The Chinese media is playing an increasingly important role in the disclosure and reporting ofenvironmental, social, and governance (ESG) issues in China. In order to understand this trend, the impact on Chinese listed companies, and what this means for investors, BSR researched media reporting of ESG news on 100 Chinese companies. The research consisted of interviews with the media and analysis of BSR’s data of ESG incidents over two years.
Five few key takeaways from this research include:
Different companies handle the media in different ways
State-owned and large companies in monopoly sectors still use traditional approaches to address negative media attention. They may publish an announcement or send a press release to the official government media or website denying the problem or stating the facts of the accident without specifying their responsibility or including a response. They may also intentionally delay their response to the media. A few more progressive companies are becoming more transparent, responding in a timely fashion, and making a commitment to redress problems and proactively report on progress towards solutions.
Expectations of large Chinese companies are high
The public expects more from companies, particularly those in monopoly industries, due to the expectations that these companies have more technical, material, and human resources and should have high-quality monitoring systems to ensure adequate health and safety management. Furthermore, as those companies have a significant influence over their industries, effective internal controls become even more important. Even if companies do not receive legal punishment, or if legal or financial punishment is weak, companies are still likely to suffer through criticism in the media, which may force them to be more responsive.
Limited signs of companies improving their response to crises
Chinese companies often lack a mature set of standards or practical models for crisis prevention and crisis response. The tendency to provide a slow and evasive response reflects a lack of internal governance. The media and public attention are pushing companies to change their style of response, but our research revealed that on the whole negative news did not cause companies to respond faster or improve their transparency: Rather, it made them more cautious in disclosing information publicly.
Investors should understand poor governance as an indicator of further ESG problems in the future
Many incidents are due to a lack of compliance with environmental or product quality standards. Deeper analysis reveals the root cause is a lack of effective corporate governance and an unwillingness to accept responsibility. When corporations lack commitment and effective governance or internal controls, there is greater potential for environmental and social problems.
More ESG factors will gain attention in the Chinese media
Journalists interviewed were adamant that there will be even more ESG-related issues reported in the near future. Chinese citizens are more willing to pursue their rights and are beginning to exercise those rights through formal processes, which are reported by the media. Furthermore, many individuals are now using social media—which in turn often gets picked up by the mainstream media—to call-out ESG problems and force companies to respond.