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Supply Chain Transparency and Climate Mitigation in China

China, the world’s largest greenhouse gas emitter, is experiencing massive health costs due to pollution, with some 1.6 million premature deaths attributed to air pollution annually. China is also leading the way in clean energy investment globally and has committed to reducing its carbon intensity. Its latest Five Year Plan included targets to restrict coal use domestically and accelerate green supply chain efforts. While China’s laws to limit emissions have improved significantly in recent years, enforcement remains a challenge.

For Chinese factories facing fierce competition on price, the cost of fines for violating environmental regulations has historically often been lower than the cost of compliance, and many multinational companies with operations in China lack visibility into the environmental impacts of their supply chains. To increase accountability for suppliers, multinational corporations and local governments, the Institute of Public and Environmental Affairs (IPE), a 2015 Skoll Awardee based in Beijing, gathers hard-to-find, public data on local air and water quality and enterprise-level environmental violations and publishes it on its Blue Map website and mobile app. IPE’s app has been downloaded more than 3 million times to date, giving citizens access to real-time data from 31 provincial governments, 338 cities, and over 13,000 enterprises, and the ability to upload photos to alert environmental agencies of pollution found in local waterways.

The cost of fines for violating environmental regulations has historically often been lower than the cost of compliance.

For a factory to remove its environmental violation from IPE’s public database, it must submit sufficient proof, and in some cases undergo a third party audit to demonstrate that it has taken corrective action. “Based on the micro-reporting mechanism enabled by the app, hundreds of major factories have openly addressed their pollution records and taken actions such as shutting down their most energy- and pollution-intensive industries and processes,” said Ma Jun, IPE’s Director. “Some have even gone so far as to tap into switching their energy sources from highly inefficient boilers to much more efficient power sources. Some have switched to other low-carbon and low-pollution product portfolios.”

Ma highlighted two of China’s greatest mitigation challenges: the need to significantly reduce coal consumption and to restructure its industry. “For a long time, weak enforcement has been an issue, which takes away the incentive for companies to improve their environmental performance,” says Ma. “Weak enforcement means huge externalities from coal use, which makes it much harder to transform the energy mix and for individual factories to move beyond the use of coal.”

With increasing pressure from the public to address poor air quality, China’s central government has stepped up inspections throughout the country. “For the first time, provincial government chiefs have been held accountable for failing their environmental duties,” Ma said. “Ten of thousands of factories have been penalized for breaching environmental rules and regulations.”

The transparency provided by IPE’s database also facilitates improved supply chain tracking by multinational brands and green finance activities. Its annual Corporate Information Transparency Index benchmarks brands on green supply chain performance and targets for carbon emissions reduction in China specifically. Tackling a major source of greenhouse gas emissions in China, for the first time and with support from IPE, some of China’s largest property developers have come together to prioritize procurement from a “white list” of iron, steel, and cement suppliers based on transparency and environmental performance.

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