UNMASKING CHINESE BUSINESS ENTERPRISES USING INFORMATION DISCLOSURE LAWS TO ENHANCE PUBLIC...

8/8/2019 UNMASKING CHINESE BUSINESS ENTERPRISES USING INFORMATION DISCLOSURE LAWS TO ENHANCE PUBLIC PARTICIPATION IN CORPORATE ENVIRONMENTAL DECISION MAKING

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UNMASKING CHINESEBUSINESS ENTERPRISES

USING INFORMATIONDISCLOSURE LAWS TO ENHANCE

PUBLIC PARTICIPATION INCORPORATE ENVIRONMENTAL

DECISION MAKING

Presented By:Shruti Jain [09609176]Ankita Dev [09609055]Ankur Garg [06503872]


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INTRODUCTIONq Today, China is on the cusp of economic greatness, however, mass incidents of

social unrest related to environmental issues have reportedly increased by an

average of 29% a year.

q Chinas economic expansion and the resultant environmental harms borne by itscitizenry continue to create disharmony between communities and domesticindustries.

q Chinas citizenry is now seeking greater access to environmental information.q Unfortunately, the existing state of corporate disclosure laws and regulations in

China is insufficient to allow the Chinese public adequate access to environmentalinformation.

q As a result, citizens are unable to participate properly in crucial government andcorporate decisions that impact local communities and ecosystems.

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INTRODUCTION

q In order to encourage Chinese businesses to publicly discloseenvironmental information in a timely fashion, the combined useof traditional command-and-control regulatory regimes andvoluntary market-based incentives has been proposed.

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UNDERSTANDING THE CHINESE ENTERPRISE :The Peaceful Rise of Modern Chinas Corporate State

q Private enterprises and sole proprietorships, effectively nonexistentin 1978, accounted for over 20% of the industrial GDP in 2004.

q Due to these economic liberalization reforms, Chinas economy

has grown by an average of 9.5% per year for the last two decades.q While this economic growth has dramatically reduced overall

poverty in China, the dark side of this financial revolution iswidespread environmental destruction.

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The Environmental and Human Health Costq Currently, Chinas manufacturing based economy has a vast appetite for

raw resources.q The environmental repercussions of the new manufacturing based

economy are

Heavy pollution,

Failing public water system,

Degrading air quality,

Contributes to 14% of the worlds total carbon emissions.

q Environmental degradation directly impacts public health.

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PUBLIC ACCESS TO ENVIRONMENTALINFORMATION IN CHINA

q Public participationregulations and the present

business model in China failto make key environmentalinformation available

hindering public efforts tomeaningfully and criticallyengage businesses and thegovernment on environmental

problems.

q Chinas lead environmentaldepartment, the StateEnvironmental ProtectionAdministration (SEPA), has

promulgated a number of

initiatives specifically


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PUBLIC ACCESS TO ENVIRONMENTAL

INFORMATION IN CHINA

q There is now an increasing recognition in China for social

responsibility.

q The laws in China today are designed to hold enterprises accountable forbusiness activities that harm the environment.

q Emerging models assert that socially responsible businesses establishes a

market advantage by enhancing corporate reputation and credibility withindividuals and organizations holding a stakeholder interest in theenterprise.

q Yet, in general, public participation in corporate environmental decisionmaking remains poor, largely because the public cannot gain timely

access to pertinent environmental information.

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Barriers to direct citizen access to corporate

environmental performance information1)

Enterprises tend to release information only to the extent necessary tocomply with government-imposed mandates. Even then, this informationmay not reach the public. Additionally, the disclosed information may not

be entirely accurate as enterprises use creative accounting practices tomask or falsify actual environmental performance.

2) There is a general lack of uniformity in environmental accounting standards.Individual enterprises are likely to use different accounting protocols.

3) Ultimately, Chinese laws and regulations fail to place sufficient emphasis oncompelling enterprises to develop and make available environmentalinformation in a manner calculated to facilitate citizens proactiveinvolvement in decisions that directly impact their communities and localecosystems.

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CHANGING CHINESE CORPORATE LAWS TOENSURE VOLUNTARY AND INVOLUNTARY

DISCLOSURES OF ENVIRONMENTALINFORMATION TO THE PUBLIC

Under existing laws and regulations, Chinese

enterprises have few environmental disclosure

requirements. Although China has recently

under-taken several legal reforms that specifically

target disclosure requirements, when these laws

are

reconsidered or enhanced in the future, even

greater.

emphasis should be placed on an enterprises99


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Using Traditional Command-and-Control Laws to EnsurePeriodic Corporate Disclosures of Environmental Information

China has developed a relativelycomprehensive environmental protectionapparatus that largely employs conventional

command-and-control policies.Command-and-control laws play an

integral role in establishing systemic corporateinformation disclosure obligations that

ultimately will facilitate the very publicoversight sought by environmentalreformers.

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FACILITATING CORPORATEDISCLOSURES BEYOND

TRADITIONAL OBLIGATIONSChina maintains laws and regulations compelling corporations to seek

permits or licenses for industrial or land-disturbance operations,particularly when the activities will involve the discharge of pollutantsthat may adversely impact public health or the environment.

From a market-based perspective, mandatory environmental

disclosure laws offer a number of benefits to corporations.

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EXAMPLE OF MANDATORYCORPORATE DISCLOSURE LAWS IN

THE UNITED STATESIn the United States, corporations are bound by numerousmandatory public disclosure requirements, particularly relatedto activities that may adversely impact public health or theenvironment.

Two laws that can inform existing Chinese corporate andenvironmental disclosure obligations from both a proceduraland enforcement perspective:

q

the Emergency Planning and Community Right-to-KnowAct of 1986 (EPCRA) and,

q jointly, the Securities Act of 1933 and the SecuritiesExchange Act of 1934.


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q The Emergency Planning &Community Right-to-Know Act of1986

The Emergency Planning andCommunity Right-to-Know Act was

enacted as one element of the

Superfund Amendments and

Reauthorization Act of 1986(SARA),

a wide-ranging reauthorization of theComprehensive Environmental

Response, Compensation, and

Liability

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q Securities Act of 1933 &the Securities Exchange

Act of 1934The 1933 Securities Act was a

governmental effort, following the high

financing of the 1920 the 1929 marketcrash, to reestablish

public faith in a system as a whole that

had failed miserably in imposing those

essential fiduciary standards that should

govern persons whose function it was to1414

The Securities Exchange Act of 1934 was adopted to curtail

widespread abuses in securities transactions and to deter

future abuses and to protect stockholders from predatory

transactions that adversely affected their investments.


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CURRENT CHINESE LAWS GOVERNINGINVOLUNTARY REPORTING OF ENVIRONMENTAL

INFORMATION

Enterprises listed on Chinese stock exchanges are also subject to

various mandatory financial and environmental disclosure requirementsunder securities laws and regulations.

As the Chinese capital market continues to develop, the need forgreater access to reliable corporate information is garnering more andmore attention from society.

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qSEPA-Enforced Environmental DisclosureLaws and Regulations

One of the most important laws is the Cleaner

Production Promotion Act,153 promulgated by

the Standing Committee of the National Peoples

Congress in 2002. The Acts purpose is to promote

cleaner production, improve the resource

utilization efficiency, reduce and avoid

pollutants from production, protect and

improve environment, safeguard human health

and promote sustainable economic and social

development.

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qCSRC-Enforced Environmental DisclosureLaws and RegulationsThe CSRC is another important state agency that requires

listed enterprises to publicly disclose environmental information.

Enterprises pursuing initial public offerings

must prepare a prospectus which

includes a demonstration that the enterprise has

not been subject to an administrative penalty for

violating any environmental protection

provision under serious circumstances.

The enterprise must further warrant that any

investment funds raised will be used in a manner1717


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A PROPOSAL TO CHANGEEXISTING CHINESE INVOLUNTRY

REPORTING LAWSq Recent Trends and Performance Data Related to Chinese

Enterprises Disclosing Information to the Public

Although Chinas movement toward a freemarket economy and the recent enactment of

new mandatory disclosure laws are fostering an

understanding of the importance of transparency,

a number of factors haunting both market and

regulatory systems prevent a high level of

transparency.

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qRecognizing the Need for GreaterRegulatory Enforcement

Although China has an extensive set of

environmental laws, lax enforcement

continues to haunt governmental effortsto compel public and private enterprises to

consistently maintain compliance withenvironmental performance standards,

including public disclosure obligations.

Chinese environmental laws tend to bevague and read more like policy

statements; they usually encourage

rather than require assurances of

com liance. 1919

R d i f R f i M d


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qRecommendations for Reforming MandatoryEnvironmental Information Disclosure Requirements inChina

penalties for failure to comply with disclosure laws and

regulations should be increased.

to systematically increase enforcement actions by both SEPA

and the CSRC and related lower-level agencies.

efforts should be made to standardize reporting requirements,

including the format and content of information contained

in documents made available to the public.

an effort should be made to standardize how

enterprises disclose information through media outlets.

SEPA disclosure requirements specific to heavy-polluting industries should beexpanded to cover most, if not all, industrial business sectors.

efforts should be undertaken to directly involve the local citizenry in environmental and2020


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Questions??

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Thank You

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