Interview: As Chinese companies go global, sustainability should be priority

Non-financial issues such as social responsibility, environmental stewardship and good governance will be increasingly important priorities for Chinese businesses as they navigate global markets, a senior UN official has told Xinhua.

"As Chinese companies are learning to go more global, it's even more important to understand how to navigate the different landscapes and these non-financial issues -- social responsibility, environmental stewardship, good governance," said Georg Kell, executive director of the United Nation Global Compact, on Thursday.

The Global Compact, the business arm of the United Nations, is the world's largest corporate sustainability initiative with more than 8,000 business signatories in 170 countries.

According to Kell, social, environment and governance issues are important to companies not only for moral reasons, but also for financial reasons.

"A growing number of companies recognize that social, environment and governance issues matter," Kell explained. " Environmental social and governance issues are influencing the share price and long-term financial returns."

Some of China's most prominent companies are signatories to the Global Compact, including the main search engine Baidu, computer manufacturer Lenovo, leading global information and communications technology (ICT) solutions provider Huawei, PetroChina, the China Ocean Shipping Company (COSCO), as well as oil and gas company Sinopec.

Chinese companies have been very active and some have introduced innovative concepts, Kell said. For example, COSCO introduced the concept of disclosure in China, through collaboration with the Global Compact; China Development Bank has worked with Global Compact on improving business behavior in conflict-affected markets, while Sinopec has been a leader advocating for climate action from as early as 2006.

According to Kell, sustainability actions were increasingly important for Chinese companies, especially in areas such as foreign direct investment.

"I would encourage Chinese companies to actually invest even more in these issues because many Chinese companies now are investing all over the world," he said, as being successful in global market involves understanding how to use soft power and build the trust of the local community.

"You are more successful if you know more about these issues because you actually mitigate risks before problems hit you, and you actually can build good will and build a good reputation," he added.

Although more than 8,000 businesses have signed up to the Compact, the figure is merely 25 percent of the world's largest corporations. "Many companies still operate under the simple idea that all that matters is profit maximization," he said.

"Luckily, more and more companies recognize that being profitable is key, but to be profitable all the time, over the long time, you can achieve this only if you are also good on environmental stewardship, on social responsibility and on governance," he explained.

Acknowledging that European companies have been faster to sign up to the Global Compact, while Asian and North American companies have tended to be slower to join, he said this was partially because European companies have historically been outward oriented. He expects that as China becomes a bigger player in the global market place, there will be a natural catch-up.

This year marks 70th anniversary of the founding of the United Nations. But the Global Compact is relatively young at only 15 years, since Kofi Annan, the then UN secretary-general, launched the Global Compact in 2000.

Over the course of the 15 years, Kell said, the Global Compact has been able to make progress in challenging areas for corporate sustainability such as disclosures, which is a very delicate matter. "In the past, companies tried to hide the dark side," he said, citing examples such as bonded labor in the supply chain.

But he believes that this attitude is changing. The majority of companies now understand that "disclosing performance or even speaking about problems is actually a good thing because it helps solving the problems."

"This proactive approach often brings solutions with it," Kell said. "It is transparency that is the main drive here because companies can no longer hide the dark side."

The Global Compact introduced mandatory disclosure in 2009 and this has seen a not insignificant figure of 5,000 companies delisted as signatories in the intervening period.

A native of Germany, with advanced degrees in economics and engineering, Kell, who has been at the helm of Global Compact since it was founded 15 years ago, will retire later this year.

Reflecting on his time with Global Compact, he said, "In life you have many choices and one of the choices is you either want to destroy what others have done -- you are cynical pessimistic, you just comment on things -- or, you pull up your sleeves and you build something."

"I think building something is a great blessing," he said. Endite