On July 27, 2023, the "Green" column of Southern Weekend B14 published an interview article with Dr. Shi Han, Director of the ESG Center at the China Business School of the University of Hong Kong, titled "Enterprises Should Pay More Attention to ESG Practice during Global Economic Downturn." The following is the full text of the article.
In 2014, Bill Gates' "Gates Notes" caused a great response worldwide. The data he cited shows that China consumed the cement used by the United States throughout the 20th century in just three years from 2011 to 2013.
Not only cement, OECD research shows that China ranks last among G20 member countries in terms of resource productivity, which is the amount of natural resources consumed per unit of GDP.
In the view of Shi Han, Director of the ESG Center at the China Business School of the University of Hong Kong, an increasing number of cases indicate that corporate green transformation and ESG cannot go far solely through voluntary actions and cannot promote systemic transformation.
The green transformation of enterprises requires both regulatory supervision and promotion of environmental information disclosure; We also need to rely on consumers. As more and more consumers choose green products and are willing to pay for environmentally friendly products, polluting manufacturers will have no place to survive.
If you ask "Is environmental protection important?", nearly 90% of Chinese people will say it is important. But if you ask "How much green premium are you willing to pay for environmental protection products?", Chinese consumers are not ready. A survey shows that the green premium level for Chinese consumers is only about 3% -4%, while in some European countries it can reach as high as over 10%.
On July 21, 2023, at the "2023 Southern Weekend Sustainable Development Scholarship Program," Shi Han emphasized that "during the global economic downturn, companies should pay more attention to ESG practices, which will accelerate a new round of industry reshuffle. Companies that are beneficial to environmental protection and social development will occupy a better market competitive position
Enterprise Green and Low Carbon Development Ladder
In the next five years, each year may be the so-called 'hottest year in history', and the global average temperature is likely to exceed the pre industrial revolution temperature by 1.5 ℃. What will happen to these 'hottest years in history'? Some people are worried and others suspect that this is a painful and costly experiment.
As a major emitter of carbon, enterprises are both a cause and a victim of climate change. But more importantly, from now on, some companies will become providers of climate change solutions.
Enterprises should reduce greenhouse gas emissions, enhance resilience to climate change, and innovate low-carbon technologies, products, and business models. The steps of the enterprise's green and low-carbon transformation process from inside to outside the factory wall are as follows:
The first step is to meet the standards and abide by the law, which is the most basic requirement. Only when environmental regulations and standards form clear red lines and forbidden zones for enterprises, will they make expected responses to environmental policies, which is a prerequisite for modern environmental governance systems.
The second step is clean production and pollution prevention. At present, most enterprises are only passively carrying out these tasks, without realizing that clean production and pollution prevention can resolve the conflict between development and protection. If Chinese enterprises can systematically lean production, it will greatly enhance their competitiveness.
The third step is the environmental and energy management system. The core requirement of quality, environmental, and energy management systems is for enterprises to establish a continuous improvement mechanism, constantly identify problems, develop plans, implement them, evaluate the results, and finally identify problems, develop plans, implement them... moving forward in a round by round manner. However, most of our domestic enterprise management system practices have fallen into the realm of buying and selling system certificates. This is very regrettable.
The first three steps are mainly carried out within the walls of the enterprise. But beyond the walls, what is the driving force behind green supply chains? I have conducted research on some companies, and multinational corporations have pointed out that cost reduction is the primary driving force; However, most domestic enterprises believe that implementing green supply chains will increase costs, making it difficult to advance.
In the early stages of developing a green supply chain, it is indeed necessary to exclude some suppliers with poor environmental performance, which may increase operating costs in the short term, but in the long run, the overall cost will significantly decrease.
The concept of circular economy was introduced early, but its implementation was inadequate
To achieve carbon neutrality goals, the zero carbon transformation of energy can solve approximately 65% of the problem, while the rest can be achieved through a circular economy. To achieve this, enterprises need to constantly reshape their production methods and value chains, minimizing resource extraction and waste emissions to the greatest extent possible.
As early as 1998, Shanghai proposed the implementation of a circular economy strategy in its local sustainable development plan. China, Japan, and Germany were the first to introduce the concept of circular economy, but the overall progress of implementing circular economy in China is not ideal, especially in promoting innovative business models for circular economy.
For example, "shared bicycles" are a typical exploration of the sharing economy and belong to the category of "circular economy". However, shared bicycles did not implement the concept of circular economy from the beginning, leading to some shocking shared bicycle "cemeteries" in many cities. Due to our failure to integrate the concept of circular economy into the design of the shared bicycle business model from the beginning, we have paid a huge resource and economic cost for this.
A Burmese businessman developing in Singapore received a considerable number of shared bicycles through corporate donations or low-priced purchases, repaired them and distributed them for free to primary and secondary school students in Myanmar. Students rode bicycles to school, greatly reducing their walking time to and from school. Unfortunately, this innovative practice of circular economy did not happen in our "bike sharing" kingdom.
When training ESG management personnel in enterprises, I pay special attention to training personnel from the R&D and design departments. R&D personnel understand and implement environmental protection and low-carbon principles, and their role even exceeds that of the EHS department. The R&D and design stage of a product or building has a potential of about 70% for saving resources and improving ecological efficiency. After this stage, the room for environmental improvement becomes very limited.
The key to implementing a circular economy in enterprises is to assess two indicators, one at the beginning and one at the end. One head "refers to the proportion of renewable resources (i.e. non-native materials) in the raw materials consumed in production, which is equivalent to the production of raw materials that are not extracted from nature; 'One tail' refers to the proportion of scrapped products that can be recycled and reused. At present, few enterprises carry out statistics on the above two key indicators, and without mastering these two indicators, it is difficult to carry out practical actions for circular economy.
Product as a service "is an emerging consumption model that is rising globally, where users no longer purchase and own products, but instead" rent "the features contained in the products to meet their needs. The various products sold now will gradually transform into a leasing service business model in the future, such as Intel's pioneering carpet leasing business, Michelin's heavy-duty truck tire leasing, and Apple's launch of the iPhone rental program "iPhone Upgrade Plan" in the United States.
When selling tires, Michelin hopes that the tires will consume as quickly as possible, so that more tires can be sold; When Michelin rents tires, as the actual owner of the tires, the company uses sensors and the Internet of Things to help trucks maximize the service life of the tires and carry out recycling. The transformation from products to services can greatly promote the application of circular economy by leveraging the multiple advantages of producers themselves.
What is a good ESG report?
If you only have 5 minutes, how can you quickly read and evaluate an ESG report?
Firstly, pay attention to the business model of this enterprise, that is, how much positive or negative impact its fundamental method of profitability will have on society and the environment, such as how mining companies often lead to environmental damage. How can companies reduce their negative social and environmental impacts and enhance their positive contributions to society and the environment through ESG management.
Secondly, we need to examine the ESG governance structure of the enterprise. The determining factor of ESG effectiveness is corporate governance, and ESG is a typical "top project". Whether the board of directors has established an ESG/Sustainable Development Committee and whether it has equipped basic ESG professionals are important evaluation criteria. The Hong Kong Stock Exchange has begun to require listed companies to disclose who is ultimately responsible for their ESG, as well as the relationship between the compensation structure of the board of directors and executives and ESG KPIs.
Once again, we will examine the substantive issue evaluation matrix of the enterprise. Enterprises need to carefully evaluate and identify substantive issues that are important to their own operations and external stakeholders in order to carry out ESG management and information disclosure.
Finally, in the appendix of the ESG report, companies should provide a data summary table of ESG goals and their KPIs. Does the report clearly disclose the company's medium - to long-term ESG goals and provide KPI data for 3 or even 5 years to clearly demonstrate the company's ESG commitment and implementation progress.
A good ESG report should focus on quantitative data, supplemented by qualitative descriptions, in order to help readers better understand the actual performance of the company in ESG and the reasons behind it.
Compared with leading multinational corporations, there is a huge gap in ESG information disclosure of listed companies in China, which urgently needs to be improved. Improving the ESG reports of listed companies can significantly enhance the ESG rating results of Chinese enterprises by international mainstream rating agencies.
Global ESG practices have shown that relying solely on voluntary actions by companies to promote ESG practices is not feasible, and it is necessary to rely on regulatory standards to drive companies to fully implement ESG.
In 2022, the State owned Assets Supervision and Administration Commission has required listed state-owned enterprises to fully release ESG reports from 2023 onwards. In June 2023, with the support of the Ministry of Finance, The International Sustainability Standards Board (ISSB) has also established a Beijing office. In the above context, it can be foreseen that the Shanghai Stock Exchange and the Shenzhen Stock Exchange will soon release guidelines for sustainable development information disclosure of Chinese listed companies. These will greatly promote companies to disclose ESG information.