The Information and communication technology (ICT) industry has grown significantly in recent years. Nowhere is this more apparent than in China, where internet and mobile phone users have tripling while the country continues to grow as the world’s largest ICT global manufacturing hub. According to the Chinese Ministry of Industry and Information Technology (MIIT), revenue from the ICT industry reached CNY 11 trillion (USD 1.8 trillion) in 2012, a 15% increase over 2011. China also now manufactures more than half of all the computers and mobile phones produced worldwide, with large numbers of small and medium sized ICT component makers supplying world renowned consumer electronics brands.
Alongside continued growth, however, the ICT industry has become increasingly exposed to ESG (environmental, social and corporate governance) challenges, with product safety, labor conditions, air emissions, leakage of toxic substance, solid and liquid waste treatment, and occupational health and safety being among the most commonly reported issues. SynTao’s Revealing China’s ESG Issues 2012shows that electronic components and board producers accounted for 17% of all ESG-related alerts generated within the manufacturing industry between 2011 and 2012, with the telecommunications industry becoming the third most exposed business to ESG challenges within the tertiary sector. Foxconn, a major supplier of Apple in China, has also been consistently among the top five most controversial companies for labor issues over the past two years. Due to the heavy metals and toxic solvents often used during the manufacturing process, the ICT industry’s environmental and social impact have made it a large target for NGOs in China.
Although the concept of NGO was introduced to China only 20 years ago, the past decade witnessed a boom in China’s civil society, with environmentally-focused NGOs becoming increasingly critical of the country’s burgeoning environmental risks. In 2008, the non-government Institute of Public and Environmental Affairs (IPE) launched the Green Choice Alliance (GCA), aimed at curbing environmental pollution in China’s manufacturing hubs by integrating transparency and stakeholder participation into existing supply-chain management systems. To date, 49 environmental NGOs have joined the initiative. In 2009, a string of serious heavy-metal pollution incidents inspired Friends of Nature (FoN, China’s first registered environmental NGO), IPE, and Green Beagle to release a collaborative IT Industry Investigation Report. Seven editions have been released since, with three directed specifically at revealing Apple Inc.’s core labor malpractices and supplier management problems.
In January 2011, FoN, IPE, and Green Beagle released IT Industry Investigation Report (Phase IV): The Other Side of Apple, which focused on establishing the link between the suspected Apple’s suppliers in China and breaches of environmental protection, occupational health, and labor rights laws. Apple’s Supplier Code of Conduct investigated the working conditions, workers’ rights, and environmental responsibility of the company’s supply-chain. In the time since these reports, 34 Chinese environmental NGOs began participating in the Green Choice Alliance Program, and engaged with Apple along with 28 additional IT brands. Their work with Apple, however, found that the company ranked last in transparency, with it only replying that it had a long standing practice of not disclosing its supply base.
A group of NGOs continued their investigations, culminating in an additional ten case studies that looked at the waste and toxic metals generated by Apple’s production processes, the results of which were published in August 2011 as The Other Side of Apple II: Pollution Spreads through Apple’s Supply Chain. The NGOs pointed out that Apple’s audit report had no previous mention of any environmental problem as “core violation”, or the name of any of its suppliers that had pollution issues. Of the 29 IT brands that the NGOs engaged with that included Siemens, Vodafone, Alcatel, Philips and Nokia, all began to utilize public information exchanges to manage the environmental issues of their suppliers. Apple said it conducts environmental audits of its supply chain, but still chose to keep the names of its suppliers secret.
After the publication of the second report, the NRDC (Natural Resources Defense Council, a New York based NGO) began working with IPE and the Green Choice Alliance, and sent a letter to Apple’s CEO Tim Cook. In a rare public response to production-related accusations, the company’s executive leadership invited and reportedly debated with Ma Jun, the director of IPE, for five hours concerning the issues raised within the GCA’s reports in California. Later, in November 2011, Apple agreed to meet with the several NGOs in Beijing to introduce its supply chain management system, but refused to increase transparency further during negotiation. In January 2012, negative reports concerning Apple were published on National Public Radio (NPR) and New York Times. Finally, after six rounds of negotiations, Apple agreed to have external audits of its supply chain. IT Industry Supply Chain Investigative Report – Phase VI: Apple Opens Up, released in January 2013, stated that Apple and the NGOs had gradually came to a common understanding to push highly polluting materials suppliers to make real changes. Apple’s rank on the communication progress chart has significantly improved since, leaving HTC as the only brand that has never provided any feedback (See Table 1) to GCA.
Table 1. Communication progress chart
During the process of publishing the IT industry reports, GCA NGOs made continuous calls for consumers to make green choices by not purchasing products from polluting or abusive brands. After winning the battle against Apple, IPE initiated a “Green Stocks” project aimed at duplicating their previous success, calling for green choices within capital markets. The cement industry became the target. Environmental NGOs engaged with 17 listed cement companies, but only gained a response from Lafarge SA. The response from domestic and overseas investors were equally disappointing, with only two foreign investors providing positive responses. That report is subsequently named Responsible Investment in The Cement Industry: Still a Long Way to Go, and highlights the main barriers to increased transparency. Although the Green Choice Alliance has successfully pushed over 950 companies to provide details or make corrective actions concerning their environmental problems since its founding, responsible investment remains a neglected field within Chinese capital markets.
When the increased popularity of Corporate Social Responsibility (CSR) is combined with the continued growth of civil society in China, Chinese companies, and in particular listed firms, are faced with increased pressure from stakeholders to increase transparency. Chinese businesses, however, still remain uncomfortable with concept of being subject to public monitoring efforts. Industries like the ICT industry, which are more exposed to ESG risks and reputational risks than other sectors, have proven to better manage environmental performance when they find more effective ways to communicate with stakeholders. With increased pressure from NGOs, consumers, investors, and regulators, more industries may soon find themselves forced to adapt to a new and more transparent market in China.
Written by Valentina Wu & Taylor Brown
This article was originally published in RepRisk E-Zine Issue #5 and reprinted in China ESG Monitor (January 2014) -- a monthly newsletter highlighting ESG trends and research relevant to sustainable investment in China.
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