BSR Insight | Transparency in China: A New Generation of Sustainability Reports

Between 1999 and 2005, only 22 corporate responsibility reports were published in China. While they contained photos and cases highlighting corporate philanthropy efforts and employee volunteering, few contained details on how the companies were addressing the environmental, social, and governance issues relevant to their business.

Fast forward to the present, and China’s CSR reporting landscape couldn’t be more different. Aside from the dramatic increase in number—with 703 reports published in 2010—reports are more diverse in content, higher in quality, and published by a wider range of companies.

These developments happened in part because in 2006, the State-owned Assets Supervision and Administration Commission (SASAC), which is responsible for managing China’s state-owned enterprises, issued guidelines requiring all state-owned enterprises to publish CSR reports by 2012. Until then, international companies had dominated CSR reporting in China; by 2010, state-owned enterprises accounted for 78 percent of all companies releasing these reports.

The increase in substantive sustainability reporting is also the result of a larger trend toward transparency in China that will affect all sectors over the next decade. In China, the public is far less tolerant than it was in the past when organizations downplay or delay reporting on major accidents or incidents that compromise product quality, contribute to environmental pollution, or cause other damages. Incidents such as food-safety violations are causing the most outrage among consumers and damaging public trust in household brand names. In the absence of other suitable media, local companies and international businesses operating in China are increasingly turning to CSR reports to proactively communicate how they are responding to sustainability issues and to justify their social license to operate.

Over the past few years, BSR has been working with companies to create CSR reports and reporting strategies for a Chinese audience. While we have seen significant developments in reporting here, huge improvements are needed to overcome some of the current challenges, such as poor data-collection systems and low motivation of staff to participate in the reporting process. Based on a detailed research report we published in Chinese in 2011, we have identified several key trends in the future of CSR reporting in China—and have made recommendations on how companies can support this increase in transparency.

Trends in Corporate Transparency

Based on research and interviews with organizations including the CSR Research Center of the Chinese Academy of Social Sciences, the Global Reporting Initiative (GRI), China Mobile Communication Corporation, COSCO Container Lines, Shanghai Fosun Pharmaceutical Group, and Vanke Group, we predict CSR reporting in China will develop in important ways over the next two to three years:

• More companies will produce CSR reports. As SASAC’s guidelines become mandatory this year, and more Chinese companies recognize the benefits of the reporting process, the number of companies issuing CSR reports will increase even more.
• Quality of information will improve. Initially, as the number of CSR reports in China began to grow after 2006, there was a “polarization” in quality. The reports tended to be either very good or very poor. More recently, however, senior managers, particularly at Chinese companies, have come to value CSR reporting as a way to build internal management systems rather than reporting for reporting’s sake. Here, the main focus areas for companies embarking on their first report will be understanding key social, environmental, and governance practices, and thinking about how to expand the report scope and compliance with relevant domestic and international standards and laws. For Chinese companies producing their third or fourth report, the focus will be on how to move beyond covering compliance to highlight innovations.
• More non-Chinese companies will publish China-focused reports. International companies, which tend to be more experienced reporters, will become more adept at publishing localized reports that speak directly to a Chinese audience, highlight China-specific initiatives and performance, and draw stronger connections between the global report and China operations.  
• Reports will have more distinct features. Chinese companies will increasingly try to differentiate themselves through report content and form, and highlight their organizational, industrial, and regional characteristics.
• The report-writing process will involve more interaction and consultation. As companies increase their interaction with stakeholders to improve report quality, they may use both online and print reports to facilitate this communication.
• Trends in reporting and CSR awareness will support an increase in corporate responsibility. There is a certain self-fulfilling prophecy in more sustainability reporting: As CSR awareness among consumers grows, and as government requirements for CSR reporting become more stringent, companies will be more motivated to report. And the more they report and are rewarded for transparency, the more they will invest in additional CSR initiatives. In China, this has been driven primarily by international companies placing CSR requirements into their purchasing activities.

Supporting Higher-Quality Reporting in China

Based on these trends, we see five ways that companies can pave the way for high-quality reporting:

1. Create a reporting culture. Companies must understand the key CSR issues and help staff at all levels appreciate the intrinsic value that the CSR report can bring.
2. Set up procedures and systems that support reporting. For Chinese companies, one of the greatest values in preparing a CSR report is developing and refining the associated management systems to support it.
3. Strengthen communications between the company and its stakeholders. To ensure that reporting is thorough, communications channels must be robust: Chinese companies should ensure that all relevant stakeholders participate in the reporting process; engage them early to identify core CSR issues, understand their expectations, and avoid risks; and build trust between the company and stakeholder groups by involving stakeholders throughout the reporting process.
4. Move toward integrated reporting. Integrating financial and corporate responsibility information can improve report quality and relevance to the reader. Taking an integrated approach can help prevent selective disclosures, enable better report comparability between years, and create connections between non-financial and financial information and business strategy.
5. Participate in global initiatives. While Chinese companies were notably absent from the process to create the G3 version of the GRI Sustainability Reporting Guidelines, an opportunity exists for greater participation in the GRI’s G4 revisions process, and in other global initiatives, such as the International Integrated Reporting Committee.

In the second part of this series, we will cover the impact of China’s nonprofit sector transparency for business.