China steps up its CSR efforts

Multinationals pump prime business plans with more community outreach programs

Corporate social responsibility has long been a buzzword in the boardrooms of the West, but it is relatively obscure in China. But as China becomes more important to multinational companies in generating revenue, they are stepping up their corporate social responsibility efforts in the country.

In part, this is spurred by the desire to create positive brand recognition and a need to counteract the growing environmental concerns surrounding Chinese manufacturing.

"Multinational companies want to be seen to be doing the right stuff and they want to be seen to be making a positive contribution," Richard Welford, chairman and founder of CSR Asia, told China Daily during a recent corporate social responsibility summit in Beijing.

"It is probably even more important (in China) to have that trusting relation, particularly with the government."

Used to describe anything from donating money to charities to changing the way a company packages a product so as not to harm the environment, CSR is a far-reaching term.

Though it broadly falls into three main categories - community outreach, environmental health and safety and environmental protection - the bulk of CSR work consists of designing a more sustainable company culture or having employees engage in volunteer work, making the exact value of CSR difficult to gauge.

"It's very difficult to put an actual number on (CSR). It rather depends on what type of company you are, what type of industry you are in," Welford says.

"The bigger brands will spend more on CSR as they have big brands to safeguard."

Right choice

But despite the term's ambiguity, large multinationals seem to see the value in being perceived as "doing the right thing", with many companies in China dedicating 1 percent of their entire operating costs to CSR work - something that is also becoming an industry standard.

Though the percentage looks small, the monetary value is sizable.

For Coca-Cola, one of the largest multinational companies in China, 1 percent of the operating costs used for CSR work in 2011 meant that the company spent nearly $102 million (79 million euros) globally through the Coca-Cola Foundation.

"So far the government and NGOs are doing most of the heavy lifting when it comes to sustainability, while businesses are playing more of a supporting role," says Aurora Chen, director of sustainability for Coca-Cola in China. "Going forward we need to bring these three together, each doing what they do best, all working as one. This way can create real impact that none could achieve alone."

While the benefit of such a large investment may be difficult to calculate on paper, a 2011 survey by the Reputation Institution, a global management consultancy service, reckoned that CSR activities account for 40 percent of a company's reputation.

Early on in China's manufacturing boom, most sustainability efforts by large companies came from foreign brands looking to ensure that their suppliers were meeting their values and global standards.

In 1991, Levi Strauss & Co was the first multinational apparel company that required its manufacturing suppliers to follow a supplier code of conduct that detailed the company's global labor, health, safety and environmental requirements. The popular American blue-jean maker was one of the first to require its Chinese factories to engage in better labor standards.

"Our terms of engagement raised the bar for the apparel industry in setting labor, health, safety and environmental standards for our suppliers," said a Levi Strauss & Co spokesperson. "We expect our suppliers to treat their employees with dignity, respect and fairness and to provide safe and healthy workplaces."

Responsible actions

While labor standards in China have steadily improved since the early days of multinational outsourcing, pressure from Chinese consumers there is forcing companies to act even more responsibly.

"In China the growing middle-income consumer is starting to ask questions," Welford says.

"There is more concern now over how products are being made, especially in the area of sustainability."

Multinational corporations may have forged the foundations of China's modern CSR practices in the early 1990s, but the concept of businesses doing well by their communities is not new to China.

The country has a long history of companies providing for its own like family, built on the values of Confucianism focusing on loyalty and family before oneself.

In the early 1950s, companies were expected to provide basic living essentials such as housing and food for their employees, and many went as far as building schools and other essentials for local communities, says Wang Zhile, director of the Beijing New-Century Academy on Transnational Corporations.

Following the economic reform and opening-up of the late 1970s, when China's economic model shifted to the more profit-driven version in play today, companies hit the reset button on how they conducted social responsibility.

"In the past companies did everything," Wang says.

"After the reform and opening-up we built the modern corporation system. Now companies only do business focusing on maximum value for shareholders."

It was not until 2006 following the release of the new Company Law that Chinese companies began revitalizing their role as a source of community and environmental support.

The rule requires that corporations "abide by the laws, regulation, social and business morality and good faith rules, accept supervision by government and the public, and undertake social responsibilities".

While the mandate was a pivotal point for China's corporate social responsibility, it is a far cry from the Confucius-driven business practices of the past.

"The CSR we do today is different to what was done before the reform and opening-up," Wang says.

CSR got further impetus in China from the 12th Five-Year Plan (2011-15), which seeks to reduce the environmental impact of manufacturing and encourage more sustainable business practices.