Category Archives: green finance

Do you have this insurance in green?

green insurance.jpgMost of the stories about China in the Chinese English-language news services have all the analysis and objectivity of a press release. The articles concerning the recent introduction of China’s “green insurance system” by SEPA were no exception. Did any reporter consider asking “what’s so ‘green’ about industrial accident insurance?” It’s no greener than your automobile insurance. This particular insurance product will cover “environmental pollution accidents,” but that just means the insurance company and not the government will ultimately pick up the tab for compensating those injured by the accident (the operating assumption is that the corporate polluting entity will have declared bankruptcy in the wake of the accident). Its impact on ensuring environmental compliance is less clear, and, in fact, it could, perversely, lead to less corporate focus on environmental issues. SEPA acknowledges this fact, and Pan Yue is quoted as saying that merely having insurance in place “doesn’t mean polluting companies can rest assured to pollute as the insurance premium is in proportion to a company’s pollution risks.” The premium had better be set at a level significantly above the cost of compliance or the motivational power of this insurance will be nil.

The policy has only been rolled out in a trial phase and is not scheduled for nationwide implementation until 2015. First up for insuring are those “companies that produce, sell, store, transport or use high-risk chemical products” and “petrochemical industries and dangerous waste disposing enterprises that are prone to heavy and serious pollution accidents”. “Enterprises and industries having caused serious pollution accidents in recent years will be specially targeted,” Pan Yue said. I should hope so, but shouldn’t they have been specially targeted by the enforcement authorities already.

I am skeptical about the efficacy of this policy. If a company is already ignoring environmental laws, why would it now decide to comply with this directive? At most, this program will only impact the largest, most sophisticated entities-the ones, as I have noted before, that should already be in the vanguard of environmental compliance. “Green” insurance seems to be part of a suite of initiatives, including “green listings” discussed previously, that SEPA is in the process of rolling out. Structured correctly these initiatives shouldn’t do any harm, and may be marginally helpful. It seems somewhat strange, however, that given the scope of the environmental compliance challenges in China, SEPA is concentrating on implementing relatively sophisticated financial regulations. This phenomenon is simply a function of the fact that SEPA only has real authority at the macro level, and thus, its policies tend to be directed toward or, as a practical matter, only impact those corporate entities that by their size come within the purview of national regulators. But wait a minute, isn’t that the real problem here: SEPA’s lack of effective local authority? Fix that problem and there may be real progress toward meeting China’s environmental compliance challenges.


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Green Listing (Part II)

green stock.jpg In touting the new environmental reporting obligations for listed companies (see last post), Pan Yue noted that “of all listed companies on the mainland, only half included environment performance in their 2006 annual reports. Even for those which did touch on the issue, the quality of reporting was generally poor and cannot help shareholders.”  I did a search of Chinese company environmental disclosures for a recent speech, and would certainly echo Mr. Pan’s comments.     

Many MNCs now have an “environmental stewardship” page with a picture of a man in a swamp taking a water sample while an alligator looks on appreciatively and the smokeless stacks of the factory peek up in the distance behind the Cypress trees and a link to a 900 page “sustainability” report.  In China what I soon discovered was that even when a corporation included an “environmental” section on its website it was often referring to its landscaping or even the interior elegance of its headquarters’ building.  Here’s a typical picture:

  green office.gif 

I remember this was from a chemical company’s site, but I forget what type of chemicals.  I have to assume they were in the fertilizer business because that lawn is sweet and something has really perked up the potted plants by the entrance.  As a West Virginian parking cars in the front yard doesn’t strike me as unusual, but with just one there is does give the impression that headquarters may be a bit understaffed.   

Among the better Chinese reporters was Baosteel Group which has published a thick sustainability report, the 2005 version of which received a A for “intent” and a C for overall execution from the Roberts Environmental Center, Claremont McKenna College    Unfortunately, it may be resting on its laurels.  I just checked the Baosteel website and found its “Green Baosteel” page was a little heavy on the landscape shots which perhaps explains the D- the current page receives from the Roberts Environmental Center

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Green Listing

green stock.jpgThere were a series of articles last week regarding 10 IPO applications that were “rejected because their performance had failed to meet government standards or because their reporting was inadequate.”.  The rejections were based on regulations issued by SEPA and the China Securities Regulatory Commission (CSRC) going back to 2003, but this news was coupled with the fact that SEPA has issued a new “Guiding Opinion on Strengthening the Supervision and Management of Environment Protection of Listed Company” (Chinese version here) which imposes environmental reporting obligations upon companies that are already listed.  

As Pan Yue, deputy director of SEPA, noted “now that the practice of environmental disclosure in the IPO process has become more or less established [based on compliance with the regulations issued in 2003 and thereafter], it is time to tighten disclosure rules for companies that listed before environmental impact became a required reporting item.”  Thus, among other things when one of the following events happens that can affect the trading price of a company’s listed shares the company must disclose them: 

● Any newly promulgated environmental law, regulation, rules or industrial policy that may significantly affects the company;

● The company is investigated, criminally punishment, or a major administrative punishment is imposed by the environmental administration due to any violation of environmental laws or regulations;

● A major investment such as new building, renovation or expansion project will have significant environmental impact;

● A company operation has been ordered to correct an environmental violation within a specified period of time or be shut down;

● The company is involved in an major lawsuit involving environmental issues and its main assets have been frozen, mortgaged or pledged; 

● Any other major events set forth by Measures for the Disclosure of Environmental Information that may considerably affect the trading price of a listed company’s shares.  

These moves are in line with other recent efforts (including the Measures for the Disclosure of Environmental Information which are cited in the last bullet point and become effective on May 1, 2008).  Remember though that rules applicable to listed companies only catch the low hanging fruit.  Companies large enough and sophisticated enough to list on a domestic exchange should be in the vanguard of environmental compliance efforts.  It’s a little distressing that 27% of the IPO applications reviewed failed to meet the environmental compliance standards.  Imagine what the compliance percentages must be in the hundreds of thousands of companies too small and too parochial to consider listing.

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