Generally speaking, the poorer a country is, the higher its population growth rate. While European populations are not expected to increase in the next 50 years, China and India are expected to reach 1.5 billion people each, and Africa is expected to jump up to 2 billion. Current fertility rates may be added: 2.0 in the US, 1.9 in France, around 6 in the Gaza strip, 8.0 in Niger… World Summit on Sustainable Development, Plan of Action (2002): '... we agree to halve, by the year 2015, the proportion of people who are unable to reach or to afford safe drinking water (as outlined in the Millennium Declaration) and the proportion of people who do not have access to basic sanitation.'

8 Context: Natural resource needs
Poverty eradication & population growth lead to a rising demand for materials and natural resources 20% of the world’s population consumes 80% of the world’s non-renewable resources. In many countries, water is rapidly becoming a scarce resource, yet it continues to be used wastefully. OIL, GAS, URANIUM, MINERALS, CLEAN, WATER … are finite and limited resources, and could become rare in the near future

9 Land pollution Land Pollution:
Agriculture + industrial activities + waste generation Intensive use of chemical fertilizers Intensive land exploitation Expanding human requirements and economic activities are placing ever-increasing pressure on land resources, creating competition and conflicts and resulting in sub-optimal use of both land and land resources. x 4.5 in 40 years

10 Air pollution - Main environmental threat to human health
- SO2 and NO2 emissions  Acid rain CITY PARTICLES (μg/m3) [1995] SO2 (μg/m3) [1998] NO2 WHO STANDARDS < 90 < 50 PARIS 14 57 NEW YORK .. 26 79 BEIJING 377 90 122 BOMBAY 240 33 39 TOKYO 49 18 68 STOCKHOLM 9 3 20 A World Heath Organization study estimates that in 2020 air pollution will cause about 8 million deaths worldwide. It is currently estimated that more people die from air pollution due to traffic than from traffic itself.

11 The Greenhouse Effect The Earth has a natural temperature control system. Certain atmospheric gases are critical to this system and are known as greenhouse gases. On average, about one-third of the solar radiation that hits the earth is reflected back to space. Of the remainder, some is absorbed by the atmosphere but most is absorbed by the land and oceans. The Earth's surface becomes warm and as a result emits infrared radiation. The greenhouse gases trap the infrared radiation, thus warming the atmosphere. Naturally occurring greenhouse gases include water vapor, carbon dioxide, ozone, methane and nitrous oxide, and together create a natural greenhouse effect. However, human activities are causing greenhouse gas levels in the atmosphere to increase. Note: Greenhouse gases are mixed throughout in the atmosphere. For pedagogical reasons they are depicted here as a layer.

12 Biodiversity                                                                                                                                           Global biological diversity is decreasing, due to direct and indirect human activity: hunting, loss of natural habitat (deforestation, desertification), etc. The continuous decrease in animal and plant populations results in a loss of genetic diversity The biological diversity of the planet is being rapidly depleted due to the direct and indirect consequences of human activity, hence damaging and decreasing the genetic variety of the world's populations. This in turn leads to a reduction in their ability to adapt to changes in the environment. Loss of genetic diversity is a threat in the sense it deprives mankind of the knowledge of genes and molecules that could help fight diseases for instance. Animal extinction A total of 15,589 animal species face extinction, according to the 2004 IUCN Red List of Threatened Species. One in three amphibians and almost half of all freshwater turtles are threatened, on top of the one in eight birds and one in four mammals known to be in jeopardy. Background: the Dragon Tree (Dracaena cinnabari) forms characteristic woodlands on the island of Soqotra, Yemen, but has a fragmented distribution and in some areas the tree is failing to regenerate. It is listed as Vulnerable. The tree grows best in areas affected by mists, low cloud and monsoon drizzle. A major cause of its decline is likely to be climate change (the Archipelago is gradually drying out). Over-exploitation of Dragon’s Blood (a resin from the bark) and felling trees for beehive wood may also threaten the species.

13 Roles and responsibilities
Globalization goes together with the emergence of a growing number of stakeholders (more demanding and powerful) Institutions PRESERVE PEACE & STABILITY SEEK GLOBAL LONG-TERM SOLUTIONS POWER TO RULE, INCITE, TAX DEMAND MORE TRANSPARENCY, INFORMATION AND ETHICS; INCLUDE SOCIAL & ENVIRONMENTAL PERFORMANCE IN BUSINESS NOTATION POWER TO PROVIDE FUNDS Investors DEMAND TO BE CONSULTED AND ASSOCIATED POWER TO INFORM AND DENOUNCE (MEDIA, INTERNET, JUSTICE, …) NGOs This slide introduces the notion of stakeholder, which is central in the sustainable development (SD) approach. NGOs: The number of international NGOs increased 100-fold between 1909 and 1984. The various stakeholders have to be defined with the facilitator insisting on their respective powers, goals and methods. It must also be mentioned that the best SD approach relies on stakeholder partnership rather than opposition. Individuals SEEK QUALITY OF LIFE AND SECURITY DEMAND FREE CHOICE POWER TO VOTE, DENOUNCE, BOYCOTT Businesses CONTRIBUTE SERVICES, PRODUCTS AND TECHNOLOGY TO SOCIETY BALANCE ECONOMIC PROFITS WITH THE LONG_-ERM SUSTAINABILITY OF THE BUSINESS

14 Increased awareness 1948: Declaration of human rights
VALDEZ Democracy and social progress movements in the mid to late 18th century focused on anti-slavery, the treatment of women, labor standards such as working hours, child labor, cleanliness, safety, etc. Books such as Upton Sinclair’s The Jungle, whose depiction of meatpacking plants in Chicago received such a violent public reaction that a government investigation was launched and American food laws were changed. These labor and social movements culminated in widespread demands for social justice and higher living standards for the world's working people. 1948: Universal Declaration of Human Rights 1961: WWF and Amnesty International. 1962: Silent Spring written by Rachel Carson. In the 1970s: focus on production based industrial pollution began to grow. Air pollution, mercury pollution, acid rain and the First Earth Day were all hot topics. This was the real beginning to the modern day environmental movement. 1984: Bhopal Disaster, India 1986: Chernobyl Disaster, Ukraine / Rhine Disaster, Europe 1989: Exxon Valdez Disaster, Alaska / Berlin Wall 1995: Brent Spar/ Shell Nigeria 2002: Corporate scandals like Enron, WorldCom, Tyco, ABB, Global Crossing Rating Agencies: Social and environmental performance of companies will be assessed and controlled more and more and will be part of the profitability scheme. Reference is to be made to environmental disasters, to the oil shocks, and to a rising shared concern for human rights at least in the developed countries. 1948: Declaration of human rights 1961: WWF, amnesty international 1970s: Environmental movements 1980s: 1984: Bhopal; 1986: Chernobyl; 1989: Exxon Valdez… 2002: Enron, WorldCom…

15 Global frameworks and initiatives
A brief history of global frameworks and initiatives: As Part 13 of the Versailles Peace Treaty which ended World War, the International Labor Organization (ILO) was created. In 1948 The Universal Declaration of Human Rights and the ILO Conventions on Freedom of Association and the Right to Organize were developed. In 1949 the ILO followed with the convention on Collective Bargaining. The OECD Guidelines were drafted as a partial response to an initiative from governments to regulate multinationals. These voluntary guidelines cover employment and industrial relations, environment, competition, tax, and general policies. 1972: UN Stockholm conference/ Limits to Growth published 1987: Brundtland Commission publishes "Our Common Future" 1987: Montreal Protocol Ozone Agreement 1992: Rio Earth Summit– Agenda 21 1997: Kyoto protocol defined 1999: United Nations Secretary-General Kofi Annan first proposes the Global Compact in an address to the World Economic Forum on 31 January 2002: The International Conference on Financing for Development was held from March 2002 in Monterrey, N.L., Mexico 2002: World Summit for Sustainable Development held in Johannesburg, South Africa Sep Montreal Protocol Ozone Agreement 24 countries made an unprecedented commitment to the environment by signing the Montreal Protocol on Substances that Deplete the Ozone Layer. The countries agreed to start phasing out ozone-harming chemicals. Reached after a late-night breakthrough, this was the world's first cooperative attempt to control a global pollutant. Ozone-harming air conditioners and Styrofoam products are put on the hit list of everyday products to be banned for contributing to the hole in our protective layer As Canadian Environment Minister Tom McMillan then put it, "the Montreal Protocol improves the odds in the risky game the world has been playing". Monterrey March 2002 The “Consensus of Monterrey” has triple objective: fight poverty / favor economic growth / promote SD in developing countries. To do so, it aims to mobilize financial resources (notably FDI), liberalize international commerce and reinforce public aid to development. For instance, the European Union promised to increase its public aide to development from 0.33% to 0.39% of its GDP by Yet, developed countries remain far below their announced objective of 0.70%. This objective as adopted in the UN framework in 1970 and re-affirmed at the 1992 Rio Conference (save the United States who didn’t make any commitment on these dates). Global frameworks and initiatives SarbOx The search for solutions is happening on a global scale and is being led by both public institutions and as part of private initiatives. Solutions include new legislation, stakeholder partnerships, voluntary agreements, codes of conduct, multilateral agreements, interdependent actions, etc.

16 Key for success in sustainable development
Maintain the balance between economic growth, environment, and social aspects by: An integrated approach for business operations; Partnerships among stakeholders; A Cross-disciplinary approach. Natural resources & energy Profit Planet People This slides summarizes the section on sustainable development by showing the key notion of balance between the three main issues: people (health and safety, equity), planet (natural resources and energy), and profit (economic growth). This slide can be used to come back to the results of the introductory slides in order to compare the “intuitive” definition of SD by the participants with this last slide. How many of the participants mentioned social aspects? How would they now give a personal definition to SD? What do they observe, in their company, as sustainable or non-sustainable habits? Health & Safety, equity Economic growth

17 Structure Sustainable development Facts about China
Sustainable development in China Business role and responsibilities Business implementation

18 Facts about China China's population is 1.31 billion people.
GDP is US$ 1.41 trillion and expected to grow 8% in It already accounts for 13% of world output. Largest recipient of foreign direct investment. China produces 2/3 of all photocopiers, microwave ovens, DVD players and shoes, over 1/2 of all digital cameras and around 2/5 personal computers. In the last two decades, almost 200 million people have been lifted out of poverty. Every year, 10 million more people join the job market. Population (Mill.) Population growth (%) Population growth Population This introductory slide is intended to show the sheer magnitude of doing business in China. Key messages: Scale of China compared to the "western world", especially in population size; Basic background facts about China‘s population, economy and resources. In 2003, China's population is 1.31 billion people and GDP is US$ 1.41 trillion, growing at a rate of 8% per year. 60% of the population still lives in the countryside. Already accounts for 13% of world output at purchasing power parity, second only to the US. It is the largest recipient of foreign direct investment with joint ventures with foreign firms producing 27% of its industrial output and topping USD$ 53 billion in 2003. China produces two-thirds of all photocopiers, microwave ovens, DVD players and shoes, over half of all digital cameras and around two-fifths of personal computers. In the last two decades, almost 200 million people have been lifted out of poverty. “Only” 29 million people (4% of the population) live below the poverty line – mostly in rural China. Every year, about 10 million new people join the job market. Sources: * Ref: The Economist, UNDP and UNFPA

19 Size matters 60% of the population still lives in the countryside but…. At present there is only one car for every 70 people in China, against one car for every two Americans, but…. The Chinese government estimates that there are 500,000 HIV positive individuals in China, or a prevalence rate of less than 0.2% but…. Introduction slide 2: After giving some common facts in the slide before, go on with more detailed examples, e.g. 60% of the population still lives in the countryside, although a massive rural emigration is now taking place. At present there is only one car for every 70 people in China, compared to one car for every two Americans. If car ownership were eventually to rise to American levels, there would be 650 million cars on Chinese roads—more than all the cars in the world today. The Chinese government estimates that there are 500,000 HIV positive individuals in China, or a prevalence rate of less than 0.2%. Sources Graphic: * Ref: The Economist, UNDP and UNFPA

20 Increasing energy needs: Coal
74% of electricity produced in coal plants Lack of jobs in western China Coal reserves mainly in western China Shortage of electricity production capacity Strain on rail transport Safety of workers in mines New coal plants built in urgency Energy shortage prevents shutdown / modernization of old coal plants This slide aims to capture in a comprehensive way the SD issues concerning the coal industry in China. Starting with characteristics of production of electricity in China: China produces most electricity with coal (about 74%); Because of the current economic boom, electricity demand is rising steeply; Because it has huge coal resources and relatively (considering its size) poor reserves in gas and oil, China counts on its coal for developing new production capacities.  China is currently lacking production capacity (40 GW at its peak). Hence there is a sense of urgency to develop new capacity. As explained below, although its share in energy consumption should decline, in absolute terms coal consumption will continue rising, and notably new coal plants will be needed to produce electricity. While China shows interest in new clean coal technologies, implementing those new technologies on an industrial scale will take a while. As it happens, most of China’s coal resources are located in the western part of the country, where there is a lack of jobs opportunities (unlike the coastal areas). The conjunction between plentiful local manpower to work in mines and the urgency to meet the demand for coal resources due to economic growth, the structural capacity of coal-based electricity production and a lack of production capacity do not constitute favorable conditions for investing in other technologies or improving health and safety conditions. (NB: Over the last 10 years, it is estimated that 20 coal miners on average die per day in mining accidents.) This slide can help to show the intricacy of all those SD issues : economic growth / resource depletion / pollution / social conditions of miners (western / eastern China too) etc. Background : the coal Industry in China (source: EIA, 2004) According to EIA, more than 120 bn US$ would be needed in order to modernize coal mines and to install clean combustion systems. Coal makes up the bulk, 65%, of China's primary energy consumption, and China is both the largest consumer and producer of coal in the world.  China's coal consumption in 2002 was 1.42 billion short tons, or 27% of the world total. The Chinese government has made major upward revisions to coal production and consumption figures covering the last several years.  The new figures show coal consumption rising sharply in , reversing the decline seen from 1997 to The decline during that period also is much less than the previously reported data. China's coal industry has had a serious oversupply problem in recent years, particularly in the late 1990s, and the government has begun implementing major reforms aimed at reducing the oversupply, returning large state-owned mines to profitability as a prelude to possible future privatization, and reducing mine accidents. Large state-owned coal mines had experienced buildups of unused inventories in the mid-to-late-1990s, and many were operating at a financial loss.  A large number of small, unlicensed mines also have added to the oversupply.  In 1998, the government launched a large-scale effort to close down the small mines.  Many small coal mines were ordered closed.  It has become clear, however, through much anecdotal evidence, that not all of the "closed" mines have actually ceased operation, and the upward revisions to the Chinese State Statistical Bureau's production and consumption figures appear to reflect this.  China also is increasingly seeking export markets for its coal as a way of dealing with its surplus production, and as of 2002 it was the world's second-largest coal exporter.  Japan and South Korea are the primary markets, and China is beginning to emerge as a serious competitor to Australia for Japanese coal imports.  India also has been importing modest quantities of Chinese coal. Increased domestic demand for thermal coal in 2004, however, has led to a sharp dropoff in coal exports, reversing the price decline in the Asian coal market which had taken place in response to the expansion of Chinese exports. Over the longer term, China's coal demand is projected to rise significantly.  While coal's share of overall Chinese energy consumption is projected to fall, coal consumption will still be increasing in absolute terms. Several projects exist for the development of coal-fired power plants co-located with large mines, so called "coal by wire" projects.  Other technological improvements also are being undertaken, including the first small-scale projects for coal gasification, and a coal slurry pipeline to transport coal to the port of Qingdao.  Coalbed methane production also is being developed, with recent American investors in this effort including BP, ChevronTexaco, and Virgin Oil, which was awarded a concession for exploration in Ningxia province in January 2001.  ChevronTexaco is the largest foreign investor in coalbed methane, with activities in several provinces.  Far East Energy of the U.S. received approval from Chinese authorities in April 2004 for a farmout agreement with ConocoPhillips, under which it would undertake exploratory drilling for coalbed methane in Shaanxi province, in a location near the West-to-East Pipeline route. In contrast to the past, China is becoming more open to foreign investment in the coal sector, particularly in modernization of existing large-scale mines and the development of new ones. The China National Coal Import and Export Corporation is the primary Chinese partner for foreign investors in the coal sector. Areas of interest in foreign investment concentrate on new technologies only recently introduced in China or with environmental benefit, including coal liquefaction, coal bed methane production, and slurry pipeline transportation projects.  Over the longer term, China plans to aggregate the large state coal mines into seven corporations by the end of 2005, in a process similar to the creation of CNPC and Sinopec out of state assets.  Such firms might then seek to pursue foreign capital through international stock offerings. China has expressed a strong interest in coal liquefaction technology, and would like to see liquid fuels based on coal substitute for some of its petroleum demand for transportation.  A coal liquefaction facility is under construction by the Shenhua Group in Inner Mongolia, with a projected startup date of Despite the high costs, Chinese officials have shown increasing interest in further research into improving coal liquefaction technologies, in the hope that it may eventually provide an economically viable domestic source of liquid fuels. Limited implementation of standards: Pollution, safety & health & health issues Health and Safety conditions Efficiency Pollution Strain on resources CO2 emissions, global warming Coal prices on the rise

21 Increasing energy needs: Oil
China is the second largest consumer of oil after the USA, and accounts for two-fifths of the increase in global consumption since 2000. China occupies the second place among the major greenhouse gas emitters worldwide (13.5%). China only has 1.7% of worldwide oil reserves. Expected % of needs to be imported: 50% in 2010; 85% in 2030. Because of China’s growing appetite for oil, the world is expected to consume 2.7 million more barrels of oil a day this year than it did in 2003, or nearly two-fifths of the increase in global consumption since This demand is expected to lead to increased price volatility in the future. GHGs (greenhouse gas): China’s greenhouse gas emissions will increase from 13.5% of the global total today to almost 20% in 2030. China was the world's second largest consumer of petroleum products in 2003, surpassing Japan for the first time, with total demand of 5.56 million barrels per day (bbl/d). China's oil demand is projected by EIA to reach 12.8 million bbl/d by 2025, with net imports of 9.4 million bbl/d. As the source of around 40% of world oil demand growth over the past four years, Chinese oil demand already is a very significant factor in world oil markets. Economic perspectives (source : EIA, 2004) OIL  China was the world's second largest consumer of petroleum products in 2003, surpassing Japan for the first time, with total demand of 5.56 million barrels per day (bbl/d). China's oil demand is projected by EIA to reach 12.8 million bbl/d by 2025, with net imports of 9.4 million bbl/d. As the source of around 40% of world oil demand growth over the past four years, Chinese oil demand already is a very significant factor in world oil markets. China's petroleum industry has undergone major changes over the last decade. In 1998, the Chinese government reorganized most state owned oil and gas assets into two vertically integrated firms -- the China National Petroleum Corporation (CNPC) and the China Petrochemical Corporation (Sinopec) (…) Other major state sector firm in China includes the China National Offshore Oil Corporation (CNOOC)(…) The intention of the restructuring was to make these state firms more like similar vertically integrated corporate entities elsewhere. In connection with this process, the firms have been spinning off or eliminating many unprofitable ancillary activities such as running housing units, hospitals, and other services near company facilities.  Massive layoffs also have been undertaken, as like many other Chinese SOEs. The three largest Chinese oil and gas firms - Sinopec, CNPC, and CNOOC - all have successfully carried out initial public offerings (IPOs) of stock between 2000 and 2002 (…) Some aspects of these stock offerings were atypical.  First, they all involved only minority stakes.  Second, they have not given the foreign investors a major voice in corporate governance.  The Chinese government still holds majority stakes in all three firms, and the foreign investors have not received seats on their boards of directors. (…) As a net oil importer since 1993, China's petroleum industry is focused on meeting domestic demand. China had sold a modest quantity of very light crude oil for direct burning in Japanese power plants, but exports to Japan were halted in January 2004. Most Chinese oil production capacity, close to 90%, is located onshore. (…) With China's expectation of growing future dependence on oil imports, China has been acquiring interests in exploration and production abroad. CNPC has acquired oil concessions in Kazakhstan, Venezuela, Sudan, Iraq, Iran, and Peru, and Azerbaijan. Sinopec also has begun seeking to purchase overseas upstream assets.  The Greater Nile Petroleum Operating Company (GNPOC), the Sudanese oil project in which CNPC owns a stake, began exports in August 1999.  CNOOC also has purchased an upsteam equity stake in the small Malacca Strait oilfield in Indonesia. Despite efforts to diversify its sources of supply, roughly half of China's imported oil comes from the Middle East, with Saudi Arabia alone accounting for 17% in 2003. The most significant deal thus far is CNPC's acquisition of a 60% stake in the Kazakh oil firm Aktobemunaigaz, which came with a pledge to invest significantly in the company's future development over the next twenty years.  (…) Russia's Far East is seen as a potential source of Chinese crude oil imports. The Russian and Chinese governments have been holding regular discussions on the feasibility of pipelines to make such exports possible. One proposed plan is a pipeline which would carry as much as 1 million bbl/d of crude oil from Anagarsk in Russia to join the existing Chinese pipeline network at Daqing. Yukos Oil of Russia and CNPC signed a memorandum of understanding in June 2003 for sales of oil via the pipeline, contingent on the pipeline being built. An alternative plan, proposed by Russian pipeline operator Transneft, would take Russian crude from both West Siberia and East Siberia via a 1 million bbl/d pipeline to an export terminal at the Pacific coast port of Nakhodka.  Japan and China each have undertaken intense efforts to sway Russia toward their preferred pipeline option. As of mid-2004, most analysts expect the Nakhodka pipeline to prevail, with Japan offering to heavily subsidize the construction of the pipeline and provide other financial assistance to Russia, but no binding agreement has yet been concluded. Downstream infrastructure development in China centers primarily on upgrading existing refineries rather than building new ones, due to overcapacity.  In the late 1990s, the Chinese government shut down 110 small refineries, which generally made inferior quality petroleum products.  Dozens of other small refineries owned by provincial and local governments have been merged into CNPC and Sinopec.  Another major issue in the Chinese downstream sector is the lack of adequate refining capacity suitable for heavier Middle Eastern crude oil, which will become a necessity as Chinese import demand rises in the mid-term future.  Several existing refineries are being upgraded to handle heavier and more sour grades of crude oil. With consumption of petroleum products rising so rapidly, some interest is being rekindled in the construction of more modern greenfield refineries. Shell has reportedly been in discussions with CNOOC on a possible project in Guangdong. NATURAL GAS Historically, natural gas has not been a major fuel in China, but given China's domestic reserves of natural gas, which stood at 53.3 trillion cubic feet (Tcf) at the beginning of 2004, and the environmental benefits of using natural gas, China has embarked on a major expansion of its gas infrastructure.  Until the 1990s, natural gas was used largely as a feedstock for fertilizer plants, with little use for electricity generation.  Natural gas currently accounts for only around 3% of total energy consumption in China, but consumption is expected to nearly double by 2010.  This will involve increases in domestic production, and imports, by pipeline and in the form of liquefied natural gas (LNG).

22 Mobility China is expected to become the world's third largest automaker by 2010. Oil consumption for mobility has risen sharply, contributing to making China dependant on importing oil. Air pollution in the big cities is on the rise. Because of rapid growth in motorization, China is now second only to the United States in oil consumption. The graph shows the world ranking for each of the selected countries in vehicle production, vehicle sales, and oil use in Vehicle production in China grew by 40% from 2002 to 2003, while vehicle sales in that same period grew by 36%. China aims to transform the auto industry into a pillar of the national economy and, by the end of 2010, the country is expected to become the world's third largest automaker.

23 Electricity production capacity
Current issues Electricity demand increased 16.5% in 2003 Shortage of production capacity in 2003 At its peak : 40 GW Average : 15 GW Direct impact on the economy, as 70% of electricity is consumed by industry 2005 forecast: to meet its 2020 economic objectives, China must build the equivalent of one nuclear plant every 15 days for the next 15 years. In 2003, many companies had to adapt to the lack of production capacity. This was done by: Building autonomous power stations Turning power cuts into opportunities to do other non-power-based work Increasing night shifts This lack of production capacity is expected to last many years, thereby putting a damper on the incentive to shut down old polluting coal plants and implement new standards for the construction of new ones. 70% of electricity is consumed by industry (50%-55% in western countries), a situation which has a direct impact on industrial output when production is limited. Forecasters at the State Power Economic Research Center (SPEC) estimate that under business as usual, China's annual electricity requirements will nearly triple - increasing from 1,638 Terawatt hours (TWh) in 2002 to 4,400 TWh in In order to meet its 2020 objectives, China needs to construct the equivalent of one nuclear plant every 15 days for the next 15 (1 GW is a production capacity equivalent to one nuclear plant.) For historical reasons, coal used to be subsidized. Development of new and cleaner technologies hence means regulatory changes. Development perspectives (Source : EIA, 2004) As with coal, China's electric power industry experienced a serious oversupply problem in the late 1990s, due largely to demand reductions from closures of inefficient state-owned industrial units, which were major consumers of electricity.  The Chinese government responded to the short-term oversupply in part by implementing a drive to close down small thermal power plants and by imposing a moratorium (with a few exceptions) on approval of new power plant construction, which ran through January 1, Until 2002, the backlog of projects approved in the mid-1990s had kept pace with demand increases. In 2003, however, the Chinese government has approved 30 major new electric power projects, with a total of around 22 gigawatts (GW) of capacity. With the surge in economic growth in 2003 came a surge in electric power demand, which has outpaced previous demand forecasts, leading to a shortage of generating capacity and even load-shedding in some areas. A shortage of rainfall in some areas in 2003 and early 2004 has worsened this problem. The largest project under construction, by far, is the Three Gorges Dam, which, when fully completed in 2009, will include 26 separate 700-MW generators, for a total of 18.2 GW.  Plans were announced in March 2002 to reorganize the Three Gorges project into the China Yangtze Three Gorges Electric Power Corporation.  The reservoir created by the dam began to fill in June 2003, and it began operating its initial turbines in July 2003. Another large hydropower project involves a series of dams on the upper portion of the Yellow River.  Shaanxi, Qinghai, and Gansu provinces have joined to create the Yellow River Hydroelectric Development Corporation, with plans for the eventual construction of 25 generating stations with a combined installed capacity of 15.8 GW.  Some of the developments taking place in the Chinese electricity sector recently involve nuclear power.  China's total installed capacity for nuclear power generation increased from 2.1 GW at the beginning of of 2002 to 8.7 GW as of June   A major issue for China's electric power industry is the distribution of generation among power plants. China's stated intention eventually is to create a unified national power grid, and to have a modern power market in which plants sell power to the grid at market-determined rates. In the short term, though, traditional arrangements still hold sway, and state-owned power plants which have government connections tend to have a higher priority than independent private plants. Additionally, some private plants with "take-or-pay" contracts, which provide for guaranteed minimum sales amounts, have had trouble getting the provincial authorities running the local grids to honor those terms. In the short term, the strong growth in electricity demand in has lessened this problem. Growth in Chinese electricity consumption is projected at an average of 4.3% per year through 2025.  The largest future growth in terms of fuel share in the future is expected to be natural gas, due largely to environmental concerns in China's rapidly industrializing coastal provinces, though the largest increase in absolute terms is likely to be coal.  If a truly competitive market for electric power develops as planned, the Chinese market may once again become attractive to foreign investment. At present, foreign direct investment is allowed only in power generation, but loan financing has been obtained for some power transmission projects. The Chinese government is in the early stages of formulating a fundamental long-term restructuring of their electric power sector, embodies in the National Power Industry Framework Reform Plan promulgated by the State Council in April As with many other countries reform programs, generating assets are being largely separated from transmission and distribution. The State Power Corporation (SPC) divested most of its generating assets and was split into 11 regional transmission and distribution companies in December Electricity prices will still be regulated, but there are likely to be major changes in tarriffs and the overall regulatory structure for electricity pricing. The process is at an early stage, and many of the details remain to be worked out.

24 Energy efficiency Less than 10% of new buildings are made according to existing isolation standards Energy growth is increasing faster than GDP (= “power elasticity co-efficient”) Government objectives : - Increase GDP four-fold Increase electricity production capacity two-fold (Objective to improve energy efficiency by 25%) In 2004, China’s and France’s economic output in terms of GDP were similar. However, China produces about 4 times more electricity than France. Energy efficiency is a key issue in China. Standards exist setting up rules for construction and isolation, but they still need to be implemented on a broader scale. According to professionals from the sector, less than 10% of the buildings now under construction will be done according to energy efficiency standards. This percentage will eventually grow in line with the fact that China is currently the first real estate builder in the world (about 1 billion m2 in 2004), that fixed assets have known double digits rises, etc. This also explains in part why the current rise in GDP is not as energy efficient as it should. Power elasticity co-efficient should be less than 1.0 (opposite to current trend) * Ref: UNIDO

25 Depletion of natural resources
Land degradation and desertification The use of chemical fertilizers in China is two times higher than in other countries Continuous expansion of desert = “desertification” 1950s – 1970s: 1,500 km2/yr 2003: 3,000 km2/yr Sandstorms from the Gobi desert hit Northern China every year, reaching into Korea and Japan, and sometimes even crossing the Pacific Ocean and arriving at west American shores * Ref: UNIDO Illustrating the SD issues with facts: Land degradation and desertification as an example for depletion of natural resources. China = 9.6 Mill km2 Source: e.g. wikipedia,

26 Depletion of natural resources
Water pollution and consumption Water availability in China is between 4 and 5 times less than world average Presently 70% of cities have water shortages Availability Irrigation, that accounts for 60% of use of water, suffers from leakages and losses of great magnitude Pollution 60% of rivers and 90% of urban underground water are highly polluted Inefficiency Industrial output needs on average about 7 times more water than more sustainable economies Requirements 30 bln US$ required to solve urban water management in all cities (> ) * Ref: UNIDO Illustrating the SD issues with facts: Water pollution and availability as an example for depletion of natural resources. Facts presented here are taken from a report written by UNIDO in China, 2004.

27 Depletion of natural resources
Mineral deposits China is already the world’s largest consumer of many commodities, such as steel, copper, coal and cement. Its increased needs account for much of the 50% rise in the world’s commodity prices over the past three years. Coal Largest producer and consumer in the world, and… Consumption expected to rise further from 1.2 billion metric tons (2000) to 2.2 billion (2030) US$ 120 billion would be required to modernize mines & install clean combustion systems (IEA) Illustrating the SD issues with facts: Mineral deposits as an example for depletion of natural resources. This slide demonstrates the fact that whatever the value of the absolute figures when population and resource sizes are taken into account in China, the figures are low by international standards. Source: Wikipedia Reserves = billion metric tons (“only” 3rd in the world)

28 Pollution of natural resources: air pollution
Caused by high SO2 emissions from coal combustion China focus acid rain as a serious problem A growing volume of traffic results in growing NOx emissions China is responsible for 36% of worldwide pollutant emissions Respiratory and heart diseases related to air pollution are the leading cause of death in China CITY PARTICLES (μg/m3) [1995] SO2 (μg/m3) [1998] NO2 WHO STANDARDS < 90 < 50 NEW YORK .. 26 79 BEIJING 377 90 122 STOCKHOLM 9 3 20 Illustrating the issues with facts Air pollution Nearly 36% of worldwide air pollution is caused in China. Air pollution is an urgent problem. Acid rain is a growing problem in China, due to the increased traffic. NOx emissions and dust are problematic, especially in bigger cities. Increased pollution leads to increased diseases related to pollution, including respiratory and heard disease. Of the 20 most polluted cities in the world, 16 are in China. Sources: Out of the 20 most polluted cities in the world, 16 are in China.Estimated annual health costs due to air pollution is 44 bln RMB * Ref: The Economist, + UNIDO

29 Urbanization and poverty
Rural poverty: - while 60% of the population lives in rural areas, they contribute to only 16% of GDP - income ratio urban-rural estimated at 3 to 1 Urbanization: rate of migrant workers approx. 8 million people each year Cities are facing problems in delivering infrastructure and services Slums may start to appear in cities Increased urban unemployment and loss of social security tied to state- owned enterprise reform The low contribution to GDP of the population in rural areas is caused by for instance by people living in areas with adverse natural conditions, resulting in problematic agricultural productivity. Individual poverty is often caused by ownership of a land plot, too small to support a family’s living. In search for employment and improved living standards people migrate to the cities. This urbanization trend is estimated at 8 mln Chinese each year. Whereas this natural trend can be used to help solve the problem of rural poverty, the process needs to be carefully managed – for instance by ensuring equal treatment of migrant workers in the cities and implementing a land-lease system that allows the migrant to either sell or lease the property left behind. Also, urbanization requires careful management of the facilities available in the cities, to support the increased population. If not, slums will appear, and a class of urban poor will still be deprived of access to basic facilities such as housing, clean water and healthcare. Government policies have been concentrated on reducing both absolute poverty (annual per capita income < 625 RMB) and relative poverty (annual per capita income < 865 RMB). By 2003 China has achieved its target of more than halving its poor based on 85 mln poor in Other improvements have been achieved: increased life expectancy, a decrease in child mortality and a drop in illiteracy. Yet, new challenges arise with an ageing population and increased unemployment, loss of access to social security, including pensions, healthcare and education, tied to state-owned enterprise reform. Careful management of these processes is needed to reverse the trend of a growing “urban poor class”. Sources: UN report of China’s progress on MDGs, 2003 (also source of pictures) These trends are causing a growing “urban poor class”.

30 Structure Sustainable development Facts about China
Sustainable development in China Business role and responsibilities Business implementation

31 Recent headlines China wrestles with 'massive' environmental degradation Vancover sun China launches "green storm" against forest destruction Xinhua News Agency Overwork in China claims another life and a foreign MNC is to blame Ethical Corporation | Examples of headlines in the press around the world that illustrate how sustainable development is moving onto the Chinese agenda China seizes the nuclear option South China Morning Post |

32 Current SD issues in China
Population growth and change in social demands Social distinctions and poverty Urbanization Health, safety Labor rights Depletion of natural resources Land degradation / desertification Environmental pollution (e.g. water, air) Water supply & treatment Regional distinctions in infrastructure Energy generation & utilization Waste: solid, liquid, hazardous Which sustainable development issues could result from the tension between these 3 conditions ? Limited natural resources Here the facilitator should take a few minutes to help participants understand the subject better. After raising awareness of the situation in China, participants should think about sustainable development issues which could be raised by the interaction between fast economic growth, limited natural resources and population growth and changes in social demands. Issues include (but are not limited to): Social distinctions and poverty; Depletion of natural resources; Desertification; Environmental pollution (e.g. water, air); Regional distinctions in infrastructure and industry; Collect the ideas of your audience on a paperboard and have participants discuss how and why these issues are affecting each other. Key points to highlight – as illustrated on the slide: As China further develops, there are three major issues which must be taken into account: population growth and related changes in social demands; available natural resources; and fast economic growth. Population and economic growth also drive China’s development, while natural resources may act as inhibitors to this development. Each of these issues is connected to China’s sustainable development and affects the others. They need to be carefully balanced in order to reach sustainable development, a practice which may sound easy in theory, but is a challenge in reality. None of today’s developed countries managed to balance these issues during a period of fast economic growth. Fast economic growth Q

33 Striking a balance How to: Main Drivers: Yet also… Imbalance Balance
Good lasting SD practice Ecological Economic Growth Equity Imbalance Balance How to: Provide employment opportunities Maintain economic growth Remain a competitive business environment Reduce income inequalities Yet also… Sustaining the environment Improving social aspects Main Drivers: Population Size & Growth Globalization Cultural shifts The problems and challenges for China have been explained. Now it is time to build the connection between China’s growth, framework conditions for achieving this growth and the sustainable development challenges that China will have to tackle. This relates to one of the key dilemmas for China – balancing social, environmental and economic growth. China is not the only country facing these challenges, but due to its scale, China’s SD issues will have a huge impact on the whole world. SD is a challenge for all stakeholders. Early action makes successful reaction easier. Pressure for more socially responsible products (both in production and use) will also affect competitiveness as China’s economy becomes more integrated with the global economy. Leading sustainability companies know how to respond to such pressure. Product certification schemes, customer demand for marketing and product information they can trust, and the impossibility of insulating a company from its brands represent an opportunity for socially responsible companies, not a threat. And their capabilities in stakeholder consultation mean they are able to anticipate emerging issues.

34 Call to action…. Implementation is everyone’s responsibility
Same issues apply to all countries; their significance in China is the rate and magnitude at which they create imbalances Resources and efforts from all stakeholders are required to correct the imbalances; Failing to act immediately only worsens the severity of the required solutions Certainly, China is not the only country facing these challenges. But due to the rate and magnitude at which the social and environmental consequences occur, China’s SD issues have a huge impact on the whole world. Because of the size of the imbalances, a joint effort from all stakeholders involved is required. Because of the rate at which the imbalance shifts, actions need to be taken as soon as possible. Every lost day worsens the situation – and increases the severity of the required solutions. Implementation of good, lasting SD practice is the responsibility of every stakeholder in society, including the government, business and NGOs (as well as academia and the general public). Implementation is everyone’s responsibility = NGO’s, business and government

35 Legislation Central government recognizes the need for action.
Programs initiated to counter China’s SD challenges: Agenda 21 Millennium Development Goals Xiaokang (1980) & Tenth Five-Year Plan (2001) What is already being done in China? China’s central government recognizes the need for action. These are three main programs that the government supports, defining the targets in China’s combat against social and environmental imbalance. China supports the Agenda 21 and MDG targets. In fact, China had already initiated its own program “Xiaokang” in 1980, ahead of the UN Millennium Declaration of September Clear national targets related to SD are incorporated in the Party Congress’s Tenth Five-Year Plan. To reach these targets, various instruments have been put into place, a number of which are shown in the following slides. N.B. The current expectation is that China will probably achieve most of the MDGs by At the same time, new challenges arise, which were not all accounted for in the definition of the MDGs. Examples are the increasing developmental gap between rich coastal and poorer central and western regions, gender gaps with women falling behind men in certain respects, the ageing of China’s population, rural-urban migration with the risk of slum formation and the spread of HIV/AIDS (UN MDG report, 2003).

36 Government Key Government Organizations with EHS Responsibilities
Key: (chart showing approximation of hierarchy) NPC: National People’s Congress SEPA: State Environmental Protection Administration MII: Ministry of Information Industry AQSIQ: Administration for Quality Supervision, Inspection and Quarantine MOFCOM: Ministry of Commerce SAC: Standardization Administration of China (within AQSIQ) SDRC: State Development Reform Commission ( or NDRC) This slide shows which government organizations are in place that are involved in environmental, health and safety issues, and how they relate to each other. A restructuring of government bodies has been taking place since 2003 in an effort to decrease bureaucracy and complications. Each of these bodies has a defined responsibility and for some issues a number of them will be involved.

37 National People’s Congress
China’s Clean Production Promotion Law (CPPL) Enacted June 29, 2002, effective January 1, 2003 Statute providing legislative authority for a wide range of materials restriction and related initiatives in China “Clean production” defined in law to include “fundamental reduction of pollution from sources, enhancement of resource utilization, reduction in or prevention of pollution during production and in the use of services and products through continual design improvements, use of cleaner energy resources and raw materials, adoption of advanced technologies, and improvement in management to reduce or eliminate harm to human health and environment This directive is the foundation of new regulations This is one of the most recent laws was passed in order to promote Clean Production in China. The law defines among others the various methods which should be used to achieve cleaner production, and their order of preference. In fact, legislation is at a similar level as European environmental policy. Although implementation is a challenge in a country as large as China, recently, more and more instances have been reported where the government is suspending or closing companies whose operations do not fulfill the new legal requirements (reported in a.o. China Post).

38 Environmental Regulatory Status
Legal standards similar or equal to EU legislative and policy initiatives: Restriction on Hazardous Substances (RoHS) Directive Waste in Electrical & Electronic Equipment (WEEE) Directives REACH proposal on Chemicals Eco-design of energy-using products (EuP) Prevention and Control of Environmental Pollution Caused by Solid Waste – drafting work recently commenced to amend existing law and include: Control of hazardous wastes Provisions reflecting regulatory concepts such as “extended producer responsibility” More specifically, these are the legislative systems that are in place and that have also been adopted in the European Union.

39 Do you know about Chinese environmental legislation? I
Which of the following products must meet energy consumption standards in China? Air conditioners Irons Refrigerators Rice cookers TV All of them have to meet legal standards! From 1 March 2005, manufacturers of energy consuming products will even have to join labels to their products including: - The name & brand of the producer - The degree of energy efficiency - The energy consumption volume - The China energy standards referenced to determine the product’s degree of efficiency. This and the following slides are a few questions to challenge the audience’s knowledge on legislation a little in an interactive manner. Q

40 Do you know about Chinese environmental legislation? II
Are Chinese companies required to submit reports on their energy consumption? Of course they are!!! Much more than a simple statement on their level of consumption, companies exhibiting significant energy consumption are required to periodically submit their energy efficiency and the implemented saving measures to the relevant authorities. Thus progress in energy efficiency is a legal requirement in China. The import of backward energy intensive technology is illegal… before 2008 the law will be reinforced by incentives and disincentives towards businesses in order to promote energy efficiency… Q

41 Do you know about Chinese environmental legislation? III
The approach to hazardous solid waste identification is defined by the law as the prevention and control of environmental pollution by solid waste. What about liquid waste? The hazardous waste identification approach applies to liquid as well as solid waste. Main aspects of the law are the following : entities engaged in the business of collecting, storing and disposing hazardous waste shall apply for licenses; Government may impose discharge fees on those responsible for the waste discharge that do not comply with relevant environmental laws; Hazardous wastes are listed in an exhaustive catalogue; Changing the land use of a previously waste dedicated area is submitted to legal control. Q

42 Do you know about Chinese environmental legislation? IV
Is it legal to import waste into China? Waste import is basically forbidden (or at least highly restricted), except when it can be used as raw material. Movements of waste are strictly monitored and controlled. This is true for trans-boundary waste shipment, as well as for waste movements between Chinese provinces. Q

43 Initiative taken in China - Sustaining natural resources
Land and soil Actions and programs Success and Targets China has afforested around 46.7 million hectares since 1950, this is about 26% of total woodland The afforested area is planned to reach 110 million hectares in 2050, around 28% of China’s total area China has initiated a program to stop desertification between now and 2010, to start reducing desertificated areas from and to redevelop desertificated areas from In some regions soil erosion has been stopped by redeveloping farmland into woodland * Ref: UNIDO Success and Targets China has afforested around 46.7 million hectares since 1950, this is about 26% of total woodland The afforested area is planned to reach 110 million hectares in 2050, around 28% of China’s total area China has initiated a program to stop desertification between now and 2010, to start reducing desertificated area from and to redevelop desertificated areas from In some regions soil erosion has been stopped by redeveloping farmland into woodland Sources of facts: Source of picture: hike.php?hike=china

44 Structure Sustainable development Facts about China
Sustainable development in China Business role and responsibilities Implementation This section reviews what kinds of benefits incorporating SD into management practices can bring to businesses. SD is often considered a challenges or even a burden for businesses, but the purpose of this section is to provide some ideas on how businesses can turn SD in to opportunities.

45 The business environment
Conflicting time scales 50 100 150 200 Lock-in caused by urban design Time to change beliefs and habits Life of energy production capital stock Term of office for head of state Life of major consumer items Years When we look at the demands for business on a time scale, the challenges that business deals with are revealed. The environment in which businesses operate, product life-cycles, requirements for return on investment, etc. are much shorter than the time it will take to change the way we do the business so that long-term sustainable success can be obtained.

46 Business demands Doing Business in a networked world
Information, knowledge, people and goods move around the globe as never before. Beyond compliance, businesses need to meet international agreements & standards Investors & international market - increasing demand for sound SD practices Trends : accountability and transparency Companies face increasing and partly conflicting demands from stakeholders: Shareholders - high returns Customers - affordable and high-quality products Public pressure groups - more environmental protection and social engagement Trends – accountability and transparency Employees – safe and healthy workplace with fair compensation Technology is further changing the business environment of the networked world by allowing information to be shared instantly, even with remote locations. In high tech industries product life spans have been shortened and prompt action is often required to remain competitive. At the same time business needs to meet demands from a wide variety of stakeholders in order to be competitive while following laws, regulations and standards, including national rules and standards for commerce, international agreements, codes of conduct, and other standards. Conflicting demands include: shareholders demand high returns and customers demand affordable and high-quality products, while public pressure groups (i.e. NGOs) demand more environmental protection and social engagement, and employees demand a safe and healthy working environment and fair compensation. As business is held accountable for its operations in a global environment, business operation transparency is required. Socially responsible and accountable business practices can not be avoided.

47 In summary: Why is SD in China so important for businesses?
China’s environmental impact affects the whole world Great business opportunities for both Chinese and foreign companies Major economic growth in China: large country of (potential) consumers Economy open to both foreign and local investors High quality and availability of labor force Investors increasingly demand sound SD practices Sound SD practices as a criterion in selection of suppliers Sound SD practice is becoming a “license-to-export” Compliance with global environmental regulations required Olympics scheduled in Beijing in 2008 Opportunity to show the world that Chinese business practice includes sound environmental and social management Then why is it so important for companies operating in China to have sound SD practices? What is unique about companies operating in China? China is the one of the hottest in terms of economic growth. With the largest population in the world, the environmental impact of business activities in China can be felt both locally and globally. China holds great market potential and thus, by sheer size, China holds a business opportunity that should not be missed. In addition, the greater the number of people that have access to wealth, the greater the number of consumers of products and services. Gaining access to wealth starts by meeting basic needs first. Thus, from a purely business point-of-view, it makes business sense to contribute to solving issues that are related to the living conditions of China’s population. At the same time, more and more companies are demanding that their suppliers in China have sound SD practices. The 2008 Olympics scheduled to take place in Beijing could be an opportunity to show the world that Chinese businesses are achieving high economic growth while offering high-quality products without sacrificing social and environmental well-being.

48 The business case for sustainable development
The business case for sustainability is a concept promoting corporate sustainability based on economic logic. It points to opportunities companies have to create economic value by means of improving environmental performance e.g. increase eco-efficiency, reducing pollution social performance e.g. engage in community development beyond compliance. What is your company’s business case for sustainability? As business operates based on economic logic, following the concept of the business case for sustainability by improving environmental performance and/or social performance beyond mere compliance may point your company to cost-savings and other opportunities that can be measured. At each level of SD, and in any industry, there are business cases for sustainability appropriate for each situation.

49 Improving business performance
Short term Demand from the emerging world = huge market opportunities Consider local needs and conditions Cleaner & more efficient production = better industrial efficiency and cost- effectiveness More efficient/eco-friendly products = Less use of resources and energy and less waste generation = cost effective for the business and for consumers Transparency, social standards, codes of conduct are part of the company‘s image SD policy is taken into account more and more by investment groups and financial analysts = providing the company more financial access (Even stock exchanges are joining the Global Compact!) In the short-term, business can improve performance by turning an SD challenge into a business case for sustainability. For example: By considering local needs and conditions when a company moves into a new community in the developing world, the company can create huge market opportunities; Cleaner and more efficient production can lead to better industrial efficiency, thereby reducing costs and saving the company money in the long run; By the same token, more efficient products use less energy and resources and generate less waste, thereby saving money for the business and the consumer; Etc.

50 From risk to opportunity
Longer term Sustainable use of finite resources Minimizing environmental impacts of business operations Enhance stability in the communities where the business operates The reduction of regional inequities on a global scale is necessary to preserve the stability that business needs to make profit. This slide introduces the examples which follow. In the longer term, business can turn risks into opportunities. The WBCSD believes that business can not succeed in a society that fails.

51 Example: Cleaner production
Efficient use of water, energy, raw materials Starting “at the source” (not end-of-pipe) Cost savings on water, energy, raw materials, directly add to bottom-line result Improved efficiency = reduced waste/leakage Technology leadership Contribution to solve environmental issues Positive company reputation Cleaner production is an actual area that can provide opportunities to business. In the area of cleaner production, efficiently using resources and working at the sources of problems rather than applying end-of-pipe remedies will benefit the company. C

52 Example: Eco-efficient products
More efficient and eco-friendly products Example: Energy Star products (the US) Blue Angel (Germany) Preferred by consumers = lower running cost of equipments & tax breaks = lower cost in the life cycle = company can place a price premium = higher profits Technology leadership and brand recognition Contribution to solve environmental issues Less concern for the waste if using less toxic materials = more appealing products Eco-efficient products are often preferred by consumers when they provide features like less energy or water use, easy disposal procedures or recycling, a reduction in the use of toxic materials, etc. By lowering the use of natural resources or making a product easy to recycle by limiting the use of any toxic materials, companies lower the cost of using a product over its lifetime and/or disposing of it. This savings for the customer can give a business the opportunity to put a price premium on the product. Additionally, the product will have a smaller or less adverse impact on the environment and as such can be used to further the brand’s reputation. C

53 Example: Health & safety
Healthy, happy employees & neighbors Reduced medical costs for employees Fewer lost working days More efficient workforce Happy, healthy consumers Positive company reputation Access to highly qualified human capital Another example is the safety and health of employees and local communities. Companies may think that providing a good working environment costs the company a lot. But those who have mentally and physically healthy employees and neighbors in their community will, for example, have reduced medical and insurance costs for employees, fewer lost working days, a more efficient workforce, etc. C

54 Summary of business roles and opportunities
Challenge Opportunity Conflicting time scale Shorter product life span Rapid developments Conflicting demands from stakeholders External environmental value in $$$ Meeting international standards opens export opportunities Access to capital: investors increasingly concerned with SD Poverty alleviation creates opportunity to expand business to unserved or underserved population Efficient use of resources = cost savings Efficient products = premium values Overall, we have seen the both challenges and opportunities that sound SD practices can bring to business. This is the summary of pros and cons. For the challenge side, in addition to the conflicting time scale and various demands from stakeholders, environmental well-being has been traditionally excluded from the monetary valuation system. For opportunities, meeting international standards and other demands on SD will allow companies to access additional capital through increased brand value and direct cost savings from efficient production.

55 Structure Sustainable development Facts about China
Sustainable development in China Business role and responsibilities Business implementation This section looks at how business can incorporate SD into management practices without it being a burden, but rather an opportunity.

56 Evolution of tools Government Agenda Business Agenda Sustainable
Livelihoods Evolution of tools CSR Economic Instruments Env. Footprint Co-regulatory Agreements Responsible Entrepreneurship Command & Control Legislation Sustainability Factor X Agenda 21 Eco-efficiency Our Common Future The vertical arrow in this chart shows the evolution of the business agenda in line with that of the government agenda: companies initially deal with pollution problems through compliance management. Next, they move toward proactively preventing pollution via cleaner production as command and control legislation moves towards co-regulatory agreements. Eco-efficiency then begins to contribute because, for the first time, the link is established between environmental improvement and economic benefits. The next step takes the company towards responsible entrepreneurship through which the private sector aims to balance the three pillars of sustainability: social justice, economic prosperity and ecological balance. The main message in this slide is that there are shared responsibilities by government (government bodies & agencies) and companies (NGOs can also play a role, primarily as intermediaries between the two). It explains that for the most part, there is a common evolutionary process in every country; it is important to go through them so that the bases are well structured and developed. In summary, the process goes from a perceived or real need to take action due to environmental and/or health issues. This forces governments to develop and implement regulations to which businesses must abide. Results are achieved as companies are monitored and evaluated on their progress. Eventually, companies realize that there is additional value by going even further and pursuing SD opportunities even when they are not demanded by regulation. Finally, new business opportunities are developed through entrepreneurship. This analysis can aid in determining which tools can be best suited for an organization and what approach it should follow in its internal and external implementation of initiatives, policies, etc. related to SD. Government Agenda Cleaner Production As the horizontal arrows in the signpost diagram show, companies intitiatlly Dealt with pollution problems through Compliance Management. Next, they Moved toward proactively preventing pollution via cleaner production. Eco-effieincy Then began to contribute because, for the first time, it established the link between Environmental improvements and economic benefits. The next step is through Reponsible entrepreneurship through which the private sector aims to balance All three pillars of sustainability (social justice, economic prosperity and ecological Balance). Compliance Business Agenda Sustainability Strategy EHS Auditing ICC- Charter EMS Standards Time

57 Implementing sustainable development
Has your company taken any SD initiatives? Can you identify any gaps? What can you do as an individual, as a team, function or company, to contribute to limit use of energy, water and other resources? What resources will enable you to achieve this? Can you identify any barriers? Assess the situation Measure success Develop a strategy Implement The questions in this slide have the objective of engaging the participants as well as empowering them to take action towards SD in their companies. These questions should be used as a mechanism to engage participants and determine what can be improved, based on their experience, so that collectively better actions can be implemented. The ultimate goal of any SD-oriented company is to have a “sustainable” SD program, in which we complete our processes with a renewable cycle. Most organizations start their SD efforts passively: simply trying to contain their impact. Companies go through a reactive mode when faced with a demand from government, society or are self-scrutinized and are forced to treat their situation. They become more constructive when they become involved in the value-chain and work with vendors, suppliers, service providers, etc. to find opportunities such as recycling programs, re-utilization of materials, etc. Companies achieve a pro-active stage when they work to modify their processes, equipment, raw materials, etc. (i.e. when there is typically an upfront cost). 4 stages 1. Assess the situation: Understand energy and climate impacts; Identify gaps, risks and opportunities; Benchmark against competitors; Understand legal, regulatory requirements, policy frameworks and external standards. 2. Develop a strategy: Determine company approach through values and performance; Identify and consult stakeholders; Develop a strategy, plan actions and move ahead on pilot initiatives; Identify leaders and champions. 3. Implement: Education and communication strategies; Participate in alliances and partnerships; Develop new technologies and products; External representation and policy dialogue. 4. Measure success: Select key performance indicators and monitor progress; Undertake data collection and analysis; Evaluate; Communicate feedback. Alternative model: The Sigma Guidelines provide a systematic model of sustainability management (  Alternative model: The Sigma Guidelines provide a systematic model of sustainability management ( T

58 Assessing: General checklist
Benefits to be gained from incorporating sustainable development into business management practices Assessing: General checklist Does your company: Use energy and water Use natural resources and supplies Generate waste Discharge water, emit air containing chemical substances Produce products that use energy and/or water, or emit pollution Need to comply with environmental legal requirements Have international business practices Provide service/goods to international markets/companies Aim to enhance its public image/reputation and increase company brand value Have concerned stakeholders (government, consumers, businesses, employees, investors, NGOs, etc.) Assess the situation This slide reviews the relationship of each company/each audience with SD. The main message is that SD is not uniquely beneficial to any individual company, but is needed and will provide benefits for all companies. If you answered “yes” to any or all of the above subjects on the checklist, then your company could benefit from sound SD practices in its business operations today. Business plays a critical role in keeping the balance between economy, society and the environment, and as such, sustainable development is part of good management practices. It should not be considered a new area that needs to be worked on in addition to the day-to-day tasks, or as an add-on to existing programs. It needs to be an integral part of day-to-day business practices. Q

59 Questions for the board
Assessing: CSR checklist These are questions for the board, a means to assess SD practices through a corporate social responsibility checklist. Q

60 Assessing: eco-efficiency checklist
Eco-efficiency covers a diverse range of issues including: rethinking markets, redesigning products, pollution or eco-innovation. Every company is at a different stage of the eco-efficiency journey for a variety of reasons: core business activities, the attitude of their top leadership, the industry sector and the key drivers for change. However, there are some common elements and themes faced by companies. Before you start implementing eco-efficiency practices within your company, it can be valuable to determine the current state of play. The detail you will go into in this activity is dependent on the type of company and participants. Purpose of this activity These self-assessment questionnaires were developed to determine the current level of eco-efficiency activity in your company and to assist you in planning an eco-efficiency strategy that is tailored to your company’s needs. The tools can be used in a range of ways and at different levels of complexity, from a simple checklist to a more detailed evaluation: • To introduce participants to the key components that need to be considered in developing an eco-efficient work in a business; • To assess what work is currently been undertaken within a business; • To identify gaps and activities for future application. Q

61 Assessing: Dow Jones Sustainability Index
The Dow Jones Sustainability Index was the first index to try to assess the ability of businesses to creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments. Its methodology looks for the “best in class” in specific sectors. It is forward looking and aims to capture not simply end-of-pipe performance but the drivers and enablers which set sustainability leaders apart in their ability to achieve long-term shareholder value. The index’s methodology appears to work in identifying future value potential: The DJSI has outperformed the base index over the past three years. 12 out of 18 World Market Sector Leaders are WBCSD members Automobiles Toyota Banks Westpac Banking Group Basic resources Alcan Chemicals DSM Cyclical goods & services Royal Philips Electronics Energy Statoil Food & Beverage Unilever Health care Novozymes Industrial goods & services 3M Insurance Swiss RE Non-cyclical goods & services Procter & Gamble Utilities Severn Trent Benchmarking is an important means to assess where you are in the market and where your competitors are. Launched in 1999, the Dow Jones Sustainability Indexes are the first global indexes tracking the financial performance of the leading sustainability-driven companies worldwide. Based on the cooperation of Dow Jones Indexes, STOXX Limited and Sustainable Asset Management (SAM) they provide asset managers with reliable and objective benchmarks to manage sustainability portfolios. Currently over 50 DJSI licenses are held by asset managers in 14 countries to manage a variety of financial products including active and passive funds, certificates and segregated accounts. In total, these licensees presently manage 3 billion EUR based on the DJSI Does the Dow Jones Sustainability Index matter to businesses beyond those awarded ‘best in class’ status? The Dow Jones Sustainability Index focuses on identifying “best in class” companies. Companies that achieve membership see it as a “gold standard” award. It has been criticized as too narrow to impact on mainstream business practice, since movements in and out of the top of this league are few giving little incentive for those much further down to compete for membership. Investment in funds based on the Sustainability Index remain marginal to general investment: almost all the DJSI funds are based in Europe although the index is now beginning to enter the US market. However, the index’s methodology is a powerful tool for identifying where sustainability performance is aligned with shareholder value: a key issue for all. The Index works to support change beyond the top 10% in a number of ways: All companies that complete its 20 page survey receive a benchmarking report of their performance against their peers which includes indications of where they can improve. Reports on sustainability practices of the market leaders of each of the sectors represented in the index are published annually. The Dow Jones Sustainability Index has achieved a high profile and its methodology is well respected, but it may be undermined by perceived conflicts of interest. The Dow Jones Sustainability Indexes are a cooperation of Dow Jones Indexes, STOXX Limited and SAM Group – a leading sustainable investment company. SAM is responsible for updating the methodology annually and reviews global trends and consults with a variety of stakeholders to ensure that the criteria reflect leadership practice. The Dow Jones Sustainability Index is powerful partly because it has not been negotiated or designed by committee but with the clear aim of identifying value drivers. However, while the methodology of the index is respected its legitimacy is vulnerable to being undermined by the involvement of SAM in both designing the index methodology and selling investment products based on the index. Adopting forward looking approaches to assessing and communicating sustainability. Whilst corporate involvement with the DJSI itself is essentially “passive”, beyond filling in the annual questionnaire, the index’s ground-breaking approach in assessing the potential to create long-term shareholder value is in itself a strategic challenge and opportunity which should be replicated in other standards, indices and metrics. Possible Actions: The business community could push for other indices and measurement devices to adopt a forward looking approach which meets the needs of decision makers. The DJSI offers a useful practical model.

62 Developing: Your company’s place in society
Your company is a stakeholder in many shared societal processes Influences Government Provides Health Care & Education Impacts Local Economies Uses Communal Resources Supports Workers and Families Consumes Limited Resources Provides Goods & Services Pollutes Shared Environments Your Company This slide outlines some of the key areas that need to be taken into account when developing a sustainable development (SD) strategy. Primarily, it will help you identify who your stakeholders are and what their needs and contributions will be. The stakeholders can be company employees, shareholders, suppliers, customers, financial institutions, etc., all of whom have something to say in the process. Stakeholders can be what make or break the process. Stakeholders can become leaders or champions in these activities, but it is important to have a wide variety and number of leaders and champions that can assure the continuation and long-term approach to these initiatives, from generating a vision and providing resources (time and money), to implementing and evaluating pilot projects to monitoring progress, as well as the fulfillment of the company’s SD vision. WRI T

63 Developing: eco-efficiency
One practical way of measuring the environmental performance of business Applicable to every area of activity within a company or the entire value chain of a product or service Should be an integral part of overall business strategy Principle: Doing more with less Combination of environmental and economic performance OECD definition: The efficiency with which ecological resources are used to meet human needs Higher eco-efficiency requires: Providing more value with less environmental impact Re-linking growth of welfare with the use of nature Improving both economic and ecological efficiency The five aspects of eco-efficiency (optimized processes, waste recycling, new services, networks/virtual organizations, eco-innovation) can be seen in an SD manual just as they can be seen in a continuous improvement plan in any business in today’s world. What this implies, and what the message should be, is that while these aspects have a direct positive impact on SD, they also have a direct positive impact on the company’s bottom-line, and therefore build the case for sustainability. These are five simple factors that can be used to evaluate the degree of eco-efficiency of a modern company. It is important to mention that numerous companies go beyond these factors and define some more specific aspects to evaluate their eco-efficiency. There is no easy or tangible way to measure the environmental performance of a particular business without some level of subjectivity. Eco-efficiency can be considered as one practical way of doing it. The critical message is that eco-efficiency (or a similar measurement) should be incorporated into a company’s strategy with the understanding that every business decision has an impact (positive or negative) on the environment. The specific ratio we achieve is not as critical (when analyzing the product or service value/environmental influence), as the trend that is established in time and the benchmarks that are used to guide companies. The information in this slide is self-explanatory. Higher eco-efficiency means providing more value with less environmental impact (the important aspect is that we are able to find these opportunities and measure them); it means re-linking growth of welfare with the use of nature (the important aspect is that we are all in the same planet and that the changes we make affect everyone else and the changes everyone else makes affect us as individuals); it means improving economic and ecological efficiency. T

64 Developing: Environmental Management System approach
Obtain management commitment Organize project team Identify barriers & solutions Set objectives Pre-assess The recognized need for Cleaner Production 1.Planning and Organization 2.Assessment 3.Feasibility Analysis 4.Implementation Successfully implemented Cleaner Production projects Identify sources (where) Analyse causes (why) Generate possible options (how) Sustain & Continue Evaluate options on: Technical, environmental and economic feasibility Select best options The benefits of an Environmental Management System (EMS) approach can be summarized with the information in this slide. Primarily: Increase productivity -- as the case studies demonstrate there are clear examples of increased productivity; Reduce production costs -- for the most part, EMS initiatives will result in a net savings due to lower costs, from lower raw material costs due to better utilization to lower expenses due to disposal, etc; Produce safer and better products -- the company incorporates new drivers to achieve this; Reduce levels of pollution and risk -- this is a benefit to the entire community; Improve worker’s safety and health -- all in the company benefit directly and indirectly; Comply with Environmental Management Systems (ISO 14000); Link up with international markets; Improve company image. To avoid or to overcome barriers and to guarantee a successful implementation, cleaner production (CP) calls for an organized approach: Planning and Organization Obtain (further) management commitment Organize project team Identify possible barriers and solutions by a (time limited) pre-assessment Set objectives (plant wide) Pre-assess Assessment Identify sources (where) Identify and analyse causes (why) Generate possible options (how) Feasibility Analysis Screen options (technical, economic, environmental) Prioritize and select best options Implementation Option implementation Monitoring and evaluation Sustain and continue (EMS) Option implementation Monitoring and evaluation Sustain and continue T

65 Benefits of an environmentally sound business practice (e.g. EMS)
Increases productivity Reduces production costs Produces safer and better products Reduces levels of pollution and risk Improves worker’s safety and health Complies with Environmental Management Systems (ISO 14000)  Recognition from business partners Link-up with international markets Improves company image Cleaner production usually: Increases profitability; Lowers production costs and enhances productivity; Provides a rapid return on any capital or operating investments required; Increases product yield; Leads to the more efficient use of energy and raw materials; Results in improved product quality; Increases staff motivation; Reduces consumer risks; Reduces the risk of environmental accidents; Is supported by employees, local communities, customers and the public. CP often: Avoids regulatory compliance costs and leads to insurance savings; Provides enhanced access to capital from financial institutions and lenders; Is fast and easy to implement; Requires little capital investment. Implementation of EMS in all aspects of business will make a company more profitable and competitive T

66 Implementing: Chronos -- the WBCSD’s e-learning tutorial
Chronos® is an electronic tutorial designed to increase business interest in, and action on, sustainable development Developed in partnership with the Cambridge University Programme for Industry Aims to encourage employees in a wide range of companies and sectors to reflect on personal experiences, explore situations, and hone problem-solving skills A major factor in the continuity of SD is its ability to be transferred to other companies, organization, groups, generations, etc. Training and education are the means to achieve this and there are many tools to support this process. Specific tools such as “Chronos” help companies united around SD as a theory and move it towards implementation. Chronos is an exciting e-learning tutorial on the business case for sustainable development. It is concise, motivational and easy to use – the best tool on the market for learning about sustainable development. The success of Chronos will be judged by the degree of reflection it causes among employees, the number of conversations it inspires, and the amount of enthusiasm it creates for exploration and action on sustainable development. In reality every employee needs to make the link between sustainable development and business value - not just the company's leaders and specialists. Available at low cost in Internet, CD-ROM and Intranet versions, Chronos presents few barriers to large-scale deployment across the organization, particularly among new graduates and managers. Chronos provides an introduction to the business case for sustainable development - it is not for the sustainability expert. By introducing the topic in straightforward terms, Chronos can move sustainable development thinking into the mainstream. T

67 Implementing: GHG Protocol
The GHG Protocol’s mission is to develop internationally accepted greenhouse gas (GHG) accounting and reporting standards for business and to promote their broad adoption. The GHG Protocol Initiative comprises two separate but linked standards: GHG Protocol Corporate Accounting and Reporting Standard which provides a step-by-step guide for companies to use in quantifying and reporting their GHG emissions) GHG Protocol Project Quantification Standard forthcoming, a guide for quantifying reductions from GHG mitigation projects) The Greenhouse Gas Protocol Initiative is a multi-stakeholder partnership of businesses, non-governmental organizations (NGOs), governments, and others convened by the World Resources Institute (WRI), a U.S.-based environmental NGO, and the World Business Council for Sustainable Development (WBCSD), a Geneva-based coalition of 170 international companies. Launched in 1998, the Initiative’s mission is to develop internationally accepted greenhouse gas (GHG) accounting and reporting standards for business and to promote their broad adoption. The GHG Protocol Initiative comprises two separate but linked standards: GHG Protocol Corporate Accounting and Reporting Standard (this document, which provides a step-by-step guide for companies to use in quantifying and reporting their GHG emissions) GHG Protocol Project Quantification Standard (forthcoming; a guide for quantifying reductions from GHG mitigation projects) The first edition of the GHG Protocol Corporate Accounting and Reporting Standard (GHG Protocol Corporate Standard), published in September 2001, enjoyed broad adoption and acceptance around the globe by businesses, NGOs, and governments. Many industry, NGO, and government GHG programs1 used the standard as a basis for their accounting and reporting systems. Industry groups, such as the International Aluminum Institute, the International Council of Forest and Paper Associations, and the WBCSD Cement Sustainability Initiative, partnered with the GHG Protocol Initiative to develop complementary industry-specific calculation tools. Widespread adoption of the standard can be attributed to the inclusion of many stakeholders in its development and to the fact that it is robust, practical, and builds on the experience and expertise of numerous experts and practitioners. This revised edition of the GHG Protocol Corporate Standard is the culmination of a two-year multi-stakeholder dialogue, designed to build on experience gained from using the first edition. It includes additional guidance, case studies, appendices, and a new chapter on setting a GHG target. For the most part, however, the first edition of the Corporate Standard has stood the test of time, and the changes in this revised edition will not affect the results of most GHG inventories. This GHG Protocol Corporate Standard provides standards and guidance for companies and other types of organizations2 preparing a GHG emissions inventory. It covers the accounting and reporting of the six greenhouse gases covered by the Kyoto Protocol—carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6). The standard and guidance were designed with the following objectives in mind: To help companies prepare a GHG inventory that represents a true and fair account of their emissions, through the use of standardized approaches and principles To simplify and reduce the costs of compiling a GHG inventory To provide business with information that can be used to build an effective strategy to manage and reduce GHG emissions To provide information that facilitates participation in voluntary and mandatory GHG programs To increase consistency and transparency in GHG accounting and reporting among various companies and GHG programs. Both business and other stakeholders benefit from converging on a common standard. For business, it reduces costs if their GHG inventory is capable of meeting different internal and external information requirements. For others, it improves the consistency, transparency, and understandability of reported information, making it easier to track and compare progress over time. The business value of a GHG inventory Global warming and climate change have come to the fore as a key sustainable development issue. Many governments are taking steps to reduce GHG emissions through national policies that include the introduction of emissions trading programs, voluntary programs, carbon or energy taxes, and regulations and standards on energy efficiency and emissions. As a result, companies must be able to understand and manage their GHG risks if they are to ensure long-term success in a competitive business environment, and to be prepared for future national or regional climate policies. A well-designed and maintained corporate GHG inventory can serve several business goals, including: Managing GHG risks and identifying reduction opportunities Public reporting and participation in voluntary GHG programs Participating in mandatory reporting programs Participating in GHG markets Recognition for early voluntary action. Who should use this standard? This standard is written primarily from the perspective of a business developing a GHG inventory. However, it applies equally to other types of organizations with operations that give rise to GHG emissions, e.g., NGOs, government agencies, and universities.3 It should not be used to quantify the reductions associated with GHG mitigation projects for use as offsets or credits—the forthcoming GHG Protocol Project Quantification Standard will provide standards and guidance for this purpose. Policy makers and architects of GHG programs can also use relevant parts of this standard as a basis for their own accounting and reporting requirements. Relationship to other GHG programs It is important to distinguish between the GHG Protocol Initiative and other GHG programs. The GHG Protocol Corporate Standard focuses only on the accounting and reporting of emissions. It does not require emissions information to be reported to WRI or WBCSD. In addition, while this standard is designed to develop a verifiable inventory, it does not provide a standard for how the verification process should be conducted. The GHG Protocol Corporate Standard has been designed to be program or policy neutral. However, many existing GHG programs use it for their own accounting and reporting requirements and it is compatible with most of them, including: Voluntary GHG reduction programs, e.g., the World Wildlife Fund (WWF) Climate Savers, the U.S. Environmental Protection Agency (EPA) Climate Leaders, the Climate Neutral Network, and the Business Leaders Initiative on Climate Change (BLICC) GHG registries, e.g., California Climate Action Registry (CCAR), World Economic Forum Global GHG Registry National and regional industry initiatives, e.g., New Zealand Business Council for Sustainable Development, Taiwan Business Council for Sustainable Development, Association des entreprises pour la réduction des gaz à effet de serre (AERES) GHG trading programs,4 e.g., UK Emissions Trading Scheme (UK ETS), Chicago Climate Exchange (CCX), and the European Union Greenhouse Gas Emissions Allowance Trading Scheme (EU ETS) Sector-specific protocols developed by a number of industry associations, e.g., International Aluminum Institute, International Council of Forest and Paper Associations, International Iron and Steel Institute, the WBCSD Cement Sustainability Initiative, and the International Petroleum Industry Environmental Conservation Association (IPIECA). Since GHG programs often have specific accounting and reporting requirements, companies should always check with any relevant programs for any additional requirements before developing their inventory. GHG calculation tools To complement the standard and guidance provided here, a number of cross-sector and sector-specific calculation tools are available on the GHG Protocol Initiative website, including a guide for small office-based organizations (see chapter 6 for full list).These tools provide stepby- step guidance and electronic worksheets to help users calculate GHG emissions from specific sources or industries. The tools are consistent with those proposed by the Intergovernmental Panel on Climate Change (IPCC) for compilation of emissions at the national level (IPCC, 1996). They have been refined to be user-friendly for non-technical company staff and to increase the accuracy of emissions data at a company level. Thanks to help from many companies, organizations, and individual experts through an intensive review of the tools, they are believed to represent current “best practice.” Reporting in accordance with the GHG Protocol Corporate Standard The GHG Protocol Initiative encourages the use of the GHG Protocol Corporate Standard by all companies regardless of their experience in preparing a GHG inventory. The term “shall” is used in the chapters containing standards to clarify what is required to prepare and report a GHG inventory in accordance with the GHG Protocol Corporate Standard. This is intended to improve the consistency with which the standard is applied and the resulting information that is publicly reported, without departing from the initial intent of the first edition. It also has the advantage of providing a verifiable standard for companies interested in taking this additional step. Overview of main changes to the first edition This revised edition contains additional guidance, case studies, and annexes. A new guidance chapter on setting GHG targets has been added in response to many requests from companies that, having developed an inventory, wanted to take the next step of setting a target. Appendices have been added on accounting for indirect emissions from electricity and on accounting for sequestered atmospheric carbon. Changes to specific chapters include: CHAPTER 1: Minor rewording of principles. CHAPTER 2: Goal-related information on operational boundaries has been updated and consolidated. CHAPTER 3: Although still encouraged to account for emissions using both the equity and control approaches, companies may now report using one approach. This change reflects the fact that not all companies need both types of information to achieve their business goals. New guidance has been provided on establishing control. The minimum equity threshold for reporting purposes has been removed to enable emissions to be reported when significant. CHAPTER 4: The definition of scope 2 has been revised to exclude emissions from electricity purchased for resale—these are now included in scope 3. This prevents two or more companies from double counting the same emissions in the same scope. New guidance has been added on accounting for GHG emissions associated with electricity transmission and distribution losses. Additional guidance provided on Scope 3 categories and leasing. CHAPTER 5: The recommendation of pro-rata adjustments was deleted to avoid the need for two adjustments. More guidance has been added on adjusting base year emissions for changes in calculation methodologies. CHAPTER 6: The guidance on choosing emission factors has been improved. CHAPTER 7: The guidance on establishing an inventory quality management system and on the applications and limitations of uncertainty assessment has been expanded. CHAPTER 8: Guidance has been added on accounting for and reporting project reductions and offsets in order to clarify the relationship between the GHG Protocol Corporate and Project Standards. CHAPTER 9: The required and optional reporting categories have been clarified. CHAPTER 10: Guidance on the concepts of materiality and material discrepancy has been expanded. CHAPTER 11: New chapter added on steps in setting a target and tracking and reporting progress. T

68 Measuring (codes, frameworks, guidelines): Global Reporting Initiative
The Global Reporting Initiative (GRI) Sustainability Guidelines are the first attempt to develop a generalized set of sustainability indicators for organizations. It has become the main point of reference for companies that produce sustainability reports, although only a minority are able to claim their reports are “in accordance” with the Guidelines. The Guidelines’ development is influenced by companies through a structured dialogue process and the GRI’s multi-stakeholder governance process. The GRI has well developed linkages with other standards within an emerging “global architecture”. (e.g. AA1000 Assurance Standard, UN Global Compact, etc.) ( The GRI provides a generalized reporting format which gives guidelines and boundaries to the process of sustainability reporting. There is a tension, however, between the need for materiality-based reporting and the desire for a generalized reporting format. Can a generic set of indicators keep up with changing issues and stakeholder concerns? The GRI has attempted to address this through sector and issue specific supplements. However, this also raises fears of an ever growing list of indicators. The business case for reporting remains unclear. There is a push towards companies producing sustainability reports, and the GRI Guidelines have emerged as the ‘only game in town’ in terms of specifying what these reports should cover. However, the balance of costs and benefits of comprehensive reporting in accordance with the GRI remains unclear. Costs of implementation of reporting per se are sometimes significant, and once a company commits to the format it is difficult to withdraw. One of the key selling points of GRI reporting is comparability and the ability for stakeholders to use it to create an instant index of performance. However, it is yet to be shown to what extent stakeholders are taking advantage of this benchmarkability. GRI indicators are end-point measures which are not designed for management purposes – two sets of accounts are necessary; one for reporting and one for day-to-day management. A generalized reporting format needs to link into operational standards and management systems. The GRI has made steps to clarify its linkage to other leading standards as part of a push to develop consensus on a new global architecture for managing corporate responsibility: AccountAbility and the GRI are working closely to facilitate harmonization between sustainability reporting and assurance. The GRI works in cooperation with UN Secretary-General Kofi Annan’s Global Compact. GRI reporting by companies is accepted as meeting all the terms of the Compact commitment. The GRI has published a users guide to the OECD Guidelines for Multinational Enterprises to facilitate companies integrating them with GRI reporting. The GRI Guidelines provides an established guidance for sustainability reporting. New stock exchange listing requirements, reform of company law, as well as ongoing NGO and investor pressure all point to an ever increasing demand for data disclosure on non-financial performance. Possible Action: Even if companies are not aiming to be `in accordance´ with the GRI they cannot ignore the Guidelines in considering issues and indicators to be included or excluded from their reporting. Companies can choose to aim for reporting ‘in accordance’ with GRI guidelines, but this is a significant commitment. Companies may use the GRI guidelines to inform their own reporting style and content. Linking a reporting process for sustainability with internal management and an understanding of the issues that are material to their business. What is the best way to meet both business needs and stakeholder demands for data? Possible Actions: GRI indicators can be used with stakeholder consultation to determine the materiality of issues. Work with the GRI to develop relevant sector and issue supplements. T

69 Measuring (codes, frameworks, guidelines): Global Compact
This international partnership brings together UN agencies, business, civil society and public sector organizations. Membership is based on a highlevel commitment to its ten principles, derived from key UN and international declarations on labor, human rights, and the environment. The principles themselves are not new, but by bringing internationally accepted standards together and framing them as business commitments, the UN Global Compact has set a principle-based global benchmark form corporate citizenship. It is seen as one of the most significant institutions working to align business and sustainable development. But while more than 1,200 companies have signed up, including 200 large multinationals, very few major US companies have joined. This international partnership brings together UN agencies, business, civil society and public sector organizations. Membership is based on a highlevel commitment to its ten principles, derived from key UN and international declarations on labor, human rights, and the environment. The principles themselves are not new, but by bringing internationally accepted standards together and framing them as business commitments, the UN Global Compact has set a principle-based global benchmark form corporate citizenship. It is seen as one of the most significant institutions working to align business and sustainable development. But while more than 1,200 companies have signed up, including 200 large multinationals, very few major US companies have joined. A major strength of the Compact has been its ability to work innovatively outside of the UN bureaucracy. The Compact is run from within Kofi Annan’s team and has worked as a network without bureaucratic constrictions. However, the democratic deficit has also led to concerns. In response, a multi-stakeholder Advisory Council was set up in 2002 to provide guidance. It comprises members invited by Kofi Annan. The new 10th principle tackling corruption illustrated some of these concerns : While the proposal was out for public consultation, there were questions as to the basis upon which the decision was to be made. It was adopted at the Compact CEO Summit in June 2004. Members fear “creeping” extension of the Compact coverage, leaving existing signatories stuck with added obligations in the face of the reputational damage of withdrawal. The UN Global compact is not a standards setting body, but uses its principles as the starting point for a unique global policy dialogue which enables different sectors to constructively engage at the highest level on issues concerning corporate citizenship and sustainable development. These dialogues have challenges that focus on specific themes including conflict management, HIV/AIDS and Transparency & Corruption. The future of the Compact is uncertain because of the importance of Kofi Annan’s personal championing. The end of his tenure as Secretary-General in about two years time could have adverse implications: Institutionalization of the Compact within the UN system could diminish its capacity for innovation. Alternatively, the launch of the Compact as an independent agency would reduce its access to the UN’s expertise and erode its credibility. Given that the project is closely associated to Kofi Annan, the next Secretary-General may decide to prioritize other initiatives, leaving the Compact and its participants “stranded”. Both businesses and NGOs question the voluntary status of the Compact Principles. Businesses fear on the one hand that the compact represents an underlying drive towards non-voluntary standards, in particular through its links to binding agreements between sovereign states. On the other hand there is a fear that being part of a high-profile ‘open-access’ initiative could associate them with disreputable companies. Leading NGOs and labor organizations continue to campaign for the obligations on signatories to be strengthened. (e.g. Greater business involvement in the governance of the Compact At present there is no clear basis in which participants can formally input into the decision making of the Compact. Possible Actions: Request clear statement from Compact of current governance arrangements, and intentions going forward. Work to strengthen Advisory Board role. Dealing with a change of Secretary-General which could threaten the credibility and long-term viability of the initiative. Request elaboration by Compact of options for post-Annan period, and clear process and timetable for making decisions. T

70 Measuring (codes, frameworks, guidelines): OECD Guidelines for Multinational Enterprises
The OECD Guidelines for Multinational Enterprises are the closest thing we have to an comprehensive global corporate code of conduct. It is a key reference point of international norms for business. While the Guidelines are non-binding on businesses, adhering governments are committed to promoting them and to making them influential among companies operating in or from their territories. The Guidelines have emerged as one of the most comprehensive benchmarks for codes on corporate responsibility. Despite criticism from business that they are too general to be useful, and from NGOs that they recommend ‘minimal social and behavioural practices’ the Guidelines are the only comprehensive and multilaterally agreed corporate responsibility standard and are supported by governments and trades unions. Following the revision of the Guidelines in 2000 they have become an increasingly prominent benchmark for corporate responsibility. Increasingly, leading companies including Philips, Intel, Imperial Tobacco, and Roche publicly acknowledge the Guidelines and use them as a basis for their own business principles. The Guidelines are non-binding for companies, but there are increasing moves to link them to trade subsidies and other incentives. Dutch companies have to state that they comply in order to receive export credit guarantees. French enterprises have to sign a letter saying that they are aware of the Guidelines. Trade unions in the Czech Republic, Finland and Sweden are pushing their governments to link export credits to the guidelines. Other NGOs and trades unions want the Guidelines to be referenced in bilateral investment treaties between adhering and non-adhering countries and in European Union treaties. The Guidelines have been used in connection with shareholder resolutions in Canada and the US. The Guidelines provide a normative framework but there is no practical guidance. For the Guidelines to be useful in practice, it is essential to understand how they link with more operational standards such as the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines. During January 2004 in Paris, the OECD had its first formal consultation with the Office of the UN Global Compact about the addition of a proposed new 10th Principle by The Compact. The GRI has published a users guide to the OECD Guidelines which highlights the ways in which it can be linked to GRI reporting. The OECD Guidelines are an established part of the global architecture of standards for business and it is likely that they will continue to be incorporated into more formal regulatory frameworks and incentives. Civil society organizations and trades unions are also preparing to make more use of the National Contact Points to report breaches of the guidelines. Possible Actions: Businesses cannot ignore the OECD Guidelines, and should consider using them as a minimum benchmark standard for their own policies and operations worldwide. The need to understand linkages between different standards and norms. The OECD guidelines offer an externally legitimized overarching code of practise which is being taken up as a benchmark by many companies. It is essential to understand its linkages with other established standards such as ISO14001 and new initiatives such as the EITI (Extractive Industry Transparency Initiative) or the UN Norms. Companies involved in the development of business-led and independent standards initiatives can encourage coherence with the OECD guidelines. BIAC (the Business and Industry Advisory Committee to the OECD) is well placed to produce guidance on linkages with other codes. T

71 Case in Point Stakeholder dialogue to partnerships: Degussa
Summary: Degussa AG with support from DEG (a German investment and development company), in a public-private partnership, conducted a series of training events in Beijing for employees of Chinese paper mills on how to optimize wastewater circuits ( ). Drivers/Benefits: To help paper mills reduce their amount of wastewater. Results so far: One paper mill implementing zero-effluent technology; several mills short-listed as “Nations Model Clean Production Enterprise”. Key success factors: Expert knowledge, working in a public-private partnership, drive of participants to transfer training into practice. Degussa: Wastewater reduction at paper mills Degussa AG and DEG (a German investment and development company), came together in a public-private partnership to conduct a series of training events in Beijing or employees of Chinese paper mills. The events, which took place throughout 2004 and will continue into 2005, aim to teach employees how to optimize wastewater circuits at paper mills. Situation In 2003, the Chinese paper industry produced approximately 2.5 billion tons of wastewater – making up 12% of all industrial waste water in China. Water consumption in Chinese paper mills is currently between 20 to 200 m3 per ton of paper, compared to the standard in Western paper mills of less than 20 m3 per ton of paper and a “Zero Effluent” standard of 2-5 m3 per ton of paper. Target Through a public-private partnership between Degussa AG and DEG, the company aimed to promote a dialogue between Western and Chinese paper mill employees and experts to discuss problems in optimizing wastewater circuits and to produce approaches to reduce the specific rate of water consumption in Chinese paper mills. Activities Degussa built an educational center in Beijing where 50 people from 38 paper and pulp mills and five universities participated three seminars of 10 days each with Western paper mill experts. Between the seminars, samples of paper mill process and wastewater were analysed in the center in order to find and solve problems in water treatment. Degussa provided personnel and took responsibility for the execution of the project, as well as making a financial contribution. DEG provides up to 200,000 Euros per public-private partnership project. The zero effluent project was supported with ~100,000 Euros and the total cost of the project was ~340,000 Euros. BL-Water Chemicals / Beijing Tianshi Special Chemical Technique Co. Ltd was also a stakeholder in the project. Results As a result of these dialogues, at least one paper mill has implemented zero-effluent technology, a number of paper mills can be short-listed as national models for clean production enterprises in the Tenth Five-Year Plan. Degussa plans to continue running the center on a fee-basis. C

72 Case in Point Stakeholder dialogue to partnerships: ABB
Summary: ABB, with the Alliance for Global Sustainability, devised the China Energy Technology Program (CETP), an extensive partnership program bringing together a diverse group of participants to assess the relative costs and environmental performance of different strategies for meeting power demand in China. Drivers/Benefits: To identify the true costs of electrical power generation and use and develop cost-effective and efficient solutions for the future, to bring significant environmental benefits, not just to China, but globally. Key success factors: Active involvement and participation of academia, industry and the stakeholders involved. ABB: the China Energy Technology Program The China Energy Technology Program, devised by ABB and the Alliance for Global Sustainability, is an extensive partnership program that brings together a diversity of participants to assess the relative costs and environmental performance of different strategies for meeting power demands in China. With over 1.2 billion inhabitants, China ranks second in the world after the United States in terms of total carbon dioxide (CO2) emissions, but it is catching up fast. Each year, China brings online new electricity-generating capacity equivalent to more than the entire output of Switzerland. Its economy is growing fast, and so is its use of energy. It is the world's largest producer and consumer of coal, which provides about three-quarters of all the commercial energy consumed. The China Energy Technology Program (CETP), one of ABB's most ambitious partnership effort projects, is a cooperative program that is focused on developing and applying a methodology to evaluate sustainable electricity strategies for China. The project's aim is to develop a global methodology for assessing the "real" impact of electric power generation from cradle to grave, taking energy technologies and their environmental impacts into account. The overall goal is to identify the true costs of electrical power generation and use and develop cost-effective and efficient solutions for the future. Undertaken in conjunction with the Alliance for Global Sustainability (AGS), it is a two-year program that started in May It involves a team of 75 scientists, academics and engineers on three continents, from business, utilities, universities, and research institutions, involving eleven organizations, in four countries in the project. ABB is contributing financially as well as with expertise, facilities and program management. CETP is also the prototype of a new cooperative mechanism between academia and industry. The program is managed by industry while the main participants are from academia. In addition, the involvement of stakeholders in the program has been strongly emphasized. "At intervals during the course of the project we have held meetings with all the stakeholders concerned to keep them informed of the aims, progress and interim results of the project and given them the opportunity to comment and provide feedback", said ABB's Dr. Baldur Eliasson - the CETP Program Manager. "In this way, the project moves forward in synchronism with the requirements and expectations of those who will benefit from its final results, to help ensure it will deliver usable and valuable results and contribute to the ultimate goal of achieving sustainable development in China", said Eliasson. In essence, the CETP program rests on three pillars: academia, industry and the stakeholders involved. The project focuses on one province, Shandong, chosen principally because of its independent power grid and diversified energy supply. However, the methodology developed should be applicable for other locations. Hence, the China Energy Technology Program has the potential to bring significant environmental benefits, not just in China, but globally. C

73 Case in Point Energy recovery facilities: CH2M HILL
Summary: CH2M HILL was hired to assist the State Environmental Protection Agency of China to advise on technical and economic feasibility and construction requirements for energy recovery facilities at municipal waste landfills. Drivers/Benefits: Promote better waste management practices, rewarded with economic benefits from selling recovered methane as fuel. Challenges: Institutional barriers to progress; communication & translation problems, funding difficulties Key success factors: Commitment from all; quality communication and translation; careful choice of the host country lead agency CH2M Hill landfill energy recovery in Nanjing, Anshan & Ma’anshan In November 1997, engineering and construction firm CH2M HILL was hired to assist the State Environmental Protection Agency (SEPA) of the Peoples’ Republic of China, to advise on technical and economic feasibility and construction requirements for energy recovery facilities at municipal solid waste landfills. The project was intended to provide incentives for eliminating greenhouse gas emissions of methane from landfills, as China develops modern solid waste disposal methods. In many of China’s cities, solid waste disposal sites are not properly contained with impermeable lining systems and liquid and gas removal systems that are now considered standard practice in many countries. The project was conceived as a way to promote better waste management practices, because efficient recovery of the methane requires proper landfill containment and rewards it with the economic benefits from using or selling the recovered methane as fuel. The objectives of the project were to: establish demonstration plants to capture methane from landfills and use it as fuel or to generate electricity; create a training facility for landfill operators, energy service companies, municipalities, and other businesses on building and operating landfill energy plants; set up institutional arrangements to operate landfill gas recovery technology and produce and sell gas and electricity at each site; demonstrate approaches to establish the price of electricity generated and lower the cost of future plants to make landfill-gas electricity financially viable; and prepare an action plan to promote the widespread replication and adoption of landfill gas recovery technology in China. CH2M HILL worked closely with SEPA and the international funding agency – GEF – as well as the public works bureaus and environmental protection bureaus in each of the three cities. Capacity building, for both technical and institutional requirements, was a major component of the project. Both technical hardware and an extensive training program were provided to the technical personnel in each city who would be responsible for implementing the energy recovery projects. The initial project schedule was four years and the funding was to cover feasibility studies, training of Chinese technicians, and purchase of equipment for constructing energy recovery systems at three selected demonstration sites. The feasibility of the projects in each of the 3 cities selected has been demonstrated and the capacity building efforts have been underway for some time. However as of March 2002, the project is approximately two years behind schedule. Approximately 60 technicians and supervisory personnel were trained at each of the project cities. As a result, the SEPA and public works bureau personnel who have participated to date will be able to provide an indigenous source of knowledge to help other cities in China in developing similar projects. This experience by Chinese engineers should greatly help to overcome the communication and institutional problems that have been encountered in implementing the demonstration projects. In this case, the value invested in these demonstration projects will have been realized. C

74 Case in Point Local and global standards: Lafarge
Summary: Lafarge and DuJiangYan Building Materials Co., joint venture agreement to construct a new cement plant in ChengDu, Sichuan province, in line with latest technology, quality and safety standards. Drivers/Benefits: For Lafarge -- establishment of substantial & profitable position in region, where an accelerated infrastructure development program fuels increase in demand for high quality cement; for Chinese government -- strategic importance for regional economic development & to reduce persistent supply/demand gap in the region. Challenges: Quality control during construction, cultural differences, implementing safety practices, Song relics on site, heavy rains. Key success factors: Financial strength and technical support; strong management team; good working relations between Chinese and foreign partners; Government support; listening to the different parties. Lafarge Dujianyan Cement Company French company Lafarge entered a joint venture agreement with DuJiangYan Building Materials Corporation to form the Lafarge Duijangyan Cement Company. Under this joint venture agreement, a new cement plant has been constructed in ChengDu, in the Sichuan Province of southwest China. The specific objectives of this project were to construct a new plant with state-of-the-art dry process technology, a new quarry and a railway for transporting materials. While divided into three separate turnkey projects, the company’s objective was for each to be built according to Lafarge quality, environment and safety standards. This was of particular importance in the construction phase as large-scale automation, strict safety requirement and high environment standards, and certain management styles were essentially new to the Chinese cement industry. There was close collaboration between Engineering Institutes and the Lafarge Technical Center during the design phase and the implementation of the Technical Assistance Agreement that saw Lafarge provide managerial expertise, reporting procedures, comparative data, training and advising capabilities to the joint venture company. Lafarge best practices were transferred during the construction phase of each project, in particular those relating to safety and environmental practices. The Lafarge team worked with the design and construction firm’s management teams to transfer skills and capabilities in manufacturing and installation. For the production phase of the project, Lafarge made available to the joint venture company, the company’s worldwide practice in the cement activity. In particular, the experience of Lafarge’s cement plant in Beijing was drawn on. Intensive training programs were carried out to ensure that all personnel were adequately informed and skilled to manage and operate the plant in accordance with Lafarge’s international policies. The plant, now in operation, has an annual production capacity of 1.4 million tonnes of high performance cement. Over 80 percent of the plant’s production equipment was sourced locally and local firms were contracted for construction. The plant is equipped with the worlds most advanced technologies, and is noted for its environmental friendliness, fuel and electricity efficiency and high quality. Currently the plant and the associated quarry employ 350 people; mostly recruited locally in China. C

75 Case in Point Introducing EMS: Automobile Company in Anhui
Summary: This Chinese automobile company first started production in It went from a loss-making venture with revenue of less than 3 million RMB in 1990 to one of the most important Chinese automobile producers with 5 wholly owned subsidiaries and revenues of 26 billion RMB in 2000. Drivers/Benefits: Systemization of processes & operations and introduction of EMS increased efficiency and quality, timely delivery to customers, reduced waste, improved company image. Challenges: Culture change within the company needed; long-term process. Key success factors: Strong management vision, employee commitment, good cooperation with local government, starting from “at-the-source” principles as opposed to “end-of-pipe”. Chinese automobile company in Anhui (from “Greening Chinese Business” by Ulrich Steger, Fang Zhaoben and Lu Wei) This Chinese automobile company first started production in From 1990 to 2000, the company transformed itself from a small, three million RMB local business to one of the most important Chinese automobile producers with five wholly-owned subsidiaries and revenues of 26 billion RMB and more than 7,000 employees. Principles“We have only one Earth, our only home. We live together in this colourful society and it requires everyone in the world to accept responsibility for it.” “Without a good natural and social ecology, we might lose the basis of our progress. Our company considers one of the predominant issues to be that of creating environmental harmony, and wisely implements it into public policy and management.” --- Company Chairman To effectuate this transformation, the company’s chairman instilled the idea that environmental protection needed to be considered as one of the most important ways to improve the company’s strength and competitiveness. The company based its growth on the principle that better products and a clean workplace and environment lead to a better society with healthy, effective employees and healthy consumers. To reach this goal, the company systematized its processes from beginning to end: design, production, sales, raw materials inventory, storage and use. This has led to effective, clean and timely production. The company also implemented an Environmental Management System to ensure continuous technical development of products and services, as well as more timely delivery. Approach The company first defined a strategy that: Advocates harmonious growth -- natural, social, market, internal; Recognizes the relationship between a product’s quality & utility and environmental protection -- producing products that meet customer’s needs and are not harmful to the environment; Emphasizes cooperation and communication with competitors because “business ethics encourage people to treat others as they would like to be treated”; Creates a cooperative attitude with employees, clients, competitors, partners, subsidiaries and the public. Then the company established an Environmental Protection Department with the company’s vice-president in charge of the environmental protection program and another manager responsible for the technical side of implementation. Actions Product Design The company implemented a product design system that takes into account pollution prevention throughout the product’s life-cyle, while addressing the life span of the vehicle, its utility and recyclability enabling re-use of old parts. Product production In the production phase, the company aimed to: Eliminate obsolete techniques and equipment; Avoid unnecessary packaging and increase production efficiency by sending parts directly to the workplace; Use materials minimizing friction and resisting corrosion to make environmentally friendly engines; Strive for clean production by stopping pollution at its source; Gradually renovate or remove ineffective (pollution control) equipment. Employees For its employees, the company: Strengthened morale & communication through on-the-job and ’40+4’ training; Promoted environmental protection by including it in training curriculum; Placed plants in every workshop and office in order to make them more comfortable and reminder of importance of the environment. Additionally, the company established a “Clean production study group” that has a checklist of clear objectives: Optimize products by improving design. Pollution reduction & energy savings are a first priority in vehicle design. All vehicles now meet SEPA’s provisions, as well as all requirements to operate in Beijing City (most stringent pollution standards). In 2000, some 380 vehicles were exported to Turkey. Designing products for energy saving and pollution reduction gives the company a competitive advantage. Find substitutes for raw & secondary materials and altering production methods, for example using phosphorus-free process aids and electrophoresis bath instead of submersion. This reduces hazardous waste and emissions, which is better for employee health and improves the rate of materials use. Use of clean fuel: gradual replacement of coal with oil and electricity. Boilers were renovated for improved energy efficiency. Energy savings reduce costs. Renovate whole production line (bridge production, assembly, installation & welding, painting). Clean & systematic production lead to consistent quality, efficient production & timely delivery. The company’s “No Packaging Renovation Special Group” was established in 1998 in order to find ways to minimize packaging. The benefits of this include: Reducing packaging costs; Saving time spent in opening packaging; Reducing industrial waste. From 1998 to 2000, this project alone reduced production costs by RMB 8 million. The company has also had philanthropic endeavors including a donation of 100 RMB to the National Ministry of Forestry for every light truck sold. From 1998 through 2000, donations totalled 2.5 million RMB, money that has been used to line the No. 312 state road with trees. This helped to build good relations with the government. The company still sees areas for additional improvement, including: Continued training of staff to further improve cleaner production; Reduction of industrial noise; Replace surface painting with more efficient techniques; Water-source control: difficult due to malfunctioning water supply & drainage in the region. If water efficiency could be calculated, further progress could be made on water and thus cost savings. Conclusion The company changed its traditional development & production model through a holistic approach including: Environmental management; Resource conservation; Clean production promotion; Waste elimination; Cultivation of corporate culture; Stakeholder relations; Involvement of employees. Achieved goals Through its efforts, the company has achieved: Energy savings; Waste reduction; Pollution reduction; Increased production; Improved working conditions; Improved government relations; Improved brand value. The effectiveness of the company’s environmental protection strategy is demonstrated by its progress over 10 years, despite intense peer competition, creating an economic and environmental win-win situation for the company. C From “Greening Chinese Business” by Ulrich Steger, Fang Zhaoben and Lu Wei

76 Case in Point Responsible care auditing: BASF
Summary: BASF systematically conducts Responsible Care (RC) audits of its service suppliers; RC = a voluntary improvement process of the chemical industry, dealing with Environment, Health and Safety (EHS). Drivers/Benefits: The systematic method provides a tool to evaluate supplier site risks, in order to select the best alliance partner and to deliver a contribution to society and the environment; contributes to positive company reputation. Challenges: Investment in time and effort from both auditing company and service supplier. Key success factors: Systematic, realistic method and timescale, using principle of risk = EHS performance x hazard potential; good collaboration between service provider and (potential) customer. Summary: BASF systematically conducts Responsible Care (RC) audits of its service suppliers; RC = a voluntary improvement process of the chemical industry, dealing with Environment, Health and Safety (EHS). Drivers/Benefits: The systematic method provides a tool to evaluate supplier site risks, in order to select the best alliance partner and to deliver a contribution to society and the environment; contributes to positive company reputation. Challenges: Investment in time and effort from both auditing company and service supplier. Key success factors: Systematic, realistic method and timescale, using principle of risk = EHS performance x hazard potential; good collaboration between service provider and (potential) customer. C

77 Case in Point “Global” standards: DSM
Summary: Jinling-DSM Resins is a Chinese-Dutch joint venture producing resins in Nanjing. Employment conditions of its 17 temporary workers were improved to a level in between those of surrounding temporary workers and employees. Drivers/Benefits: Achieving the optimum, realistic balance between international standards and local circumstances. Challenges: Building on the inheritance of a non-greenfield operation; different cultural perceptions of appropriate employment conditions for temporary and permanent workers. Key success factors: Open discussion between management and employees; finding the optimum mix between foreign views and local culture and habits. Jinling-DSM Resins Comp, Ltd is the Nanjing-based joint venture of DSM, a Dutch-origin multinational, with Jinling Petrochemical Corporation, which specializes in the production of Resins. For DSM, it is a non-greenfield operation (i.e. it is an urban operation). The company employs 135 employees, among which 17 temporary workers. Historically, these temporary workers were employed through a middle-man who was paid for the delivery of low-skilled labor. Although called “temporary” workers, most of them had been working for the company for many years. When moving into the operation, DSM discovered that most of the fees went to the employment broker himself, the workers were paid only 40-45% of what junior permanent employees would normally receive from DSM and no social security, health insurance fees or pensions were paid for them. When foreign management addressed the matter with the local HR department, it turned out that changing the workers' conditions and status so that they would be the same as that of the permanent workers was unacceptable according to the local customs. The “temporary workers” were considered “farm boys” and hence not entitled to the same conditions as permanent workers. The crucial question became: how to find a balance between local tradition and “a foreigners view”? In the end, a compromise was found: the temporary workers were employed through a temporary workers agency that pays all social fees and pensions for them. Their direct income was increased by 50% to match the highest level of industrial temporary workers' incomes in the area. All other secondary conditions were made the same as those of permanent workers, such as provision of free lunch and gifts at festive holidays. As trade union leader Mr. Du says: "We probably have the best conditions for our workers of all employers in Nanjing." The permanent employees as well as the temporary workers themselves are happy with the new situation. C

78 Case in Point Sustainable use of waste: Novozymes
Summary: Novozymes supplies treated wastewater and converted biomass from its production processes free of charge to TEDA to be used for irrigation and as biological fertilizer (NovoGro). Drivers/Benefits: Sustainable use of wastes, reduced consumption of limited resource, support for eco-industry, responsible neighbor and good company reputation Challenges: Infrastructure for storage and transportation of treated wastewater, composting and expanded application of NovoGro to ensure more sustainable use. Key success factors: Close cooperation with TEDA, advanced waste treatment technology, experience in the production and application of NovoGro from Europe and US. Novozymes is the biotech-based world leader in enzymes and microorganisms. They aim to use nature's own technologies, to expand biological solutions to improve industrial performance everywhere. Novozymes' 600+ products are a key factor in the production of thousands of products in everyday life - from the textiles to clothes to the food you. In more than 40 different industries and 130 countries their biological solutions improve industrial performance and quality while at the same time saving water, energy, raw materials and waste. Novozymes production plant in the Tianjin Economic Development Area (TEDA) produces enzymes by means of fermentation of microorganisms. The wastewater and sludge from production processes are treated in Novozymes’ own waste treatment plant, and used (free of charge) for irrigation and as biological fertilizer in TEDA. Novozymes’ sustainable use of waste material has contributed to the recycling economy and eco-industry in TEDA, strengthened the company’s relationship with the local community, and increased the company’s profile as a responsible corporate citizen. This case has recently been named as one of the top 10 SD cases in China. Summary: Novozymes supplies treated wastewater and converted biomass from its production processes free of charge to TEDA to be used for irrigation and as biological fertiliser (NovoGro). Drivers/Benefits: Sustainable use of wastes, reduced consumption of limited resource, support for eco-industry, responsible neighbor and good company reputation Challenges: : Infrastructure for storage and transportation of treated wastewater, composting and expanded application of NovoGro to ensure more sustainable use. Key success factors: Close cooperation with TEDA, advanced waste treatment technology, experience in the production and application of NovoGro from Europe and US. C

79 Case in Point: Fuyang Chemical General Works
Summary: Chinese fertilizer plant, in collaboration with Chinese authorities and CIDA implemented Cleaner Production, starting with zero- and low-cost measures and continuing by implementing medium cost measures. Drivers/Benefits: Enabled reduction of product losses, efficient use of raw materials and energy, reduced emissions, reduced waste, healthier working environment, increased revenues, improved company reputation. Challenges: Collaboration between parties with different experience levels, overcome initial investment requirements for medium cost measures. Key success factors: Management commitment & employee participation, tackling zero- and low-cost elements first, partnership with Chinese government, training & sharing of information, stimulating gender equity. Fuyang Chemical Works – A Cleaner Production Success Story -- June 1999 From the China-Canada Cooperation Project in Cleaner Production “Picking Low-hanging Fruit: The Strategic Role of CP in China” by M. Osterman, LL.L.CEA ( Fuyang Chemical Works is a Chinese fertilizer plant located in Fuyang City in Anhui Province producing ammonium bicarbonate and urea fertilizers. In collaboration with Chinese State Administration of Petroleum and Chemical Industries and the CIDA (Canadian International Development Agency), the company implemented a cleaner production program. The system started with no- and low-cost measures and continued by implementing medium-cost measures to improve productivity and reduce pollutants. The company’s cleaner production program has enabled the reduction of product losses, the efficient use of raw materials and energy, reduced emissions to environment, reduced waste, a healthier working environment for employees, increased revenues, and an improved company reputation. Results within 1 year of implementing no & low cost solutions: o        3% production increase; o        15 million RMB cost savings. The Cleaner Production Approach The United Nations Environment Programme (UNEP) defines cleaner production as “the continuous application of an integrated preventive environmental strategy to processes, products and services, to increase efficiency and reduce risks to humans and the environment”. Therefore, cleaner production means the efficient use of resources, producing the same, better or more, with less: less raw materials, less energy, less impact on the environment. Steps taken o        Preparation of process flow diagrams o        Sampling and flow measurements o        Water and material balances Identify priority process areas & emission streams Development of CP solutions Implement CP measures Start with zero and low cost Capital needed for medium cost The company focused on: Minimizing water consumption; The efficient use of raw materials and energy; Recycling of materials; Improved housekeeping; Careful and safe handling of raw materials, intermediate and finished products. Zero- to low-cost measures taken: Improved housekeeping and maintenance; Increased employee awareness of safe handling & efficient use of resources; Implementation of recycle and recover streams; Elimination of broken fertilizer bag in storage area; Generating revenues from solid waste (construction applications); Maximizing oil recovery for recycling and reuse; Preventing leaks of copper solution from storage tanks and filter presses; Aesthetic site improvements (cleaning of dump area); Minimizing discharge of wasted oils by manual recovery. Medium cost (2-3 million RMB) measures taken: New equipment for the concentration, recovery and reuse of ammonia; New equipment for the recovery of sulphur & extraction and recycling of diluted ammonia. Material gains 4,500 metric tons/year reduction of ammonia losses (low cost) 3 million RMB/year revenues from recovered ammonia (low cost) 250 metric tons/year reduction of ammonia losses (medium cost) Approximately 0.4 million RMB/year revenues from recovered ammonia and sulphur (medium cost) Immaterial gains Reduced environmental pollution; Healthier environment for employees; Improved company reputation; Increased employee job satisfaction. Key success factors for the company included full management commitment and employee participation, tackling the zero- and low-cost elements first, training, information sharing and stimulating gender equity. Equally important was the partnership with Chinese government agencies which produced clean production guidelines for the ammonia/urea industrial sector. More cleaner production successes from various industries in China including food and beverages, textiles, metallurgy, shipbuilding, energy, pulp and paper, construction, petrochemicals and refineries can be found at C From the China-Canada Cooperation Project in Cleaner Production “Picking Low-hanging Fruit: The Strategic Role of CP in China” by M. Osterman, LL.L.CEA

80 “There will be no sustainable world without a sustainable China”

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