China steps up its CSR efforts(2)

Shanghai experiment

One area that has seen the strongest impact from the government push for corporate responsibility is Pudong New Area in Shanghai.

Housing offices for dozens of the country's largest companies as well as the Shanghai Stock Exchange, the economic development area was among the first established under modern CSR guidelines in 2009.

Ranging from regulations on employee rights to environmental protection, the 67 practical standards have since been adapted as the go-to-guide for companies operating beyond Shanghai's borders.

Companies, both foreign and domestic, operating in this area are held to some of the strictest CSR standards in China, says Zhang Yanming, deputy director of the Corporate Social Responsibility Office of the Shanghai Pudong New Area.

"We require a higher proportion of State-owned enterprises to take part in the higher standard system," Zhang says.

"They should be role models in the new system. They should have to perform better because of their stronger financial foundations."

The number of companies striving to meet international social responsibility standards is set to grow even faster as Chinese brands eye overseas markets.

"A lot of the bigger Chinese companies who have global ambitions realize that they have to do CSR," Welford from CSR Asia says.

"They are beginning to learn that if they want to move out of China, part of that license to operate is demonstrating that you are socially responsible. They are becoming aware that you have to take social responsibility with you, otherwise you can get into trouble."

This is exemplified in the Fortune China CSR Ranking 2012 report, which puts China's three largest international brands - Haier, Huawei and Lenovo - as the top three Chinese CSR contributors.

Sichuan lesson

Perhaps the biggest transition for Chinese companies, going from being viewed as having very little CSR to eclipsing the long-standing programs of the multinational companies operating within the nation, came after the magnitude-7.9 quake that struck Sichuan province in 2008.

Mourning the loss of more than 70,000 lives and hundreds of thousands left without homes, the earthquake awakened the giving spirit of the Chinese, and donations by the millions began pouring in.

Wanting to offer their own contribution, several multinational companies gave donations following global CSR guidelines listed by their corporate headquarters.

While the average amount donated by large companies initially hovered around 5 million yuan ($796,000, 618,000 euros), Chinese consumers felt as though the largest multinationals had not given enough.

It sparked an online campaign tracking the amounts foreign companies donated. Those who did not give enough were dubbed "iron roosters" after a famous Chinese idiom meaning cheap, referring to the difficulty of getting a single feather out of an iron rooster.

It resulted in boycotts of products from foreign companies listed as iron roosters, including Nokia, Samsung, KFC and McDonald's.

　　Flexible approach

Companies quickly learned that in China, and other markets where cultures may differ, stepping away from a global standard and adopting local techniques is often crucial to success.

"The way we manage business processes is in a market-by-market approach," Evan Lewis, vice-president of communications for Accor Asia Pacific, a hotel operator, said during a recent panel discussion.

"We have to appreciate that competitive advantage exists in the countries we operate. There is no universal business strategy across Asia. When you've got emerged economies, newly industrialized countries and emerging markets, the approach to each of those businesses is a different level of organizational development."

Since the sharp increase in philanthropic activities by Chinese businesses after the 2008 earthquake, the playing field has also seen a shift in charitable contributions.

In the Fortune China CSR Ranking 2012 report, the top 10 most philanthropic multinational companies donated an average of 0.34 percent of their yearly revenues, compared with an average of 0.17 percent of revenues among the highest donating Chinese companies.

Still, with more than 200 international non-governmental organizations operating in China, there is no shortage of causes for donations.

For companies wanting to build a good reputation, which is at the bottom line of all CSR activities, charitable giving is the most quantifiable and visible to consumers, governments and shareholders.

But in the areas where a company's contributions are not so easily traced, organizations must resort to other means to put onto paper their efforts to stakeholders.

In reporting CSR efforts, China has excelled compared with the rest of the world.

Facing outside scrutiny from government and investors, more companies are adopting the International Standardization Organization (ISO) and Global Reporting Initiative (GRI) - the two largest third-party reporting institutions.

　　Setting the trend

Since joining the World Trade Organization, the number of sustainability reports issued by Chinese companies has risen from just one in 2001 to 898 in 2011, according to the China WTO Tribune.

In 2009, China was top with environmental certifications, with more than 55,300 Chinese companies registering for the ISO 4100, an accepted global standard for environmental management. The number of newly certified companies in China was higher than the rest of the top 10 countries combined.

"Reporting is the glue that holds everything together," says Sean Gilbert, director of climate change and sustainability for KPMG Advisory (China).

"Standards are very good at helping people to avoid problems, talking about what not to do. They're not nearly good at the creative side of the question, what could you do? Or should you do?"

Gilbert says China is still not at the stage of fully understanding what exactly CSR is, with some Chinese companies not even realizing environmental issues fall under the remit of social responsibility, but has made rapid advances.

As China looks to the future of CSR, the focus will be more on making quality, sustainable products rather than on corporations interacting with the community, he says.

"People have moved away from community investment, philanthropy and volunteering as being the focus. They're much more focused on how a company operates, what it makes, how it makes it, where it makes it and how it distributes it," Gilbert says.

"This is really just starting in this part of the world."