CSR and the new environment law in China (2015). Abstract of the training delivered on June 4th, at the Shanghai European Chamber of Commerce.

1. CSR and environment in China
Confidential, June 4th, 2015EuCham, Shanghai

2. Speaker - Olivier Coispeau
Resume
• Olivier Coispeau, CFA SFAF
• Founder of Maverlinn Strategic Finance
• Strategy (Roland Berger) and Finance
(JP Morgan, Schroders, Clinvest)
• Former economics professor at Paris-
Sorbonne university
• Frequently invited guest speaker to
international finance forums
• Education: Stanford University, Paris
Dauphine University and Sciences Po Paris

3. Summary
Disclaimer : This presentation must not be shared with third parties without the written prior consent of Maverlinn. This
presentation is not fully understandable, complete and reliable without further analyses and oral explanations.
1.
2.
3.
4.
5.
CSR and environment protection are closely connected
Enforcement will be important to deter irresponsible behaviors
Clearer provisions and additions to the previous law set better framework
Aligns environmental crime definition, risk for polluter and sanctions
The 2014 revision of the China environmental law is a new step forward

4. Agenda
• China growth : environmental highlights
• China previous legal framework for environment protection (summary)
• China new legal framework for environment protection (EP)
• Corporate goal and common good misalignment, the CSR dilemna
• Managing environment in a responsible way

5. China economy take-off has been named the most
impressive economic phenomena of the past 30 years
Source : IMF, 2014
Key facts :
• Population : 1.36 Bn people
• Government : CPC, sole governing party
• GDP 2014 : USD 10.13 Tn (+7,1%)
• GDP / Capita : USD 7,448
• Inflation (CPI) : 2.06%
• Trade balance : USD 60 Bn in January 2015
• Forex reserves : USD 4 Tn (est.)
China GDP growth &
Investment
47,9
48
48,1
48,2
48,3
48,4
48,5
48,6
48,7
48,8
48,9
49
2009 2010 2011 2012 2013 2014 2015
0
2
4
6
8
10
12
Investment as % of GDP GDP Growth

6. Power generation and manufacturing are responsible for the
atmospheric pollution as they mostly rely on burning coal
Comments :
• CO2 originates 90% from fossil fuel
combustion, energy efficiency has been
the major factor for decoupling it to growth
• Main power generation is the main
responsible for CO2 emissions (49%)
• Manufacturing comes second at 30%, in
particular steel and cement production
• Road transportation represents 7 to
8%
• In China, coal combustion is responsible
for 83% of total emissions
Source : Trends in global CO2 emissions, 2014 EC joint research center, PBL
2013 - CO2 Emissions by sector in China
Total est. 8.2 Billion tons
0 0,5 1 1,5 2 2,5 3 3,5 4 4,5
Other transport
Other building
Residential sector
Other power generation
Road transport
Manufacturing industry
Main power generation
Carbon Dioxide, Billion tons

7. In this context China is approaching CSR with its own
economic constraints and cultural background
Comments :
• The EC early defines CSR as: “a concept whereby
companies integrate social and environmental
concerns in their business operations and in
interaction with their stakeholders on a voluntary
basis”
• CSR is increasingly important to the
competitiveness of enterprises and can bring
benefits in: risk management, cost saving, access
to capital, customer relationships, management
and innovation
• CSR can build long term employee, consumer and
citizen trust as a basis for sustainable business
model
Source : EC, a renewed EU strategy 2011-2014 for CSR, 25.10.2011
CSR as the
« responsibility of enterprises
for their impacts on society »
Emerges as a new definition with the
aim of :
• Maximising the creation of shared
value for their owners and society
at large
• Identifying, preventing and
preventing their possible adverse
impacts

8. The new environmental law is a new step to better protect
China natural assets and the well being of future generations

9. Agenda
• China growth : environmental highlights
• China previous legal framework for environment protection (summary)
• China new legal framework for environment protection (EP)
• Corporate goal and common good misalignment, the CSR dilemna
• Managing environment in a responsible way

10. Constitution of the People Republic of China (from Fifth
session of the Fifth NPC, Dec. 4th,1982)
• Art 9. [ … ]
The State ensures the rational use of natural resources and protects rare animals and
plants. Appropriation or damaging of natural resources by any organization or individual
by whatever means is prohibited
• Art 12. [ … ]
The State protects socialist public property. Appropriation or damaging of State or
collective property by any organization or individual by whatever means is prohibited.
[ … ]
• Art 26.
The State protects and improves the environment in which people live and the
ecological environment. It prevents and controls pollution and other public hazards. The
State organizes and encourages afforestation and the protection of forests.

11. The highest level of State is directly involved in
environmental protection and resources conservation
NPC
State Council
Creates global China international image on environmental protection and
resources conservation
LPC
NGO
People
Media
SOEs
WOFEs JVs
Others

12. The enforcement process between regulations and the real
economy is well structured et detailed
Very impressive capacities to address environmental issues
• Legislation (national, local)
• Administrative decrees
• International conventions
• FYP deals with
environment since 6th
• Defines targets
• Set priorities and
broad goals
• Discharge pollution permits
(tested in 1991)
• Taxes, fines
• Subsidies
• Warning letters
• Fines, pollution charges (60%)
• Permit withdrawal (total/partial)
• Plus civil and criminal charges
FYP ActionLegal
Inspection ImpactLaws, decrees

13. The problem is that this rather complex organization is
delicate to manage
Comments :
• There are conflicts of interest between the
various levels and agencies involved, not to
mention SOEs
• Environmental governance is complex, many
administrative overlaps and high management
cost
• Goals and priorities of the different agencies
often diverge
• Political leaders are often evaluated on the basis
of GDP growth, not environmental compliance
• For example, when EPB enforces severe
penalties, local governments may mitigate them
on the basis of employment or tax collection
Multiplicity
Multiplicity
Complexity
Complexity
Priorities

14. Agenda
• China growth : environmental highlights
• China previous legal framework for environment protection (summary)
• China new legal framework for environment protection (EP)
• Corporate goal and common good misalignment, the CSR dilemna
• Managing environment in a responsible way

15. The objective of the new law is to address a number of
difficulties identified and declare « war against pollution »
Source : AFD
1. The rules are not precise enough, and subject to
various interpretation
Key terms are not always well defined
2. Lack of detailed implementing rules
Approved in April 24, 2014 after 4 reviews with effect on January 1st, 2015
3. Lack of detailed enforcement procedures
associated with specific areas
EPL (1989) states general rules but has no clear provisions for legal liabilities
4. Focus on administrative liability, civil and criminal
liabilities were not completely defined
However this is a highly complex piece of legislative work, creating lots of
pressure
5. Weak fines on polluters, low collection rate
Some prefer to pay a rather low fine rather than change their production process
Despite the
previously described
efforts, this situation
called for a revision
of the existing legal
framework

16. The new law (2014)The old EPL (1989)
This new EPL raises significantly the potential liability for no compliance
The 2014 EPL revision has been hailed as a radical
change in regulation, 25 years after the original EPL
• 70 articles and 7 chapters
 Chapter titles have been kept but
most of the content has been
rewritten
• New chapter added
 Public disclosure and public
participation
• Three major changes
 New chapter 5: enhanced role of
civil society in EP
 Regulatory specificity and details
 Pervasiveness of governance
• 47 articles and 6 chapters
 Then very limited environmental
regulation until this time
• “3 synchronicities”
 Design, construction, operation of
pollution control equipment
• Key features of the orginal EPL
 Quite broad and generic
 Polluting fees
 Requirement for environmental impact
assessment
Source : Swiss Re, Center for global dialogue

17. The new EPL is a backbone which is going to be filled with
more precise obligations and interpretation
Comments :
• MEP and government entities have began to
issue guidance for the implementation of the
revised EPL
• Over a dozen field project under way to assist in
the implementation of the new law (draft)
• Regulatory actions putting flesh on the key
barebones of the new EPL
• Supreme People’s Court have been adding a
number of very detailed principles e.g.
precaution principles, guiding cases, clarifications
(penalties for NGOs seeking to make EP profit)
• State Council Legislative Office issued notice to
tighten environmental compliance
EPL 1989
EPL 2014
SPC SCLO
Guidance
Cases
Notice

18. Agenda
• China growth : environmental highlights
• China previous legal framework for environment protection (summary)
• China new legal framework for environment protection (EP)
• Corporate goal and common good misalignment, the CSR dilemna
• Managing environment in a responsible way

19. When it comes to environment, we may all wonder what is
really at stake …
“Chinese people used to feel a sense of pride
for being the world’s factory. Now, everyone
realizes what it costs to be that factory. Our
water has become undrinkable, our food
inedible, our milk poisonous, and worst of all,
the air in our cities is so polluted that we
often cannot see the sun.”
Jack Ma
Harvard Business Review
November 2013
We have no replacement planet …
“China’s reform has entered a deep water
zone, where problems crying to be
resolved are all difficult ones. What we need
is the courage to move the reform forward. To
use a Chinese saying, we must “get ready to
go into the mountain, being fully aware that
there may be tigers to encounter.”
Xi Jinping
College of Europe
Bruges, April 1 2014
Photo : NASA

20. Senior management traditional responsibility has been to
focus on growing the top line and the firm profitability
Comments :
• Shareholders want more value and
higher stock market price
• Customers want better and cheaper
products and service
• Workers want better working conditions
and better pay
• Regulator wants corporates not only
respect the law, pay taxes, create jobs
but also contribute to public good
• Senior managers want to be recognized
as great leaders capable to deliver
Senior
Management
Shareholders
Market
Custom
ers
Com
petition
W
orkers
Jobs
Accountability Performance
State wants GDP and
common good
Management pressure

21. The respect of common good and the corporate interest
does not necessarily align when it comes to best practices
Comments :
• When polluting is at “no cost”, there is
little incentive to behave as a good
citizen
• Economics provide plenty of excuse
based on competitiveness
• This means that the perception is that
market only discriminates on price
• It also assumes that the common good
is free therefore polluting is beneficial
• The social conscience of market
players cannot be take for granted
+
Reward
Risk +
Acceptable risk threshold
R1
R2
Catastrophic risk threshold
Pollution Risk - Reward
-
Sanction

22. Agenda
• China growth : environmental highlights
• China previous legal framework for environment protection (summary)
• China new legal framework for environment protection (EP)
• Corporate goal and common good misalignment, the CSR dilemna
• Managing environment in a responsible way

23. • What are the resources provided by China
rich history and traditions to define the
modus operandi of corporations conscious
of their social responsibility
• What are the urgent priorities that must be
addressed by companies
• How to emulate a responsible knowledge
network between government agencies,
corporations, civic groups and communities
to share experience: success, setbacks,
worries and methodologies
• Help parties involved in CSR build a reliable
toolbox to weight the decision they need to
make as responsible citizens
Maverlinn’s CSR in China initiative is an example of what can
be done to raise awareness on responsibility
Background
• Practical issues differ very much from one
national context to another
• The very size of China and its impact on
the world economy make this issue more
pressing than others
• The quest for a more qualitative growth as
expressed by the 12th FYP emphasized
the need for adjusting policies
Framework
Assessment Vision Blueprint

24. Comments :
• Based on a 3 year research programme
led by Maverlinn and its team and
authored by Pr. Benoit Vermander. It was
first published in English, then in Chinese
• It was supported by industry leaders who
not only provided support but also key
insights for the research
• Aside explaining what can be CSR in a
Chinese context, the research focuses on
identifying key soft operational success
factors for the development of the China
economy
• The research initially set for an
international audience also received a
warm welcome from Chinese firms
Our CSR in China initiative is an example of what can be
done to raise awareness on responsibility

25. Key takes
• The new 2014 EPL is raising the bar in terms
of environmental compliance, much heavier
sanctions will be applied to polluters
• Being environmentaly responsible is a great
way to pracice CSR, and show both
patriotism and respect for the world we share
• If nothing is done, the impact on our daily
lives is likely to be catastrophic
• It is everybody’s responsibility to identify, and
implement short practical « mini bangs » to
foster a much larger eco-conscience for a
better life together

26. Leading a world of change, together
olcoispeau@maverlinn.com