the challenge of water disclosure in china
DESCRIPTION
Lucy Carmody, Executive Director - Responsible Research Pte Ltd. - SingaporeTRANSCRIPT
The Challenge of Water Disclosure in China
May 2010
• Asian based specialist ESG research for global institutional investors• Founders have collectively over 70 years experience in Asian supply chains, SRI, CSR,
investment banking, environmental compliance and human rights law• Focus on MSCI Asia ex Japan - bespoke, deep sector and thematic approach • Client base is global: socially responsible, ethical and mainstream • Focus on opportunities and solutions, not just risk from ESG• Monthly analysts briefings in HK and Singapore on market relevant sectors and themes• Asian Sustainability Rating® benchmarking 500 Asian companies on disclosure
on select material ESG criteria• RepRisk® – tool to screen portfolios for reputational risk
Founders:
Lucy Carmody, MA, Exec Director Responsible Research. Consultant to IFC,
Founder AsiaIRP, 11yrs Asian investment Banking then CSR Practice , Advisor Impact Exchange Asia
Melissa Brown, MBA, MD of IDFC, HKSE Listing Committee, Formerly Exec Director ASrIA
15 yrs Asian Investment Banking, Author ‘Carbon Disclosure & Climate Change Trends Asia’
Richard Welford, PhD, Professor, HK University. Chairman of CSR Asia, Publisher.
20 yrs environmental management and sustainability issues
Stephen Frost, PhD, Asst. Prof. City Uni, HK. Develops CSR modules for Chinese MBA programs.
15 yrs Asian CSR, supply chains, workplace standards, factory training, stakeholder dialogue..
Erin Lyon, BA Exec Director CSR Asia, Lecturer SMU on Business Ethics, CSR, CG
5 yrs Asian CSR consultancy, Ex Solicitor, Freshfields, specialised in CSR “soft” law.
Melissa Ong, MA Head of ‘Public Roles of the Private Sector Program’, LKYSPP NUS
About Us
Upcoming Reports: Planned Coverage 2010-11
2010 Issues for Responsible Investors 2011 Issues for Responsible Investors
Jan Electric Utilities – ‘Powering Asia’ Jan Metals and Mining
Feb Water in China Feb Renewable Energy
Mar Green Building Mar Consumer Electronics
Apr Pharma and Healthcare Apr Industrials and Building Materials
May Palm Oil May Autos
Jun Airlines / Brewers, Bottlers, Beverages Jun Insurance
Jul Oil and Gas / Forestry /Supply Chains, Jul Transport - Road, Rail and Shipping
Aug Water and Waste Treatment in Asia Aug Leisure, Hotels, F&B
Sep Water in India/Coal Mining in China Sep Media and Internet Services
Oct Food and Telecoms Oct Textiles, Apparel and Footwear
Nov Banks and Finance, Vietnam Nov Fishing and Fisheries
Dec IT- hardware, software, semiconductors Dec Retailers
Water in China
Funded by ADM Capital Foundation
for thelaunch of the Asia Water Project
Sectors covered:• Household Water and Waste• Agriculture • Drinking and Bottled Water • Beverages *• Banking• Basic Materials and Construction• Hospitality• Hydroelectric power• Metals and Mining *• Paper and Forest Products• Textiles, Footwear and Apparel
• Shortage of surface water has led to nationwide over-exploitation of ground water
• Regional variations in precipitation, population,
water usage, causes of pollution, water scarcity, water quality (ground and surface)
• Spiraling waste water production• Poor quality lake ecosystems • Sea levels rising: State Oceanic Administration PR Jan
2010 ‘Concerns’ for safety of coastal residents
Late 2009 sea levels at 30 year highs
Ave. rise 2.6mm p.a. vs. 1.7mm globally
130 mm p.a. possible for next 30 yrs• Extreme weather
storm tides
coastal erosion
seawater encroachment
soil salinization• Must improve monitoring systems• Planning must factor in rise in sea level
Physical Challenges
Source: World Trade Press
Map: Treehugger.com from V.2 NASA Shuttle Radar
Topography Mission, News source: China Daily,
January 2010
• China has around 19.5% of global population but only 7% of its freshwater resources• Of 660 cities, 65% currently suffer from water shortages• 110 have ‘severe’ water shortages • By 2015 there will be 110 cities of over 1 million people• By 2025 more than 220 cities of over 1 million.
Main challenges:
• Changing lifestyles - leisure, bathing, car washes, golf • Changing diets - huge demand for drinks, beef and wheat.
15,000 litres water 1kg beef with intensively reared cattle
3,300 litres 1kg of rice• Water efficiency in China is poor compared to G20 nations:
4X as much water required per US$ of GDP created• Leakages - China's water supply system leaks an est.10 billion m3 (2005) more than 20% of the
total processed
Water Shortages in China: The Facts
Source: AP
• 9 million people face a grain and water shortage due to crop
failure on 3.1m ha of arable land• Centres on Yunnan in SE; 125 of 129 counties affected• RMB20bn agricultural production lost already • Spring plantings of rice, tobacco and corn failed to germinate• 0.5m ha of natural reserves affected – wildlife and wetland • In one county an estimated 70% of the pine trees have died• Rural rice price up from RMB3/kg in February to RMB5 now• Could be El Nino effect but also:• Forest cover has been reduced substantially in many areas
e.g. one prefecture studied in 2003 saw a drop to 3.6% of
its 1976 cover • Rubber and eucalyptus now ubiquitous - very water intensive• Natural lakes polluted and unusable, reservoirs old and poor• Affecting energy production – more to come from coal as hydro
dries up
The 2010 Drought
Source: National Meteorological Center of China (Yunnan-Guizhou Plateau driest in March)
• 50% of cities have polluted groundwater• 90% of aquifers under Northern cities heavily polluted• 30%+ of land mass is affected by acid rain
• 70% of rivers and lakes are ‘significantly contaminated’• 75%+ of urban rivers are ‘unsuitable for drinking or fishing’• 30% of river water regarded as unfit even for agricultural or
industrial use
• Recent estimates for China:– 700m drink water contaminated with animal and human
waste– 190m fall sick due to water pollution p.a. – 60,000 premature deaths p.a. from poor water quality
Water Pollution in China: The Facts
• Released Feb 2010, to be repeated 2020• Reveals that water pollution was more than twice as bad in
2007 as previous official figures • Big step towards greater transparency• Census took 2 years, 570,000 contributors, 1.1bn data points,
6m pollution sources• Previously omitted agricultural effluents (fertilizer and
pesticides) and fluids from landfill.• Main concern is level of Chemical Oxygen Demand (COD) –
now 30.3mt vs. 13.8mt in 2007• Ma Jun, director IPE says lakes can handle only around 7.4mt • Seems agricultural effluents may be even more critical than
industrial waste• Much greater level of data breakdown than before: specifically
levels of poisonous discharge of heavy metals - arsenic, mercury, lead
New ‘National Pollution Census’
Zhugao, SW Sichuan Feb 2010.Source: NY Times, Feb 2010
Peter Parks — AFP/Getty Images
Report on 175 companies = 750 environmental violations from 2004-2010
Encourages HKEx to require companies to:• notify the exchange on environmental violations and post on their website• indicate what follow-up mitigation measures taken• provide updated monitoring data
Serial environmental violators: • Sinopec Guangzhou - US$2.9m fine in 2008• Datang International - over 20 violations• China Resources subsidiary in Nantong - factory closing cost RMB300,000/day• Tsingtao Brewery –solids discharge 45X worse than standards, 36X for phosphates• Zijin (gold) - many violations regarding discharging toxic waste in local waters• Shenhua Energy (coal mines) – RMB1m fine in 2008 and in 2009
Positives:• Prospectus already contain much info on material violations• HKEx - CSR code for listed companies in 2011• Working on proposals to update the Listing Rules for mining companies • Better disclosure from Tingyi, Want Want, Maanshan Iron & Steel, Tsingtao
HK listed companies - poor pollution records in China
The State Council of the PRC
The highest governmental power
Holder of the overall water rights
Ministry of Water Resources (MWR)
A Department of the State Council
Responsible for water administration
Controls the massive state water budget
Leading agency for:
water-related policies
development strategies and plans
water conservation
demand management policies
Ministry of Environmental Protection (MEP)
Succeeded the State Environmental Protection
Agency (SEPA) in March 2008
Shares responsibilities for water scarcity issues with
MWR.
Three new departments created in 2008Department for Control of Pollutant DischargeEnvironment Monitoring DepartmentDepartment of Publicity and Education
Other Ministries with responsibilities in water:The Ministry of Housing and Urban-Rural Development (formerly Construction Ministry) The Ministry of Agriculture – use and run-offThe Ministry of Communication - waterwaysThe Ministry of Public Health - sanitation
Other Agencies involved in Water Issues
National Development and Reform Commission (NDRC)The NDRC Bureau of EnergyThe State Forest Bureau (SFB)The China Guodian Corporation (for Hydro-electric and other Power Projects)The National Tourism Administration State Flood Control and Drought Relief
Water: Fragmented Responsibilities
Elevation to ministerial status of SEPA suggests an increasing emphasis from Beijing and a perceived need to coordinate efforts to control major air and water pollutants based on more thorough research and monitoring.
Source: Syntao
Decision Making for Water Price Hikes
• Cities short of water, yet it is still heavily subsidized• Inflation ‘under control’ but still a major concern• April CPI up to 2.8% YOY• CPI 34% weighted to food – drought having an impact on prices• Living expenses (including water, rent, electricity) 13.6% weighted• NDRC signals it will push through water price increases by the fall
Price rises in last year:• June - Shanghai residential water prices hiked 25% (1st since 2003)• Oct - “increases could become a ‘powder keg’ for anti-government unrest’
Southern Daily• Nov - Beijing, commercial water prices raised nearly 50% • Dec - Beijing residential prices increased 8% (1st rise since 2004) ⌘• Dec - municipal government adds that prices will rise 24% by 2013• Dec – Harbin man throws a bottle of mineral water at a hearing• Jan 2010 - central-government defends recent hearings
to cynical public and press
⌘ 80% of the city’s households use under 10m3/month
which means additional US$1.32 extra/monthly
source: Economist, Jan 2010
Water price and inflation
1. Investors + business + civil society challenge water pollution issues multi-lateral engagement of government and industry. e.g. The BSR Sustainable Water Group: textiles in Pearl River Delta
2. Water shortages named as factor in reduced growth forecasts trade-offs between clean water and growth. Water shortages direct economic losses of US$35bn p.a. (2.5x average annual losses due to floods)
3. Industry collaborations face up to challenges as size of fines increase.
Chinese Pulp and Paper Industry - Sustainable Development Forum
China Banking Association CSR guidelines Jan 2009
4. Citizens given more scope to challenge pollution– local protests against older polluting factories– e.g. Aug 2009 Fujian protest against tanneries. 10,000 locals vs. 2,000
riot police – People have rising expectations of the right to clean water. – Increasing rights to obtain environmental info through MEP
What drives better reporting in China?
Local protest in Fujian province Aug 2009
5. Top-down reforms + grass roots activism strengthened regulation
MEP focused on sophisticated financial regulations and macro level policies
e.g. screening companies pre-IPO, banks ‘green’ lines of credit.
Environmental Information Disclosure Regulations (May 2008) to become
mandatory over time - Placing greater responsibility for the environment with various levels of the administration
6. Companies more conscious of issues, efficiency initiatives and technologiesCompanies with high ecological and community impacts (and larger, more international companies) will report first and start to
• Measure, and therefore manage, water issues• Manage supply chains and end-user water use and discharge• Produce more environmental performance data
7. Investors will require better data from companies and government
Company-level water performance data rarely available.
New global initiatives e.g. CDP, AWP, GRI
What drives better reporting in China?
Water foot-printing services will be in high
demand
• GRI China should be open by summer 2010 and hoping
to work through partnerships with:– government agencies– research institutes– financial institutions– companies
• GRI Conference taking place now in Europe– Many sector supplements being developed– Updates to Guidelines will be issued by early 2011 – Materials are posted for public comment
• State-owned Assets Supervision and Administration Commission (SACAC)
– No formal policy on use of GRI – Many State Owned Enterprises use it– SOEs to have a CSR department by 2012– all supposed to report by 2012– CSR is handled by their research department
• Bank of China reporting with GRI this year. • Investor webinar in June with Chinese Real Estate
The Global Reporting Initiative
CDP Water Disclosure Project
Aim: to encourage transparency in water management and provide investors with comprehensive assessment of water risks
• Independent global non-profit organization based in the UK
• holds the largest global database of primary corporate climate change info
• Used by companies to measure and disclose GHG emissions and climate change strategies
• Saw that much of the impact of climate change is felt through water
• Lead sponsors: Norges Bank IM and Molson Coors
• Support from 140 institutional investors US$16 trillion AUM
• In April requested info from 300 of the world’s largest water users: e.g. Autos, Construction, Utilities, FMCGs, F&B, Mining, Oil & Gas, Pharma
• Deadline for responding is 31 July 2010. Results published in Q4 2010 Ford, L’Oreal, Molson Coors, PepsiCo already committed
CDP Water Disclosure Project:Greater Chinese Companies asked to report 2010
Questions from CDP Water Questionnaire
Simplified from CDP Water Questionnaire 2010
• A collaborative research project for investors and business funded by ADM Capital Foundation www.asiawaterproject.org
• Provides data and information on the growing water crisis• Promotes dialogue to encourage better water management• Highlight research – e.g. excellent report from CLSA on Water Pricing in China
• Network of water experts and knowledge – includes:– ASRIA, Business and Human Rights, Business for Social Responsibility, CSR Asia,
CDP Water Disclosure, International Rivers, Syntao, UNEPFI, WRI, Institute of Public and Environmental Affairs
• Coming up:– Report on Water Reporting by Water intensive companies with UBS– Collaboration with Future500 on fostering dialogue with IT industry to address water
risks
The Asia Water Project
• Nike– uses web-based reporting tool for supply chain to self-report
• The Gap– strong focus on water usage and effluents, especially in denim processing
• Wal-Mart– supply chain engagement to reduce energy and water use but also margin pressure from
purchasing • Unilever
– Anhui plant was found to be discharging banned chemicals in 2007 so COD monitors installed. Fined US$22,000. Ma Jun (IPE) now on their sustainability panel
• Coca-Cola– partnered with WWF on global water conservation project. – Sugarcane requires 180 litres of water to produce the sugar in 1 litre of Coke
• Nestle– promoting the use of water saving technologies in the supply chain.
Developing internal water stress index
MNC Best Water Practices in China
• China Cosco– ships equipped with desalination devices– report on total water usage
• China Shenhua Energy – high impact: coal, rail, ports, power– ‘best in class’ water reporting for coal mining?– use desalinated water to remove dust from vessels– F&C in UK conducts active engagement with China Shenhua
• Kweichow Moutai Distillery– Chishui River level V pollution– investing US$150m in environmental protection
• Shanghai Jin Jiang Hotels– water efficient equipment and recycling rainwater
• Zijin Mining– mining gold and non-ferrous metals– bought a stake in a water supply company in Fujian near HQ
Emerging Water Management in China
Government responses– Increased pricing– Incentives and initiatives– Water Demand Management– Green Building Codes– Investment in sewage treatment
and water purification– Improved public participation– Integrated Water Resource
Management– Improved oversight of EIA
process– Evapo-transpiration quotas
Non Government Responses– Asia Water Project– IPE mapping pollution– Companies sharing e.g. Swire– Investor engagement – Investor interest in Chinese
water sector – ADB & IFC support projects– Banks ‘green’ lending– Public Private Partnerships– New water services and
technologies – Desalination projects linked
to renewable energy
The Future for Water in China
