CSR Asia News Review: January–March 2007

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment

CSR Asia News Review: January–March 2007

Stephen Frost,1* Brian Ho2 and Chenyan Liu2

1Department of Asian and International Studies, City University of Hong Kong, China2CSR Asia, Hong Kong and Shenzhen, China

THE FIRST QUARTER OF 2007 SAW THE PUBLICATION OF A DIVERSE RANGE OF ENVIRONMENTAL

stories, including the sorts of issue that are sometimes not so widely reported (such as energy

and toxic chemicals). In this issue of CSR Asia News Review, we shall focus on these issues,

along with some of the other big stories from the region.

Energy

The most compelling reason to take energy conservation seriously is when it can no longer be provided.

This has been the case in China for several years now, with rolling blackouts across high-load regions

such as the Pearl River and Yangtze deltas and Beijing causing serious problems for industrial and res-

idential areas alike. India faces a similar shortage, with power deficits across much of the country, with

sometimes disastrous results. For instance, in Maharashtra state electricity utility Maha Vitaran decided

to impose a ‘power shutdown’ for two consecutive days every week in all industrial areas in February

(Times of India, 12 February). The power cut aimed to control a spiralling shortage of electricity with

supply levels at 5700MW against demand of around 15000MW. All urban, semi-urban and rural areas

faced power cuts with 14-hour load shedding for villages. The stringent measures led to violent protests,

resulting in two deaths when police fired on angry consumers in Umrer taluka of Nagpur district. Coun-

tries such as Vietnam and Indonesia fail to generate enough power internally and are net energy

importers. Governments in the region are thus keen to explore alternative energy sources, and business

in particular is seeking ways to reduce power costs.

One of the consequences of power shortages (and the pollution caused by a dependence on coal-fired

energy plants) is the increasing interest shown in nuclear power. As the Japan Times (2 January) noted,

changing energy policies in China, India and Japan have led to rising uranium prices (from

US$46/pound in July 2006 to US$85/pound in February 2007). This has benefited Australia, which

holds 40 percent of the world’s known uranium reserves and expects to increase sales of yellowcake

(concentrated uranium oxide obtained through the milling of uranium ore) from a record 12360 tonnes

in 2005 to more than 20000 tonnes by 2014–15 (Sydney Morning Herald, 29 December 2006). A report

delivered to Australian Prime Minister John Howard in December concluded that the country should

move quickly to export even more uranium, and the government was expected to use findings presented

to persuade opposition politicians to remove restrictions on approving new uranium mines (the oppo-

sition Australian Labor Party – the ALP – has a strict no-new-mines policy).

* Correspondence to: Stephen Frost, Department of Asian and International Studies, City University of Hong Kong, Tat Chee Avenue, KowloonTong, Hong Kong, China. E-mail: [email protected] or [email protected]

Corporate Social Responsibility and Environmental ManagementCorp. Soc. Responsib. Environ. Mgmt. 14, 114–120 (2007)Published online in Wiley InterScience(www.interscience.wiley.com) DOI: 10.1002/csr.149

CSR Asia News Review: January–March 2007 115

Despite the ALP’s reservations, countries in the region seem certain to push ahead with nuclear power.

In November 2006, Malaysia hosted the Seventh Forum for Nuclear Cooperation in Asia (FNCA). The

members showed a keen appetite for nuclear energy growth and cooperation, resulting in an agreement

to form a new study panel to consider the following areas: economic analysis and financing schemes,

access to nuclear technology for peaceful uses, human resource development and nuclear safety, secu-

rity and safeguard systems. The FNCA agreed that nuclear energy should be recognized as a clean energy

with a lower impact on the environment as compared with fuel and coal consumption – linked to global

warming, and decided to appeal as a group to the Conference of Parties (COP) for the United Nations

Framework Convention on Climate Change to include nuclear power as a clean development mecha-

nism under the Kyoto Protocol.

However, nuclear power generation is already a reality in a number of Asian countries, accounting

for 40 percent of South Korea’s electricity output and close to 30 percent in Japan. In November 2006,

South Korea confirmed it would build seven nuclear power plants to raise output to 48 percent by 2015,

and has a long term aim of providing seventy percent of electricity needs from nuclear energy. Japan

too plans to build nine new nuclear plants over the next nine years to increase its share to 43 percent.

In Indonesia, nuclear energy has been on and off the agenda, but a pact signed with Australia on 13

November has paved the way for building four nuclear power plants across the country (CSR Asia Weekly,

29 November 2006).

Nuclear power is not the only option, and a number of countries announced or re-confirmed their

commitments to alternative energy sources during the first quarter. In the Philippines, a wind farm in

Pulupandan, a province on the island of Negros, started providing energy for the local electricity grid.

The windmill technology was set up by the Green Renewable Independent Power Producer (GRIPP)

program of the International Institute for Energy Conservation, Greenpeace Southeast Asia and various

international stakeholders such as Germanwatch, the Philippine Rural Reconstruction Movement and

Solar Electric Co. Inc. and the LGU of Negros. The wind farm is the first of several major clean energy

projects envisioned for the province by GRIPP (Philippine Star, 31 December 2006).

In the Cook Islands, a wind farm project is proposed for Rarotonga on a ridge situated above Kiikii

(Cook Island News, 24 January). The wind energy project is being jointly discussed by the Cook Islands

Investment Corporation (CIIC) and the Ministry of Energy, and is still in its infancy stage. CIIC’s legal

manager, Lloyd Miles, said it will meet the landowners and seek support and approval to conduct

possible wind energy feasibility studies on their land.

India was also in the news with regard to wind power when the Kyoto Protocol’s clean development

mechanism (CDM) registered its 500th project on February; an 8.75 megawatt wind farm in Gujarat.

‘The 500th project is an exciting milestone, especially considering that the Kyoto Protocol was ratified

just two years ago and that a year ago less than one hundred projects were registered. It’s testament to

what can be done when countries come together to find solutions to global problems’, said Yvo de Boer,

Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC)

(United Nations, 13 February).

Despite the increase in alternatives such as wind power, coal is still the major course of much energy

in the region. Recognition of this has led to the development of technologies to clean coal and thus

reduce the most harmful emissions when it is burnt. Not everyone agrees with this assessment, however.

In February, global warming sceptic Ray Evans released his Nine Facts About Climate Change at a func-

tion at Parliament House. The book claims climate change is nothing new and declares government

investments in solar power and in cleaning up coal a ‘complete waste of taxpayers’ money’ (The Age, 28

February).

The Japanese government appears to disagree. The Japan Times (9 January) reported on Japan’s efforts

to reduce coal emissions. Every year, Japan invites about 60 engineers and managers from the coal

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Corp. Soc. Responsib. Environ. Mgmt. 14, 114–120 (2007)DOI: 10.1002/csr

116 S. Frost et al.

industry of seven Asian nations – China, Thailand, Indonesia, the Philippines, Vietnam, Malaysia and

India – to instruct them in the use of ‘clean coal technology’, or CCT, which aims to improve the

mineral’s efficiency while reducing carbon dioxide emissions and pollution.

Japanese Prime Minister Shinzo Abe also announced a two-billion-dollar aid package at the ASEAN

summit in January to help Asian nations develop energy-saving technology and ease the region’s depen-

dence on oil (AFP, 15 January). Tokyo’s aid package included accepting 1500 engineers and researchers

from other nations as trainees and setting up an energy-saving centre in Asia based on Japanese tech-

nology. In addition, the plan includes the establishment of a research centre for biofuels as well as a

support centre for efficient use of coal energy.

All of this should come as no surprise, since Japan’s energy conservation efforts are legendary, as out-

lined in the International Herald Tribune (7 January). Some of the household energy-saving devices men-

tioned included a home fuel cell; a machine that turns hydrogen into electricity and cold water into hot

at a fraction of regular utility costs (available only in Japan); refrigerators that beep when left open; dish-

washers compact enough to sit on a kitchen counter; room heaters with sensors directing heat toward

only humans and ‘energy navigators’ that track household energy use.

Other governments taking strides to cut energy use and associated emissions included those in

Australia, Indonesia, New Zealand and Taiwan.

Australia is set to become the world’s first country to ban incandescent light bulbs in a bid to curb

Greenhouse gas emissions. The government announced in February that they would be phased out

within three years. Environment Minister Malcolm Turnbull said yellow incandescent bulbs, which have

been in use virtually unchanged for 125 years, would be replaced by more efficient compact fluorescent

bulbs by 2009. Turnbull said the banning of incandescent bulbs would help trim 800000 tonnes from

Australia’s current emissions level by 2012 and lower household lighting costs by 66 percent (Reuters,20 February).

The Indonesian government announced that it will tender out the procurement of 30000 home solar-

power units in February. The solar energy is intended to electrify underdeveloped regions. Currently,

out of Indonesia’s total population of 260 million, about 100 million people living outside Java and Bali

islands do not have access to electricity. J. Purwono, director general for electricity and energy use at the

Energy and Mineral Resources Ministry, said that the government had allocated Rp 247 billion (US$27.4

million) for the project (The Jakarta Post, 6 February).

The government of New Zealand has called for a 3.4 percent biofuel target to be included in all petrol

and diesel by 2012 as part of its ambition to reduce greenhouse gas emissions from fossil fuels. Oil

firms will face multi-million dollar penalties if they fail to comply. Energy Minister David Parker stated

that the initial proposal of 2.5 percent biofuel in all petrol and diesel was lifted to 3.4 percent in order

to encourage the infrastructural development required for bio-ethanol (AFP, 13 February).

In Taiwan, the government has set a target of increasing the installed capacity of renewable energy

to 12 percent of total production by 2020 (Taiwan News, 2 February). Minister of Economic Affairs, Chen

Ruey-long, said despite high production costs and technological difficulties the new policy will help

Taiwan reach its goal of reducing greenhouse gas emissions and increasing the ratio of domestically

produced energy, revitalizing unplanted farmland and boosting the development of the biomass energy

industry.

The reporting on some elements of energy policy and projects in Thailand, India, the Philippines and

Malaysia, however, has suggested problems. In Thailand, the government is rethinking its alternative

energy projects, reducing the output and targets in several programs to what officials have claimed as

more realistic levels. Viraphol Jirapraditkul, director-general of the Energy Policy and Planning Office,

said the use of biodiesel will be cut by half from the existing plan of 8.5 million litres per day by 2011–12.

The controversial cultivation of palm oil is also being revised. In the transport sector, the target to promote



the number of vehicles nationwide to use natural gas (NGV) will be cut to 300000 units in 2011

from the current target of 500000 units. Instead of promoting NGV for use in passenger cars, the min-

istry will shift its efforts to public transport systems, cargo trucks and taxis, with the aim that 27000 taxis

by 2007 will switch to NGV from 9000 taxis that already run on NGV (Bangkok Post, 30 January).

In India, the government has said it plans to replace around five percent of its current 40 million

tons of annual diesel consumption with jatropha biodiesel within about five years. Jatropha (jatrophacurcas) is a hardy plant that can grow on wasteland, and is seen as a good bet for India if it wants to cut

back on oil imports, which account for 70 percent of its needs. Although the initial investment for

biodiesel output is large, jatropha plants have a productive life of 30–35 years and can be maintained at

small expense (Reuters, 16 January).

The Philippines has also announced a biofuel infrastructure project utilizing jatropha. In line with its

efforts to ease the country’s dependence on crude oil importation, the government announced in March

that it would invest US$65 million in the project. The project is a follow-up to a project in August 2006

that encouraged the cultivation of ‘tuba-tuba’ (as jatropha is called in the Philippines) on idle land, espe-

cially at military camps all over the country (Kreatif Energi Indonesia, 2 March).

In the meantime, Malaysia has announced plans to have 30 percent of its power generated hydro-

electrically in the next 10 years, with a reduction of electricity generated by fossil fuels gas and coal by

45 and 25 percent respectively (The Star, 12 February). Hydroelectric power constitutes only 5.5 percent

of the current fuel mix, with gas at 70.2 percent, coal at 21.8 percent and the remainder generated by

oil and other sources. Energy, Water and Communications Minister Datuk Seri Dr Lim Keng Yaik

encouraged power producers to consider using hydroelectricity since it is ‘environmentally friendly,

renewable, cheap and stable’.

Not everybody agrees though that the cultivation of jatropha or building more hydroelectric plants is

a good idea. In a report released in January, the WWF warned that encouraging the planting of fuel

crops and building hydropower plants would put even greater pressure on the region’s native vegeta-

tion and rainforests. The WWF said that energy crops could encroach on fast-disappearing habitats for

endangered species, particularly in critical regions such as the Borneo rainforests of Malaysia and

Indonesia (The Australian, 17 January).

Finally on energy comes news of a company doing good. Alcan – one of the world’s leading suppli-

ers of bauxite, alumina and aluminum, and a provider of engineered and packaging materials – has

released details of a project to provide 1000 solar cookers to families in Banda Aceh, Indonesia. The

cookers will provide the means to boil water and cook food without using firewood and fossil fuels. The

project, in collaboration with Klimaschutz e.V (Climateprojects), is registered with the United Nations

climate office as the first German Clean Development Mechanism project in Indonesia and should

provide Alcan with credits for reducing around 700–800 million tons of greenhouse gas emissions

(Alcan, 29 December 2006).

Toxic Chemicals

The risk workers face in using toxic chemicals in Asian factories is relatively well documented, but the

risk investors face is less well known. A new publication from Hong Kong presents a powerful argu-

ment for investors to rethink their definition of risk and act accordingly.

The Association for Sustainable and Responsible Investment in Asia (ASrIA) published its ToxicChemicals – Asian Investors are At-Risk (Brown, 2007) after a visit to Hong Kong by Richard Liroff, the

contact point for the Investor Environmental Health Network (IEHN). The IEHN is a US organization

working to ensure the companies in which they invest are taking appropriate steps to reduce risks


118 S. Frost et al.

associated with the toxic chemicals used in their products. ASrIA brought Richard out to Hong Kong to

talk to Asian investors, companies and environmental and supply chain experts about toxic chemicals.

Their goal was to assess a range of practical and policy issues that ASrIA believes will shape investor

responses to the toxic chemicals issue in Asia. The issue is clearly an important one in Asia given the

size of the production base here, and the need for Asian supply chains to meet the needs of global com-

panies focusing on efforts to de-toxify their supply chains.

The report begins with a sobering assessment: ‘Asia-based analysts and investors have paid remark-

ably little attention to reforms such as the European Union toxics regulations [RoHS and WEEE] and

the recently passed REACH directive or the factors behind shareholder resolutions in the US linked to

toxic chemicals’. This is despite a string of accidents across the region during the last few years (and

particularly in 2006) involving toxic chemicals resulting in widespread alarm over potential health

problems.

The issues, as the report notes, are complex – including what ASrIA refers to as ‘the relative lack of

sophistication in the coverage of Asian chemical companies and key downstream industries’. Never-

theless, the meetings with Liroff yielded three clear themes.

• Limited government leadership. Investors have not woken up to the levels of risk because most Asian

governments are lagging behind on public policies linked to the use and supervision of toxic or poten-

tially dangerous chemicals. However, governments will be under greater pressure to reform in the

face of growing pressure resulting from public scandals.

• Growing Asian consumer pressure. Asian consumers are rapidly catching up to their developed market

peers in terms of concern about unsafe products and the companies who produce or sell them.

Investors can therefore expect rapid changes in regulatory practice as governments shift gear to

address human heath concerns.

• Supply chain training needed. Global companies that are reliant on Asian supply chains will need to

invest in training and technical support if they want to be assured of responsive partnerships with

vendors. A command-and-control strategy has the potential to result in the same type of dysfunction

that has been common when auditing has been used to police supply chain labor practices.

For those investors still asleep, the publication concludes with this: ‘For portfolio investors, the impact

of ignorance could prove high as many of Asia’s largest listed sectors have high and unmonitored risk

exposures. [ASrIA] conducted a quick benchmarking exercise matching potential risks to Asia’s leading

sectors. Using FTSE’s Asia ex-Japan All Cap index as a benchmark, we found that as much as 70% of

the investible market is potentially exposed to toxic chemicals risk ranging from product liability to credit

risks’.

The message is clear; investors need much more information if they are to adequately assess financial

risk related to investments with exposure to toxic chemical issues. As always, the key issue is trans-

parency. Providing information that allows informed decisions is crucial, whether it be for workers in

a factory or people investing in companies sourcing from those factories.

As an addendum to this story, it should be noted that the drivers for cleaner production in the elec-

tronics sector has alerted many investors to the problems of toxic chemicals. In particular, the Restric-

tion of Hazardous Substances Directive (RoHS) and the Waste Electrical and Electronic Equipment

Directive (WEEE) have led the way in attempts to clean up the supply chain in Asia, so it was interest-

ing to note that a regulation that many call the ‘Chinese RoHS’ came into effect on 1 March. The regu-

lation was initially promulgated on 28 February 2006 (and involved seven government agencies,

including the Ministry of Information Industry, Ministry of Commerce, and the State Environmental

Protection Administration), and is called ‘Management methods on the control of pollution from elec-

tronic information products’.




The common objective of both initiatives is to prohibit and reduce the amounts of hazardous sub-

stances in electronic and electrical equipment, or electronic information products (EIPs). Both initia-

tives are related to the import and export trade. The six toxic and hazardous substances being regulated

in both initiatives are the same (lead, mercury, cadmium, hexavalent chromium (chromium VI or Cr6+),

polybrominated biphenyls (PBBs) and polybrominated diphenyl ether (PBDE).

The Environment

Perhaps one of the most important environmental stories of the quarter came from China. New regu-

lations designed to stop banks lending money to dirty business were announced, which come into force

on 1 April 2007. The regulations will require banks to play a more active role in CSR by cutting back

on loans to industry that pollutes or degrades the environment.

The new environmentally friendly standard was released in February by the Shanghai Division of the

China Banking Regulatory Commission (CBRC) and is entitled ‘Instruction opinion on CSR for Shang-

hai banking and financial corporations’. The document defines the legal and ethical responsibilities of

banks to include the consideration of stakeholder interests and the promotion of social development and

environmental protection.

The document is the result of a joint initiative between the State Environmental Protection Admin-

istration (SEPA) and the People’s Bank of China (China’s central bank) that aimed to include elements

of environmental protection in the lending policies of Chinese banks. The initiative will come into force

on 1 April 2007, and enterprises that violate environmental protection laws and regulations will find it

more difficult to secure bank loans.

The new regulation is based on the current corporate and personal credit rating system used by Chinese

banks. This system, developed and managed by the PBC, consists of a database of corporate and personal

credit information and is used by financial institutions when they process loan applications.

All banks and other financial institutions in China can access the PBC database. Although a recent

innovation (it has only been made available since August 2006), this nationwide credit rating system

currently contains information on 11.16 million companies. Of these, 4.9 million have borrowed money

from financial institutions. The database also includes information on 533 million individuals (nearly

half the population), of whom more than 64 million have borrowed money.

The PBC database is the biggest of its kind in the world. There are about 180000 access points,

in locations such as bank branches, at which institutions can search for the lending history of loan

applicants. In fact, checking the credit rating of any individual or entity applying for a loan is now a

pre-condition for the entire process. This has led to an average of 300000 database enquiries per day.

According to information provided by commercial banks, approximately 2.5 percent of all corporate loan

applications are rejected due to information on the database.

Most of the current information on corporate environmental violations is based on the ‘Project for

inspecting corporate misbehavior on pollution and protecting public health’, which has been an ongoing

joint program since 2003, involving seven ministries and departments under SEPA’s leadership. By the

time the regulation comes into effect at the beginning of April, the database will include information

on 720000 companies that have been assessed on their environmental compliance since 2006. This

includes information on the 28000 companies in which environmental violations were identified

(or 3.8 percent of all companies assessed) and the 3176 that were forced to close.

The most important ramification of the new system is that companies or business people identified

as violators of environmental regulations will find it much more difficult to secure credit from banks in

China. Dai Ganyou, director of PBC’s credit rating database, was recently quoted as saying, ‘the idea is

120 S. Frost et al.

very simple. If a commercial bank provides a loan to a company, but those companies are shut down

several days later due to violating environmental regulations, then the bank will suffer a loss. Providing

banks with information [about a company’s previous environmental record] assists them in deciding

whether to lend money or deny the loan. Viewed from the positive side, information on companies with

comparatively good implementation of environmental regulations will also be included, which will assist

banks to make quicker decisions about whether to approve loans or not. This is the objective of the

cooperation between PBC and SEPA’.

In other news, with recycling now a normal part of life for many people worldwide, it was something

of a shock to see findings from research conducted by the Green Student Council in Hong Kong that

over 52 percent of respondents do not know that printers’ toner cartridges or ink cartridges are recy-

clable. To make matters worse, 77 percent said they would discard used cartridges (Mingpao, 12 Febru-

ary). The Council estimates that up to 2.23 million toner and ink cartridges end up in landfills.

Companies in Hong Kong provide recycling services that pay around HK$10 (US$1.30) per cartridge,

which means the people of Hong Kong have lost HK$22.3 million (US$2.86 million). The Council said

discarded cartridges will increase the burden on landfills, while the remaining toner and ink may pollute

the underground water. The Environmental Protection Department said plastic dumped in the landfills

requires 1000 years to decompose.

On the subject of recycling in Hong Kong, Hong Kong’s Secretary for the Environment, Transport

and Works Dr Sarah Liao urged the public to support the Lunar Year End Recycling Campaign that

ended on 17 February (Government News, 10 February). The campaign aimed to encourage housing

estates to boost waste recovery activities by collecting recyclable and reusable materials, such as waste

paper, plastics, metals, books, old clothes, toys, computers, electrical and electronic appliances and fur-

niture at 13 refuse transfer stations. All recyclable and reusable materials was resold to recyclers or

donated to charity. As of December last year, 490 housing estates with 670000 households had enrolled

in the city-wide program on source separation of domestic waste.

In Indonesia, the flow of boiling mud allegedly caused by mining company PT Lapindo Brantas that

has led to the displacement of 10000 people from their home continues unabated. Spewing 150000

cubic metres of mud per day, the company has denied responsibility, but in February the Indonesian

environmental watchdog, WAHLI (Friends of the Earth Indonesia) filed a law suit against Lapindo and

five other related companies and Indonesian President Susilo Bambang Yudhoyono. Government

officials were named in the suit for failing to contain the mud spill quickly. ‘We are taking them to court

because the mud outflow caused by Lapindo has thoroughly damaged the environment in Sidoarjo’, said

Chalid Muhammad, the chairman of WAHLI (Channel NewsAsia, 12 February).

Finally, in environmental news too hard to categorize, villagers in Yunnan (in southwest China) were

puzzled by a county government’s decision to paint an entire barren mountain green. Seven workers

who began spraying in August 2006 told villagers that they were doing so on orders of the county gov-

ernment but were not told why. The official Xinhua press agency estimated the cost of the paint job at

470000 yuan (US$56000), and quoted villagers as saying that if it had been spent on actual plants and

trees, the money could have restored a far greater area of mountain. It took workers 45 days to complete

the job (Xinhua, 15 February).

References

Brown, M. 2007. Toxic Chemicals: Asian Investors are At-Risk. Hong Kong: ASrIA.


CSR Asia News Review: January–March 2007

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