A study on the development of method for environmentally conscious management in Chinese

manufacturing

中国製造業における環境配慮経営の促進に向けた評価

手法の開発に関する研究

2012 年 7 月

SUN，MEI

孫 美

Content

ABSTRACT A-1

CHAPTER 1 INTRODUCTORY CHAPTER

1.2 Research background 1-2 1.2.1 Position of Chinese manufacturing in the world 1-2 1.2.2 Transformation of Chinese manufacturing 1-7 1.2.3 Change of environment management of China 1-9 1.3 Study purpose 1-13 1.4 Framework of the study 1-17 Reference 1-21

CHAPTER 2 DEVELOPMENT OF ENVIRONMENT MANAGEMENT STRATEGY IN CHINESE MANUFACTURING

2.1 Trend of environment management 2-1 2.1.1 Definition of Environment Management Strategy (EMS) and Environment Management System (EMS) 2-1 2.1.2 Content of environment management strategy 2-3 2.1.3 Current status of environment management strategy in China 2-3 2.2 Feasibility of application of environment management strategy in China 2-4 2.2.1 Support and problem in environment management 2-4 2.2.2 Eager and support for environment conscious product 2-5 2.2.3 Promotion of environment report and challenge 2-9 2.2.4 Support and problem in enterprise value 2-14 2.2.5 Promotion of green financing 2-15 2.3 Proposal for applying environmental strategy in China 2-17 2.3.1 Popular environment management tool 2-17 2.3.2 Proposal for applying environmental strategy 2-19 2.4 Conclusion 2-20 Reference 2-21

CHAPTER 3 ANALYSIS OF ENVIRONMENTAL LEGISLATION RISK AND CONSTRUCTION OF GLOBAL ECO-DESIGN STANDARDS DATABASE FOR CHINESE MANUFACTURING

3.1 Research background and purpose 3-1 3.2 Investigation of Japanese and Chinese environment law and regulation system 3-4 3.2.1 Instruction of environmental law system and history in China 3-4 3.2.2 Comparison of Japanese and Chinese environment law and regulation 3-13 3.3 Analysis of Legislation risk on Chinese manufacturing 3-25 3.3.1 Identification of risk weighting of environment regulation 3-25 3.3.2 Forecast of legislation risk for sectors of manufacturing 3-31 3.4 Investigation of environment standardization in world 3-33 3.4.1 Importance of knowing well about the global environment standards 3-33 3.4.2 Main environment standards affecting manufacturing in the world 3-39 3.4.3 Influence of environment standardization to Chinese manufacturing 3-45 3.5 Database construction responding to global environmental standards for Chinese export 3-46 3.5.1 Construction of database of eco design 3-46 3.5.2 Application of database for export manufacturing 3-47 3.6 Conclusion 3-48 Reference 3-49

CHAPTER 4 PROPOSAL OF MODIFIED MATERIAL FLOW COST ACCOUNTING AND ITS INTEGRATION IN FINANCIAL REPORT

4.1 Research background and purpose 4-1 4.1.1 Definition of Material flow cost accounting 4-1 4.1.2 Difference of MFCA and Material Flow Accounting 4-2 4.1.3 Current research of MFCA 4-2 4.2 Problem of current MFCA 4-4 4.2.1 Discontinuity of current MFCA calculation 4-4 4.2.2 Inaccuracy of cost allocation in current MFCA 4-6 4.3 Modification of current MFCA and financial report improvement based on 4-9 4.3.1 Modification of accounting calculation method of MFCA 4-9 4.3.2 Integration of MFCA and ERP 4-14 4.3.3 Financial report improvement based on the MFCA 4-16 4.4 Case study of modified MFCA in Chinese small enterprise 4-18 4.4.1 Company profile 4-18 4.4.2 Definition of quantity center 4-18 4.4.3 Data information collection and cost calculation 4-19 4.4.4 Draw the income statement in October 2011 4-20 4.5 Conclusion 4-21 Reference 4-23

CHAPTER 5 DEVELOPMENT OF CSR ASSESSMENT WITH INDICATOR SYSTEM AND CONSTRUCTION OF CSR DATABASE FOR CHINESE MANUFACTURING

5.1 Introduction 5-1 5.1.1 The definition of corporate social responsibility (CSR) 5-1 5.1.2 Philosophic theory of CSR 5-1 5.1.3 Subjects and contents of CSR 5-2 5.2 Purpose of the study 5-3 5.2.1 Current status of CSR 5-3 5.2.2 Study purpose 5-5 5.3 Establishment of indicator system of CSR assessment 5-6 5.3.1 Current status of CSR assessment 5-6 5.3.2 Establishment of CSR indicator 5-7 5.4 Construction of CSR database in China and Japan 5-27 5.4.1 Structure of CSR database 5-27 5.4.2 Content of CSR database 5-28 5.5 Investigation enterprises how to take CSR both in China and Japan in Manufacturing 5-32 5.5.1 Method 5-32 5.5.2 Result and analysis 5-33 5.6 Conclusion 5-42 Reference 5-45

CHAPTER 6 PROPOSAL OF CORPORATE SUSTAINABLE DEVELOPMENT ASSESSMENT BASED ON CSR FOR CHINESE MANUFACTURING

6.1 Investigation of current status of Socially Responsible Investment indices 6-1 6.1.1 Definition of socially responsibility investment 6-1 6.1.2 Investing strategy of socially responsibility investment 6-2 6.1.3 Socially responsibility investment index 6-3 6.1.4 Introduction of main SRI indices 6-6 6.2 Analysis of sustainability of corporate development 6-7 6.2.1 Exclusion of SRI indices 6-7 6.2.2 Analysis of assessment method of SRI indices 6-8 6.3 Current status of Chinese social responsibility investment 6-15 6.3.1 SR index and fund in China 6-15 6.3.2 The selection method and composition of SSE Social Responsibility 6-15 6.3.3 Disadvantage of SSE-RI selection method 6-16 6.4 Investigation of new CSR assessment base on the analytical hierarchy process 6-18 6.4.1 Constructing the index system based on analytical hierarchy process 6-18 6.4.2 Establishing Hierarchical structure 6-19 6.4.3 Pairwise comparison 6-20 6.4.4 Analysis result about weighting of indictor 6-23 6.4.5 Assessment of CSR Performance 6-23 6.5 Conclusion 6-24 Reference 6-26

CHAPTER 7 CONCLUSION AND FUTURE PROSPECT

7.1 Conclusion of this study 7-1 7.1.1 Development of environment management strategy in Chinese manufacturing 7-1 7.1.2 Analysis of environmental legislation risk and construction of global eco-design standards database for Chinese manufacturing 7-1 7.1.3 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report 7-2 7.1.4 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing 7-3 7.1.5 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing 7-5 7.2 Future prospect of the study 7-6 7.2.1 Future prospect 1: Enlarge content of database of environment standards and database of CSR practice 7-6 7.2.2 Future prospect 2：Combination of MFCA and ELP 7-6 7.2.3 Future prospect 3：Check effectiveness of SRI method in Chapter 6 7-8

ACKNOWLEDGEMENT AC-1 APPENDIX APP-1 RESEARCH ACHIEVEMENT AC-1

A STUDY ON THE DEVELOPMENT OF METHOD FOR ENVIRONMENTALLY CONSCIOUS MANAGEMENT IN CHINESE MANUFACTURING

Abstract

Chapter 1 Introductory Chapter This chapter introduced research background and illustrated research purpose. Chinese manufacturing developed very fast, output of many products was ranked in top one or two in the world. In 2008, the value added in manufacturing of China is listed in top two in the world. Manufacturing is developing fast, and development speed is faster than other main manufacturing countries. However, high development of Chinese manufacturing relied on low labor cost and high resource consumption, this kind of development model of Chinese manufacturing is unsustainable, and manufacturing have heavy impact on environment. Energy consumption per GDP of China listed in top 2 in the main manufacturing countries in 2005, and discharged a large amount of ozone depleting substance and hazardous waste. Chinese manufacturing is facing transformation. New manufacturing should be low energy consumption, low environment pollution and high economic profit. Environment management method of government is also changing from treatment of end of pipe to control of pollutant source. The aims of Environment Management Strategy are plus economic profit and minus environment impact. Current research proved that Environment Management, Material Flow Cost Accounting, Corporate Social Responsibility can enhance economic profit and reduce environment impact. This study aimed at development of Environment Management Strategy in Chinese manufacturing. at last, this chapter drew study framework.

Chapter2 Development of Environment Management Strategy in Chinese Manufacturing This chapter first identified definition of environment management strategy and environment management, pointed out environment management of this study is a strategy which integrates many activities in management and production such as material flow cost accounting, environment report, green purchase, green marketing and so on. Research and application of environment management strategy in China is fewer. Therefore, this chapter investigated the feasibility of application of environment management strategy in China from six aspects, (1) Support and problem in environment management (2) Eager and support for green product (3) Support and problem in environment data record (4) Promotion of environment report and challenge (5) Support and problem in enterprise value (6) Promotion of green financing. This chapter concluded that application of environment management strategy in China is feasible. However, mass of Chinese product is recalled because of green

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barrier, environment report is lack of quantity description, CSR performance of Chinese enterprise is poor, and there is not assessment standard for financial support. For this problems, this thesis draw proposals of database construction for eco design, application of Material Flow Cost Accounting, database construction of Corporate Social Responsibility and assessment of Corporate Social Responsibility.

Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco-design Standards Database for Chinese Manufacturing Environment accident reported by China is smaller than that of Japan, the environmental accidents are decreasing, but economic loss is not decreasing, therefore enterprise should enhance the environment management level and avoid environment risk. China speeded up environmental legislation in last ten years, environment regulations was enacted in time and fast. New environment legislation will bring risk for manufacturing. This chapter assessed legislative risk of every environment regulation from environment pollution and legislation process, and find contamination of soil, PM 2.5 and underground water problem, food and packaging recycling may take highest risk for manufacturing. After assessment of environment pollution intensity of sectors, this chapter forecast environment legislative risk for sectors and concluded that manufacture of metal products, agricultural product manufacture of paper and paper products will face highest environment legislative risk in the coming years. On the other hand, export value took more than half of GDP in average from 2007 to 2011. In recent years, Nations issued a large amount of environment standards; as a result, Chinese exported products suffered recall in main target nation of export because product did not meet requirement of eco-design. In China, small and medium-sized enterprises took more than half of total enterprise in manufacturing. For small and medium-sized enterprises, it is difficult to know well about all environment standards in world. This paper constructed database of global environment standards. This database can draw report of environmental requirement about restricted chemicals, waste disposal and energy-saving for product exported to different nations.

Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report Material Flow cost accounting is an effective environment management tool which can visualize any waste so as to reduce the waste in the production process. However, cost allocation method of current MFAC is not accurate and cumbersome, especially for the sectors with a large number of system cost, allocating system cost by the weight ratio of positive and negative product will lead to serious error. System cost is divided into the system cost for waste disposal and system cost for the production in modified MFCA and added three account subjects which are defective product, positive product and waste. This paper

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illustrated the shortcoming of current MFCA through adopting the modified calculation method to case example of the Ministry of Economy Trade and Industry. To promote the application of MFCA in China, this chapter integrated MFCA and Enterprise resource planning (ERP). Based on the integration of MFCA and ERP, this study drew proposal for income statement. At last, this study applied MFCA to a drug chemical plant in China, and drew the modified income statement for this company.

Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing To achieve sustainable development, enterprise not only need take environment responsibility but also need take other responsibility in the future. This chapter firstly introduced definition of corporate social responsibility, philosophic theory of CSR and subjects and contents of CSR. In China, many enterprises consider donation as CSR in China. More than half of enterprise in top 300 had not taken any management measures of CSR or disclosed any CSR information to the public as bystanders. To promote the development of CSR in Chinese enterprise, this paper integrated ISO26000 and Chinese CSR report guideline (CASS-CSR1.0) and established an overall CSR indicator system which includes 50 indicators for environment, market and social responsibility, and limited the scope of every indicator for CSR assessment in Chapter 6. Based on the CSR indicator system, this chapter constructed a CSR database; it included 30 CSR guideline and compact, more than 300 CSR actions. Finally, this paper collected and sorted the CSR practices of 20 Chinese enterprises and 20 Japanese enterprises, and found Chinese enterprises should enforce the responsibility management and make more effort to take environment responsibility. In market responsibility, Chinese enterprise should take more action in product safety and quality, emphasize on the protection of customer data and privacy. In environment responsibility, Chinese enterprise should apply specific environment management tool like application of environment accounting, development of environment education and so on. For Japanese enterprise which is operating in China, it should pay attention to employee care and social problem solution.

Chapter 6 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing To create the sustainable society, we have to establish a good capital market in which the company with better CSR performance can finance easily. This paper analyzed the current status of SRI Indices, summarized the assessment methods of SRI indexes in the world. The financial data method applied by Chinese capital market ignored the performance assessment of CSR action and ignored CSR difference of industrial feature. Therefore, based on the indicator and database of CSR in Chapter 5, this study surveyed importance of different

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indicators by questionnaire, and identified the weighting of CSR indicator by Analytical Hierarchy Process. At last this study applied it to Chinese companies, assessed CSR performance. This kind of assessment method can revise the error of financial method of Shanghai Stock Exchange-Socially investment.

Chapter 7 Conclusion and Future Prospect This study aimed at development of method for environmentally conscious management in Chinese manufacturing.by investigation of current status of environment management, green product and marketing, environment record and report, enterprise value and financial support, concluded that development of Environment Management Strategy is feasible in China. To promote the application of Environment Management Strategy in China, this study constructed eco design database and CSR database which collected a large amount of information of global environment standards and CSR practice. Through comparison study, this study found manufacture of metal products, agricultural product and manufacture of paper and paper products will face high environment legislative risk. This study also modified MFCA by cost allocation and setting of account subject. At last, by improvement of SRI based on analysis of CSR practice to support the spread of Environment Management Strategy. In the further study, we will enlarge database of environment standards and CSR, and construct web database to achieve query of eco design and CSR practice online. When enterprise gives proposal based on analysis of MFCA, we need take not only cost but also environment load into account, in the future, I will assess the rationality of proposal based on MFCA by ELP to ensure comprehensive environment load and cost are reduced at the same time. On the other hand, we will select stock with high CSR performance by analytical hierarchy process, and check return of investment.

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Chapter 1

Introductory Chapter

Content

1.1 Introduction ...... 1-1 1.2 Research background ...... 1-2 1.2.1 Position of Chinese manufacturing in the world ...... 1-2 1.2.2 Transformation of Chinese manufacturing ...... 1-7 1.2.3 Change of environment management of China ...... 1-9 1.3 Study purpose ...... 1-13 1.4 Framework and composition of the study ...... 1-17 Reference ...... 1-21

Figure

Fig 1.1 Rise rate of manufacturing from 2007 to 2011 ...... 1-4 Fig 1.2 Average rise rate of different sectors of manufacturing from 2007-2011...... 1-4 Fig 1.3 Energy consumption per GDP of every county in 2005 ...... 1-5

Fig 1.4 Emission of CO2 in main manufacturing countries in 2007 ...... 1-5

Fig 1.5 Change of CO2 since 1990 of main manufacturing country ...... 1-6 Fig 1.6 Ozone Depleting Substance of main countries in 2008 ...... 1-6 Fig 1.7 Percentage of labor cost in output of manufacturing ...... 1-8 Fig 1.8 Average rise rate of sector in manufacturing ...... 1-8 Fig 1.9 Amount of enterprise which are required to close or change location ...... 1-9 Fig 1.10 Investment in Anti-pollution Projects of China from 2006-2010...... 1-11 Fig 1.11 Investment in treatment of industrial pollution sources and new construction projects ...... 1-11 Fig 1.12 Various waste discharge per value added of industry from 2005-2010 ...... 1-12 Fig 1.13 Ratio of utilized industrial solid wastes in China from 2005-2010 ...... 1-12 Fig 1.14 Energy consumption per GDP of China since 2005 ...... 1-13 Fig 1.15 Structure of paper ...... 1-18

Table

Table 1.1 Industry classification of ISIC ...... 1-1 Table 1.2 Division of manufacturing ...... 1-2 Table 1.3 Ranks of main factors in the world in 2009 ...... 1-3 Table 1.4 Hazardous wastes of several main countries from 2003-2008 ...... 1-7 Table 1.5 Current research about the environmental law risk of enterprise ...... 1-14 Table 1.6 Former research of EM, MFCA and CSR ...... 1-16 Table 1.7 Former research of SRI and assessment of CSR ...... 1-17

Chapter 1 Introductory chapter

1.1 Introduction

International Standard Industrial Classification of all Economic Activities (ISIC) is the international reference classification of productive economic activities. The publication's main purpose is to provide a set of activity categories that can be utilized for the production of statistics according to activity. The industries of ISIC are shown in the Table 1.1.

Table 1.1 Industry classification of ISIC1-1) Category Industry A Agriculture, hunting and forestry B Fishing C Mining and quarrying D Manufacturing E Electricity, gas and water supply F Construction G Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods H Hotels and restaurants I Transport, storage and communications J Financial intermediation K Real estate, renting and business activities L Public administration and defence; compulsory social security M Education N Health and social work O Other community, social and personal service activities P Private households with employed persons Q Extra-territorial organizations and bodies

Manufacturing is defined as the physical or chemical transformation of materials of components into new products, including assembly of component parts of manufactured products and recycling of waste materials.1-2) The divisions of Chinese manufacturing are shown in the Table 1.2, which is a little bit different with the divisions of UN. People need product in life. Manufacturing is a process which involves tools and labor to produce goods for use or sale. It refers to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale.1-3)

1-1 Chapter 1 Introductory chapter

Table 1.2 Division of manufacturing1-4) Division of manufacturing Processing of Food from Agricultural Products Manufacture of Foods Manufacture of Beverages Manufacture of Tobacco Manufacture of Textile Manufacture of Textile Wearing Apparel, Footware, and Caps Manufacture of Leather, Fur, Feather and Related Products Processing of Timber, Manufacture of Wood, Bamboo, Manufacture of Furniture Manufacture of Paper and Paper Products Printing, Reproduction of Recording Media Manufacture of Articles for Culture, Education and Sport Processing of Petroleum, Coking, Processing of Nuclear Fuel Manufacture of Raw Chemical Materials and Chemical Products Manufacture of Medicines Manufacture of Chemical Fibers Manufacture of Rubber Manufacture of Plastics Manufacture of Non-metallic Mineral Products Smelting and Pressing of Ferrous Metals Smelting and Pressing of Non-ferrous Metals Manufacture of Metal Products Manufacture of General Purpose Machinery Manufacture of Special Purpose Machinery Manufacture of Transport Equipment Manufacture of Electrical Machinery and Equipment Manufacture of Communication Equipment, Computers and Manufacture of Measuring Instruments and Machinery for Manufacture of Artwork and Other Manufacturing Recycling and Disposal of Waste

1.2 Research background

1.2.1 Position of Chinese manufacturing in the world 1) The production of China manufacturing China manufacturing industry has enjoyed a very fast development and its general scale has ranked in top places in the world with very obvious comparative advantages internationally. 1-2 Chapter 1 Introductory chapter

At current, as the pillar industry of the national economy of China, the manufacturing industry serves as the dominant sector for economic growth and basis for economic transformation. As an important basis for the economic and social development, the manufacturing industry is the main channel for employment in cities and towns of China and the major embodiment of international competitiveness of China. As the main symbol of the improvement of comprehensive national power of China in the past over 20 years, the comprehensive development and optimized upgrading of the manufacturing industry have enabled China to primarily establish the status as a big country of manufacturing and laid the sound foundation for China to transformed to be a strong country of manufacturing. According to the calculation of IHS GlobalInsight, in 2010, the production value of Chinese manufacturing has up to 10 trillion, taking 19.8% of world production value of manufacturing, is higher than manufacturing production value of United State with the percentage of 19.4%. From the 1895 to 2009, United State was always the top 1 country with the largest manufacturing production value. There is other data of year 2009 showing the capability of China manufacturing, as shown in the Table 1.3.

Table 1.3 Ranks of main factors in the world in 20091-5) Factors Ranks in the world Gross Domestic Product 3 Foreign Trade Total 2 Exports 1 Production of Crude Steel 1 Production of Cement 1 Production of Woven Cotton Fabrics 1

2) Rate of rise of China Manufacturing In the past five years, the rise rate of China manufacturing is keeping in a higher level. As shown in the Fig 1.1. We can find the rate of manufacturing rise decreased in 2008 and 2009 because of world financial crisis, but it increased quickly from 2010. Therefore, we can conclude that the rise rate the Chinese manufacturing is keep very high. The Fig 1.2 shows us the average rise rate of manufacturing. We can find the Waste recycling, Wood, products of wood, cork, Special purpose equipment, Nonmetal product, Transport Equipment, Ordinary machinery, Beverages, Metal product, Electrical machinery and apparatus, Manufacture of medical, Food manufacturing, Furniture manufacturing, Plastic product, Food processing, Chemicals and chemical products increased by more than average 15% year on year. Only the sector of Textiles, Chemical fiber, Coke, petroleum products and nuclear fuel developed relatively slowly.

1-3 Chapter 1 Introductory chapter

20

16 12 8

Rate of % / of Rate rise 4 0 2007 2008 2009 2010 2011

Fig 1.1 Rise rate of manufacturing from 2007 to 2011

30 25 20 15 10

5

Average Average rate rise of % /

0

Rubber

Textiles

Tobacco

Furniture

Beverages

eiderdown

、

Waste recycle Waste

Metal product Metal

Chemical fiber Chemical

Plastic product Plastic

shoes and hatsand shoes

Food processing Food

、

Nonmetal product

leather

Food manufacturing Food

Ordinary machinery Ordinary

Transport Equipment Transport

、

Manufacture of medical of Manufacture

Paper and paper products paper and Paper

Fur

Wearing

Special purpose equipment purpose Special

Wood, products of wood,cork of products Wood,

Electrical machinery,apparatus Electrical

Ferrous metal smelting,rolling metal Ferrous

Communication equipment,PC Communication

Culture, education,sports goods education,sports Culture,

Instrument for office and culture and office for Instrument

Arts and Grafts Products, others Products, Grafts and Arts

Chemicals and chemical products chemical and Chemicals

Printing, reproduction of recorded… of reproduction Printing,

Nonferrous metal smelting, rolling smelting, metal Nonferrous Coke,petroleum products and nuclear… and products Coke,petroleum Sectors of manufacturing

Fig 1.2 Average rise rate of different sectors of manufacturing from 2007-2011

3) Energy consumption and environment pollution Manufacturing transforms raw materials into finished goods, it consumes raw material and energy; meanwhile manufacturing have heavy impact on environment, emitting a lot of waste water, waste gas and waste solid. The Fig 1.3 shows us the energy consumption per GDP in many countries; we can find the manufacturing of China is consuming energy in a high rate. As we know Brazil, Russia, India and India are known simply as the BRIC. They are the emerging economies. We can find the energy consumption per GDP of China is also higher in the BRIC. The U.S. Japan, Korea, Germany, UK and France are old manufacturing counties.

Fig 1.4 shows us the CO2 emissions of main counties in 2007. We can find the CO2 emission

1-4 Chapter 1 Introductory chapter

of China is highest in 2007 with 6538.37 million ton. It is more than that of U.S. CO2 emissions of China is most in the BRIC, and it became more than the old manufacturing nations like the U.S. Japan, Korea, and Germany and others. The Fig 1.15 shows us the change since 1990; we can find China, India, Brazil, and Korea increasing considerably since

1990. But CO2 emissions of China increased most since 1990. The emission of U.S. is more but it did not increase so much, compared to the emission in 1990. Emission of Russian Federation, Germany, and UK decreased since 1990.

10

8

6

Btu 4

15 15

10 2

0 Energy Energy consumption quadrillion /

Nations

Fig 1.3 Energy consumption per GDP of every county in 20051-4)

7000 5600 4200 2800 1400

0 CO2emission / mio. tonnes mio. / CO2emission

Nations

1-5) Fig 1.4 Emission of CO2 in main manufacturing countries in 2007

1-5 Chapter 1 Introductory chapter

200

160

120

80

40 Change since % / 1990 Change 0

-40

Nations

1-5) Fig 1.5 Change of CO2 since 1990 of main manufacturing country

About the ozone depleting, Fig 1.6 shows us the all Ozone Depleting Substance (ODS) of main manufacturing countries in 2008. We can find the ODS of China is highest. There are not statistic data about the NOX , GHG and SO2 of China. 18000

14400

10800 ODS / ton / ODS 7200

3600

0 China Brazil Russian India Japan Korea U.S Fed. Nations

Fig 1.6 Ozone Depleting Substance of main countries in 20081-6)

1-6 Chapter 1 Introductory chapter

About hazardous wastes, the main hazardous wastes came from China, Germany, Russian Federation, United States and Philippines. The amounts of hazardous wastes are more than one million ton as shown in the Table 1.4.

Table 1.4 Hazardous wastes of several main countries from 2003-20081-5) nation 2003 2004 2005 2006 2007 2008 2009 China 11700 9950 11620 10840 10790 13570 14300 Russian Fed. 287272 142766 142497 140011 287653 122883 141019 India ------8140 ------Philippines 2265 707 1670 11786 1130 164939 1901 Germany 19515 20000 --- 21705 --- 22323 --- Korea 2913 ------U.S. 27376 34788 ------France --- 9617 --- 9622 --- 10893 --- UK 4991 7973 --- 8448 --- 7285 ---

To conclusion, the manufacturing of China is facing transformation. The high energy consumption and heavy environment pollution illustrated the current development of manufacturing is not sustainable.

1.2.2 Transformation of Chinese manufacturing Up to now, the high development of Chinese manufacturing relies on low labor cost and intensive resource mining. As shown in Figure1.7, the percentage of labor cost in total output of manufacturing was less than many other main manufacturing counties in 2010. In recent years, labor cost is increasing; main manufacturing area of China Southeast became lack of labor because of low salary. In the future, the salary must increase. On the other hand, mass mining supported high development of manufacturing. From Fig 1.8, we can find, from 2007 to 2011, average rise rate of five mining sectors like other mining, ferrous mining, nonmetal mining, nonferrous mining, coal exploitation and washing listed in top 20 in total. And average rise rate of wood products of woodcock was ranked in top 5. However labor cost must increase, resource will exhaust. This kind of development model is not sustainable. The major task of China at the new stage in the new century is to realize industrialization. Industrialization usually refers to the process whereby the number of labors involved in the manufacturing industry and the second industry is increasing and that involved in the primary industry is reducing. China has been at the middle stage of industrialization and its industrialization has not been realized. Under the background of significant development of global scientific and technical revolution and the spreading of informatization, China has

1-7 Chapter 1 Introductory chapter

20

16

12

8 total ouput / % ouput total /

4 percentage in cost labo of percentage

0

．

Iran

Italy

India

Israel

Japan

Spain

China

Brazil

France

Poland

Canada

Malaysia

Germany

Indonesia

Singapore

Philippines

Kazakhstan

Netherlands

South Africa South

NewZealand

United States United

RussianFed

Czech Republic Czech United Kingdom United Hong Kong,China Hong Fig 1.7 Percentage of labor cost in output of manufacturing 1-7)

35

28

21

14 Average Average rise rate % / 7

0

Fig 1.8 Average rise rate of sector in manufacturing1-8) abandoned the road of traditional industrialization, while take the new path of industrialization driven by informatization. The new industrialization features high content of science and technology, good economic benefits, low energy consumption and environmental pollution and full playing of the advantage of human resources. The former four features are

1-8 Chapter 1 Introductory chapter requirements to adapt to global tremendous scientific and technical progresses and the economic sustainable development. The last feature is put forth according to the national situation of China, which has abundant human resources. The main tasks of China to adjust the industrial structure in future is to take the new path of industrialization, enhance independent innovation abilities, encourage and support the development of advanced production capacities and restrict and abandon backward production capabilities with the Reform and Opening-up and scientific and technical progress as the drive, avoid blind investment and low-level repeated construction and promote the optimal upgrading of industrial structure. Pursuit of development mode focusing on conservation, environmental protection and safety will be the main development direction of China's manufacturing industry.1-7)

1.2.3 Change of environment management of China Environment management of government focuses on the pollution treatment in the past, administration departments imposed administrative penalty or closed enterprise. Take one example as shown in Fig 1.9, to meet the temporary environment requirement of holding Olympic, a large amount of enterprises were closed or removed in 2007 and 2008. As a result, enterprise moved to new place and continually pollute. Meanwhile, government imposed administrative penalty on enterprise, as shown in Fig 1.10, administrative penalty was increasing since 1998. However, some enterprise would like to pay administrative penalty rather than reduce pollutant discharge.

25000

20000

15000

removed 10000

5000 Enterprise closed andor andor closed Enterprise

0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Fig 1.9 Amount of enterprise which are required to close or change location1-10)

1-9 Chapter 1 Introductory chapter

150000 120000

90000

60000 / unit / 30000

0 Administrative penalty penalty Administrative

Fig 1.10 Amount of administrative penalty from 1998 to 20101-11)

In current, government changed environmental management method, focused on improvement of environment quality, enforced control of pollution source, and research and development of environment technology. Enforcement of Circular Economy Law on January 1, 2009, marked the qualitative breakthrough of Chinese environment law, which identified the development direction of Chinese economic. The sustainable development was recognized the basic state policy. The sustainable development got unprecedented attention. The central government will allocate funds and capital to enterprises to encourage innovation in recycling technologies, and provide tax breaks to enterprises introducing and using energy-efficient technologies and equipment. The law requires a. Government to closely monitor energy consumption and pollution emissions in heavy consuming and polluting industries including the steel and non-ferrous metal production, power generation, oil refining, construction, and printing industries; b. Government departments to promote recycling and improve energy-saving and waste-reutilization standards and develop policies to divert capital into environment friendly industries; c. Industrial enterprises to introduce water-saving technologies, strengthen management, and install water-saving equipment in new buildings and projects; d. Crude oil refining, power generation, steel and iron production plants to stop using oil-fired fuel generators and boilers, in favor of clean energy, such as natural gas and alternative fuels; e. Enterprises to recycle and make comprehensive use of coal mine waste, coal ash, and other waste materials; and encourages farmers and rural administrators to recycle straw, livestock waste, and farming by-products to produce methane.1-13)

Fig 1.10 show us the Investment in Anti-pollution Projects, we can find the total investment in anti-pollution projects has been increasing since 2006.

1-10 Chapter 1 Introductory chapter

7000

-

5600

4200

2800

100million yuan 100million

nvestment nvestment anti in

I projects / pollution 1400

0 2006 2007 2008 2009 2010

Fig 1.10 Investment in Anti-pollution Projects of China from 2006-2010

Fig 1.11 shows us the investment in treatment of industrial pollution sources and new construction project; Construction Projects-"Three-Simultaneity" regimen is an important regiment of environment protection in China. It required the environment components of new construction project have to be designed, constructed and used simultaneously with the project. We can find China enforced investment in environment components for "Three-Simultaneity" new construction projects since 2000. It reflected fully that ways of environment protection of China has been changed.

2500

2000 Investment I treatment of industrial pollution sources 1500 investment in environment components of 1000 construction projects

500

nvestment /100 million yuan I

0

2002 2001 2003 2004 2005 2006 2007 2008 2009 2010 2000 Fig1.11 Investment in treatment of industrial pollution sources and new construction projects

3) The progress made by China in environment protection In the effort of government and people, the environment treatment made great progress in China. The value added of an industry, also referred to as gross domestic product

1-11 Chapter 1 Introductory chapter

(GDP)-by-industry, is the contribution of a private industry or government sector to overall GDP. Value added equals the difference between an industry’s gross output (consisting of sales or receipts and other operating income, commodity taxes, and inventory change) and the cost of its intermediate inputs (including energy, raw materials, semi-finished goods, and services that are purchased from all sources). The Fig 1.12 shows us the various waste discharge per value added of Industry from 2005-2010. We can find the all of waste water discharge per value added of industry, COD discharge per value added of industry, emission of SO2 per value added of industry and industrial solid wastes discharged per value added of industry decreased.

300 250

200 2005

150 2006 industry 100 2007 50 2008

Discharge Discharge pervalue added of 0 2009 Waste Water COD (kg/10000 SO2(kg/10000 Industrial Solid 2010 (ton/10000 yuan) yuan) yuan) Wastes (kg/10 000 yuan) Discharges and units

Fig 1.12 Various waste discharge per value added of industry from 2005-20101-14)

On the other hand, the ratio of utilized industrial solid wastes also increased as shown in the Fig 1.13. More and more solid wastes are recovered, recycled and reused. Meanwhile, the energy consumption per GDP also decreased as shown in the Fig 1.14. 70

56

42

28 solid waste waste % / solid

14 Ration of utilization industrial utilization Rationof

0 2005 2006 2007 2008 2009 2010

Fig 1.13 Ratio of utilized industrial solid wastes in China from 2005-20101-13)

1-12 Chapter 1 Introductory chapter

1.25

1 0.75 0.5

0.25

(tce/ (tce/ yuan) 10000 Energy consumption / Energy 0 2005 2006 2007 2008 2009 2010

Fig 1.14 Energy consumption per GDP of China since 20051-5)

To conclusion, since 2005, clean production of China manufacturing make great progress. The discharges of pollutants was reduced, the energy consumption per GDP also was reduced. China enforced the utilization of waste. The manufacturing of China is developing forwards to a cleaner and sustainable direction. However, According to rank of the Environment Performance Index (EPI) issued by the Yale Center for Environmental Law and Policy (YCELP) and the Center for Earth Information Science Information Network (CIESIN) at Columbia University, China was ranked in 116 during 132 countries in 2012. The 2012 Environment Performance Index ranks 132 countries in the following ten policy categories1-14): • Environmental Health • Water (effects on human health) • Air Pollution (effects on human health) • Air Pollution (ecosystem effects) • Water Resources (ecosystem effects) • Biodiversity and Habitat • Forests • Fisheries • Agriculture • Climate Change 1.3 Study purpose

China is aiming at establishing society of environment-friendly and resource-saving. Government, research organization, financial origination and enterprise are trying their best to make it come true together. Meanwhile, the global society is also focus very much on the environment protection and sustainable development. Manufacturing is facing transformation; Enterprise is facing more and more challenge of environment. Environment Management Strategy aims at reducing environment load and enhancing economic profit. Environment

1-13 Chapter 1 Introductory chapter

Management Strategy (EMS) includes clean product, environment business and social construction. it integrated mass of activities of management and production. This study will promote the application of EMS in China. In clean production, this study will promote application of Material Flow Cost Accounting. In environment business, this study will promote eco design of product. In social construction, this paper will improve Corporate Social Responsibility performance for Chinese manufacturing. Finally, to provide a capital market for application of EMS, this paper will investigate Socially Responsibility Investment. 1) Know well the environmental regulation to avoid environmental risk Environment risk includes environment management risk, environmental law risk, ecology pollution risk, resource starvation risk and demand risk of green consumption. Generally law scholars focus on improvement of Chinese environmental law. The research about environmental legislative risk of enterprise is few. Scholars improve Chinese environmental law by comparison study with other countries as shown in Table 1.5. The advanced experience of other countries gives a great help to Chinese environmental development. In the consideration of rapid development of Chinese environment laws and regulations, manufacturing will be confronted with the risk coming from environmental regulation. This paper will assess the environmental risk for manufacturing by comparison with Japanese environment law system. On the other hand, scholar also investigated the global environment standard and its affection to China. This paper will expend this kind of research in order that enterprise can know well about global environment standards

Table 1.5 Current research about the environmental law risk of enterprise Year Title author Content 2009 Comment of environmental risk DU, Min Point out environmental risk of enterprise includes of enterprise environment management risk, environmental law risk, ecology pollution risk, resource starvation risk and demand risk of green consumption.1-15) 2002 A Comparative Study on Qin, Compared the environment tort litigation between Environmental Suit of Citizens Tianbao China and U.S so as to improve Chinese between China and the U.S environment tort litigation.1-15) 2005 Legislative Comparison of Gross FANG, Propose recommendation as how to improving Control System on Air Pollution Kan Chinese legislation on gross control system on air of China and Japan pollution by analyzing the legislative status, system and network in both country 1-17) 2007 Analysis of affection of REACH JING, REACH will promote the development of Chinese to Chinese chemical products Hong; chemical industry in a long term, but increase cost of export ZHANG, export. China should actively response to it through Yiying legislation. 1-18)

1-14 Chapter 1 Introductory chapter

2) Enhance environment management (EM) level to get competitiveness After ensuring avoid of environmental risk, enterprises have to enhance environment management level so as to avoid environment risk and enhance the competitiveness. According to research of some scholars as shown in the Table 1.6, the environmental management level of Chinese enterprise is still very low. To help Chinese manufacturing enhancing the level of environment conscious operation, this paper will help enterprise establish the environment management strategy. The main driven factors of environment management is benefit and social responsibility, 1-20) environment management should be improved from these both aspects, Material Flow Cost Accounting (MFCA) is just a new environment management tool which can achieve the economic and environmental benefit. Under MFCA, the flows and stocks of materials within an organization are traced and quantified in physical units (e.g. mass, volume) and the costs associated with those material flows are also evaluated. The resulting information can act as a motivator for organizations and managers to seek opportunities to simultaneously generate financial benefits and reduce adverse environmental impacts. 1-19) Scholar had proved that MFCA can improve corporate profit by research. And MFCA are popular in Japan, the Ministry of Economics, Trade and Industry (METI) has been promoted the application of MFCA, many Japanese companies have adopted MFCA. And, METI also published the report of MFCA application every year to introduce the case example and guideline about how to apply MFCA. To promote the application of MFCA in global, the International Organization for Standardization (ISO) also provides a general framework for material flow cost accounting (MFCA) named as ISO 14051:2011. Chinese company also need catch up this global trend of environment management. To promote the application of MFCA in China, this paper will introduce it and research it in further, so as to make it more easily applied. The other driven factors of environment management is social responsibility, consequently, this paper also investigate the current status of Corporate Social Responsibility (CSR) and to promote the CSR. According to former research of other scholars, the CSR level of Chinese enterprise is still very low. However, CSR is booming in the world, ISO issued the ISO 26000 to promote the application of CSR IN 2011. This paper will investigate how to take corporate social responsibility. To help enterprise taking better the Corporate Social Responsibility, this paper illustrated the practice or action of every kind of responsibility, through this illustration, enterprise can not only know about the content of every kind of responsibility but also it can adopt these practice, it will be a good guideline for enterprise to take social responsibility. Meanwhile, to learn from Japanese enterprise, this paper established a database about the CSR practice, analyzed the current status of Japanese enterprise and give proposal for Chinese enterprise.

1-15 Chapter 1 Introductory chapter

Table 1.6 Former research of EM, MFCA and CSR Topic Year Title Author Content EM 2011 Enterprise Motivation for CHEN, Liang It concluded that enterprise environmental Environment Management management is primarily driven by benefit and social responsibility.1-19)

2010 An empirical study on the Xianbing Liu, Through survey, found proactive environmental driving mechanism of et al management level was moderately low proactive corporate Currently.1-21) environmental management in China

MFCA 2010 Report of introduction METI Introduced the theory of MFCA, case example of demonstration and domestic MFCA application, and simply method of MFCA countermeasure of MFCA application.1-22)

2010 The Impacts of MFCA Michiyasu Examine that MFCA can improve corporate profit on Management to Corporate NAKAJIMA, the financial performances.1-23) Financial Performances Asako KIMURA

2010 International Standardization Propharm Introduced the current status of MFCA, and explain of MFCA (ISO 14051) Japan Co., the relationship of ISO 14051 and ISO 14000 Ltd.al et. standards.1-24)

Applied the MFCA to a zinc smelter, It is good applied the MFCA to a zinc 2008 Xiao Xu al et. application of MFCA to Chinese enterprise, but smelter compared to case study of Japan, no creation.1-25)

CSR 2009 Construct and Evaluate the ZHU Lilong, Divide CSR into economics, laws, ethical, charity Indicators YOU Jianxin and environmental responsibility; establish an System of Corporate Social indicators system of CSR and evaluation model on Responsibility CSR through the analytical hierarchy process.1-27)

2010 Relationship of Corporate LI More empirical studies concluded CSR have positive Social Responsibility and Jian-sheng,LI relationship with corporate financial performance,. Corporate Financial Wei However corporate social responsibility converting Performance: Controversy into corporate financial performance needs social and Unification responsibility market, and the good manner and strategy by which corporation undertakes corporate social responsibility.1-28)

2011 Research report of corporate CASS Investigate CSR of top 100 Chinese enterprise, social responsibility of China concluded that enterprise scored very low.1-26)

2011 ISO2006 ISO Addresses subjects, principle and actions of CSR1-28)

1-16 Chapter 1 Introductory chapter

2) Make good financing environment for sustainable development of society To stimulate society to develop towards a sustainable society, it is necessary to guide capital to invest in programmes with society responsibility. Meanwhile, if the enterprise focusing on sustainable development can easily finance, it will promote greatly the development of programmes of sustainable development. According to the former researchas shown in the Table 1.7, Socially Responsibility Investment (SRI) investors are willing to accept suboptimal financial performance to pursue social or ethical objectives, and cooperate social responsibility have a positive effect on the return of stock. The global financial institutes also promote industry to develop towards a direction of harmony society and environmental sustainability. In the future, pursuing profit maximization will be replaced by social responsibility maximization as the goal of enterprise. Only the enterprise responsible for society can develop sustainably. Therefore, this paper will investigate the current status of SRI, summarize the assessment method of SRY, and analyze the advantage and disadvantage of various investment method of SRI so as to make proposal for Chinese SRI.

Table 1.7 Former research of SRI and assessment of CSR Year Title Author Content 2002 Environment policy of World Bank XU, Jing Analyzed environment policy of World Bank, affection to and affection to China China and response of China. Pointed out the importance of combination of environment assessment and financing. 1-30)

2008 The stocks at stake: Return and risk T Rients nvestigate the effect of socially responsible investment (SRI) in socially responsible investment Galema, et on stock returns. And conclude that diversity, environment and al product – has a significant impact on stock returns.1-31)

2008 Research of AHP Model on Yingchen Describes the important role that the social responsibility plays Combination between the Social WANG.et al in the development of the corporation. Through using the AHP, Responsibility and the Economic we can obtain the optimal combination between the social Benefits in Corporation responsibility and economic efficiency of the corporation.1-33)

2011 Socially responsible investments: Luc Existing studies hint but do not unequivocally demonstrate that Institutional aspects, performance, Renneboog, SRI investors are willing to accept suboptimal financial and investor behavior et al performance to pursue social or ethical objectives. 1-32)

1.4 Framework and composition of the study

To promote the environment conscious operation of manufacturing in China, these paper developed method for environmental conscious management from the risk analysis of external regulations, internal environment conscious management and financing. The structure of paper is shown in Fig 1.15. This study first introduced the position of Chinese manufacturing in world and operation background of Chinese manufacturing, and then investigated the environment law of Chinese and the environmental standards of world. To

1-17 Chapter 1 Introductory chapter promote the environment management level, next, this paper investigated the environment management strategy and MFCA. And then, expand to all CSR actions of world. To promote the application of CSR, this paper further investigated the SRI. At last, summarized the conclusion and prospect the further research.

Fig 1.15 Structure of paper

This thesis is composed by seven chapters. The main contents of every chapter are shown as following. Chapter 1, this chapter illustrated the research background from the position of Chinese manufacturing, national background of environmental policy and green barrier in international trade. And it identified the research purpose of promoting the environment conscious management in manufacturing. Meanwhile, it summarized the current status of research and pointed out the creativeness and necessity of research. Chapter2 first identified difference of definition of environment management strategy and environment management, pointed out environment management of this study is a strategy which integrates many activities in management and production such as material flow cost accounting, environment report, green purchase, green marketing and so on. Research and application of environment management strategy in China is fewer. Therefore, this chapter investigated the feasibility of application of environment management strategy in China from six aspects, (1) Support and problem in environment management (2) Eager and support for

1-18 Chapter 1 Introductory chapter green product (3) Support and problem in environment data record (4) Promotion of environment report and challenge (5) Support and problem in enterprise value (6) Promotion of green financing. This chapter concluded that application of environment management strategy in China is feasible. However, mass of Chinese product is recalled because of green barrier, environment report is lack of quantity description, CSR performance of Chinese enterprise is poor, and there is not assessment standard for financial support. For this problems, this thesis draw proposals of database construction for eco design, application of Material Flow Cost Accounting, database construction of Corporate Social Responsibility and assessment of Corporate Social Responsibility. Chapter 3 is Analysis of Environmental Legislation Risk and Construction of Global Eco-design Standards Database for Chinese Manufacturing Environment accident reported by China is smaller than that of Japan, the environmental accidents are decreasing, but economic loss is not decreasing, therefore enterprise should enhance the environment management level and avoid environment risk. China speeded up environmental legislation in last ten years, environment regulations was enacted in time and fast. New environment legislation will bring risk for manufacturing. This chapter assessed legislative risk of every environment regulation from environment pollution and legislation process. After assessment of environment pollution intensity of sectors, this chapter forecast environment legislative risk for sectors. On the other hand, export value took more than half of GDP in average from 2007 to 2011. In recent years, Nations issued a large amount of environment standards; as a result, Chinese exported products suffered recall in main target nation of export because product did not meet requirement of eco-design. In China, small and medium-sized enterprises took more than half of total enterprise in manufacturing. For small and medium-sized enterprises, it is difficult to know well about all environment standards in world. This paper constructed database of global environment standards. This database can draw report of environmental requirement about restricted chemicals, waste disposal and energy-saving for product exported to different nations. Chapter 4 modified material flow cost accounting and its integration in financial report. Material Flow cost accounting is an effective environment management tool which can visualize any waste so as to reduce the waste in the production process. However, cost allocation method of current MFAC is not accurate and cumbersome, especially for the sectors with a large number of system cost, allocating system cost by the weight ratio of positive and negative product will lead to serious error. System cost is divided into the system cost for waste disposal and system cost for the production in modified MFCA and added three account subjects which are defective product, positive product and waste. This paper illustrated the shortcoming of current MFCA through adopting the modified calculation method to case example of the Ministry of Economy Trade and Industry. To promote the application of MFCA in China, this chapter integrated MFCA and Enterprise resource

1-19 Chapter 1 Introductory chapter planning (ERP). Based on the integration of MFCA and ERP, this study drew proposal for income statement. At last, this study applied MFCA to a drug chemical plant in China, and drew the modified income statement for this company. Chapter 5 developed of CSR assessment with indicator system and construction of CSR database for Chinese manufacturing. To achieve sustainable development, enterprise not only need take environment responsibility but also need take other responsibility in the future. This chapter firstly introduced definition of corporate social responsibility, philosophic theory of CSR and subjects and contents of CSR. In China, many enterprises consider donation as CSR in China. More than half of enterprise in top 300 had not taken any management measures of CSR or disclosed any CSR information to the public as bystanders. To promote the development of CSR in Chinese enterprise, this paper integrated ISO26000 and Chinese CSR report guideline (CASS-CSR1.0) and established an overall CSR indicator system which includes 50 indicators for environment, market and social responsibility, and limited the scope of every indicator for CSR assessment in Chapter 6. Based on the CSR indicator system, this chapter constructed a CSR database; it included 30 CSR guideline and compact, more than 300 CSR actions. Finally, this paper collected and sorted the CSR practices of 20 Chinese enterprises and 20 Japanese enterprises, and found Chinese enterprises should enforce the responsibility management and make more effort to take environment responsibility. In market responsibility, Chinese enterprise should take more action in product safety and quality, emphasize on the protection of customer data and privacy. In environment responsibility, Chinese enterprise should apply specific environment management tool like application of environment accounting, development of environment education and so on. For Japanese enterprise which is operating in China, it should pay attention to employee care and social problem solution. Chapter 6 drew proposal of corporate sustainable development assessment based on csr for Chinese manufacturing. To create the sustainable society, we have to establish a good capital market in which the company with better CSR performance can finance easily. This paper analyzed the current status of SRI Indices, summarized the assessment methods of SRI indexes in the world. The financial data method applied by Chinese capital market ignored the performance assessment of CSR action and ignored CSR difference of industrial feature. Therefore, based on the indicator and database of CSR in Chapter 5, this study surveyed importance of different indicators by questionnaire, and identified the weighting of CSR indicator by Analytical Hierarchy Process. This chapter applied it to Chinese companies to assess CSR performance. This kind of assessment method can revise the error of financial method of Shanghai Stock Exchange-Socially investment. Chapter 7 summarized the conclusion and pointed out future prospect of the study.

1-20 Chapter 1 Introductory chapter

Reference

1-1) International Standard Industrial Classification of All Economic Activities, Rev.3. http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=2&Lg=1. 1-2) MBS Online data dictionary, http://unstats.un.org/unsd/mbs/ddform.aspx?getitem=87. 1-3) Manufacturing, http://en.wikipedia.org/wiki/Manufacturing. 1-4) National Bureau of Statistics of China, http://www.stats.gov.cn/tjsj/qtsj/hjtjzl/index.htm. 1-5) National Bureau of Statistics of China, environment statistic data 2010, http://www.stats.gov.cn/tjsj/qtsj/hjtjzl/hjtjsj2010/ 1-6) National Bureau of Statistics of China, Environment Statistic Data 2008. 1-7) United Nations Statistics Davison, United Nations Industrial Development Organization International Yearbook of Industrial Statistics, 2010. 1-8) National Bureau of Statistics of China, environment statistic data, 2007- 2011. 1-9) Manufacturing Industry in CHINA, http://www.asiatradehub.com/china/manu.asp. 1-10) Ministry of environment protection of China The national environmental statistical bulletin, 1999-2008. 1-11) Ministry of environment protection of China The national environmental statistical bulletin, 1999-2010. 1-12) Ministry of Environmental Protection of the People's Republic of China, http://www.mep.gov.cn/ 1-13) China Environmental Law, http://www.chinaenvironmentallaw.com/2008/08/30/china-adopts-circular-economy-la w/ 1-14) Yale Center for Environmental Law & Policy of Yale University, Center for International Earth Science Information Network of Columbia University, 2012 Environmental Performance Index and Pilot Trend-Environmental Performance Index, http://epicharts.activewebdev.com/v01/downloads/2012EPI_Report.pdf 1-15) DU, Min, Comment of environmental risk of enterprise, Chinese Environment Management, Vol. 2, 2009, p141. 1-16) QIN, Tianbao, A Comparative Study on Environmental Suit of Citizens between China and the U.S, Urban Environment & Urban Ecology, Vol.15, NO. 5, 2002, p 23. 1-17) FANG, Kan, Legislative Comparison of Gross Control System on Air Pollution of China and Japan, Environment Science and Technology, Vol.28, NO. 1, 2005, P63. 1-18) JING, Hong; ZHANG, Yiying, Analysis of affection of REACH to Chinese chemical products export, Journal of Zhonnan University of Economics and Law, NO.4, 2007, p 137. 1-19) ISO 14051：2011, http://www.iso.org/iso/catalogue_detail?csnumber=50986. 1-20) CHEN, Liang, Enterprise Motivation for Environment Management, Journal of

1-21 Chapter 1 Introductory chapter

Liaoning Technical University ( Social Science Edition), Vol.13, NO.6, 2011,p594. 1-21) Xianbing Liu, et al, An empirical study on the driving mechanism of proactive corporate environmental management in China, Journal of Environmental Management, 2010, p1707. 1-22) Ministry of Economy, Trade and Industry, The report of introduction demonstration and domestic countermeasure of MFCA. 2010. 1-23) Tomohiro TASAKI, Masahiro OSAKO, The Impacts of MFCA Management to Corporate Financial Performances, International conference of Ecobanlance, 2010. 1-24) Managing director Propharm Japan Co., Ltd.al et, International Standardization of MFCA (ISO 14051), International conference of Ecobanlance, 2010. 1-25) Xiao Xu al et, Applied the MFCA to a Zinc Smelter, Accounting Research, Vol. 116, 2008. 1-26) Research center for CSA, Chinese Academy of Social Science, Research report of corporate social responsibility of China, 2011. 1-27) ZHU Lilong, YOU Jianxin, Construct and Evaluate the Indicators System of Corporate Social Responsibility, Management and Service Science, 2009. 1-28) LI Jian-sheng and LI Wei, Relationship of Corporate Social Responsibility and Corporate Financial Performance: Controversy and Unification , 2008. 1-29) ISO, ISO26000, http://www.iso.org/iso/ 1-30) XU, Jing, Environment policy of World Bank and affection to China, Legal System and Society, Vol. 19, 2009. 1-31) T Rients Galema, et al, The stocks at stake: Return and risk in socially responsible investment, Journal of Banking & Finance, Vol.32, Issue 12, 2008,pp 2646-2654. 1-32) Luc Renneboog, et al, Socially responsible investments: Institutional aspects, performance, and investor behavior, Journal of Banking & Finance, vol. 32, issue 9, 2008, pp 1723-1742. 1-33) WANG, Yingchen. Research of AHP Model on Combination between the Social Responsibility and the Economic Benefits in Corporation, Business and Information Management, 2008. ISBIM '08. International Seminar on, Vol.2, 2008, pp449-452.

1-22

Chapter 2

Development of Environment Management Strategy in Chinese Manufacturing

Content

2.1 Trend of environment management ...... 2-1 2.1.1 Definition of Environment Management Strategy (EMS) and Environment Management System (EMS)...... 2-1 2.1.2 Content of environment management strategy...... 2-3 2.1.3 Current status of environment management strategy in China ...... 2-3 2.2 Feasibility of application of environment management strategy in China ...... 2-4 2.2.1 Support and problem in environment management ...... 2-4 2.2.2 Eager and support for environment conscious product ...... 2-5 2.2.3 Promotion of environment report and challenge ...... 2-9 2.2.4 Support and problem in enterprise value ...... 2-14 2.2.5 Promotion of green financing ...... 2-15 2.3 Proposal for applying environmental strategy in China ...... 2-17 2.3.1 Popular environment management tool ...... 2-17 2.3.2 Proposal for applying environmental strategy ...... 2-19 2.4 Conclusion ...... 2-20 Reference ...... 2-21

Figure

Fig 2.1 Average score of Chinese corporation in different aspect ...... 2-4 Fig 2.2 Certifications of ISO 14001 of China and Japan from 2005 to 2010 ...... 2-4 Fig 2.3 Share of Chinese certifications of ISO 14001 in 2008 ...... 2-5 Fig 2.4 Share of enterprise with certification of ISO 14001 in China and Japan ...... 2-5 Fig 2.5 Amount of enterprise taking action on every aspects ...... 2-9 Fig 2.6 Environment logos of China ...... 2-9 Fig 2.7 Pages of environment report or CSR report t In China and Japan ...... 2-13 Fig 2.8 Guideline system supporting environment report of Japan ...... 2-14 Fig 2.9 CSR Scoring of top 300 enterprises in China ...... 2-15 Fig 2.10 Amount of CSR report of different industries in China and Japan ...... 2-15 Fig 2.11 Green-credit of China Construction Bank ...... 2-17 Fig 2.12 Proposal of development of environment management strategy ...... 2-19

Table

Table 2.1 Key elements of environment management system ...... 2-2 Table 2.2 Current status of research about EMS in China ...... 2-3 Table 2.3 Main LCA database ...... 2-8 Table 2.4 Basic information of environment report ...... 2-10 Table 2.5 Management performance indicators in environment report ...... 2-11 Table 2.6 Operational performance indicators in environment report ...... 2-11 Table 2.7 List of companies in survey ...... 2-12

Chapter 2 Development of Environment Management Strategy in Chinese Manufacturing

2.1 Trend of environment management

2.1.1 Definition of Environment Management Strategy (EMS) and Environment Management System (EMS). When we mention environmental management, some books and papers mainly refers to the topic about ISO14000 series standards or environmental management system, like the book of ‘Corporate Environmental Management’ written by the Bangsheng Luo2-1). The International Organization for Standardization (ISO) defines environmental management systems as that part of the overall management system which includes organizational structure, planning activities, responsibilities, practices, procedures, processes, and resources for developing, implementing, achieving, reviewing, and maintaining the environmental policy.2-2) The key elements of any environmental management system includes many aspect as shown in table 2.1. The major requirements of an EMS under ISO 14001 include: a. A policy statement that includes commitments to prevention of pollution, continual improvement of the EMS leading to improvements in overall environmental performance, and compliance with all applicable statutory and regulatory requirements. b. Identification of all aspects of the community organization's activities, products, and services that could have a significant impact on the environment, including those that are not regulated. c. Setting performance objectives and targets for the management system that link back to the three commitments established in the community or organization's policy (i.e., prevention of pollution, continual improvement, and compliance). d. Implementing the EMS to meet these objectives. This includes activities like training of employees, establishing work instructions and practices, and establishing the actual metrics by which the objectives and targets will be measured. e. Establishing a program to periodically audit the operation of the EMS. f. Checking and taking corrective and preventive actions when deviations from the EMS occur, including periodically evaluating the organization's compliance with applicable regulatory requirements. g. Undertaking periodic reviews of the EMS by top management to ensure its continuing performance and making adjustments to it, as necessary. However, for Japanese researcher, environmental management is a comprehensive and integral operation strategy developed by corporation so as to increase benefit of economics and environment, and achieve sustainable development of corporation and society.2-3) Corporation consider environmental factors as the new factors of corporate strategy, it promote concept and technology of environmentally friendly in every operation activity and

2-1 Chapter 2 Development of Environment Management Strategy in Chinese Manufacturing social activity. It is not only the responding to environmental regulation but also wider environmental conscious activity.

Table 2.1 Key elements of environment management system Element Explanation Environmental policy Develop a statement of your organization’s commitment to the environment. Use this policy as a framework for planning and action. Environmental aspects Identify environmental attributes of your products, activities, and services. Determine those that could have significant impacts on the environment. Environment law compliance Identify and ensure access to relevant laws and regulations, as well as other requirements to which your organization adheres. Objectives and targets Establish environmental goals for your organization, in line with your policy, environmental impacts, the views of interested parties, and other factors. Environmental management Plan actions necessary to achieve your objectives and targets. program Structure and responsibility Establish roles and responsibilities for environmental management and provide appropriate resources. Training, awareness, and Ensure that your employees are trained and capable of carrying out their competence environmental responsibilities. Communication Establish processes for internal and external communications on environmental management issues. EMS documentation Maintain information on your EMS and related documents. Document control Ensure effective management of procedures and other system documents. Operational control Identify, plan, and manage your operations and activities in line with your policy, objectives, and targets. Emergency preparedness and Identify potential emergencies and develop procedures for preventing and response responding to them. Monitoring and measurement Monitor key activities and track performance. Conduct periodic assessments of compliance with legal requirements. Records Maintain and manage records of EMS performance EMS audit and review Periodically verify that your EMS is operating as intended and review with an eye to continual improvement Nonconformance and corrective Identify and correct problems and prevent their recurrence. and preventive action

2-2 Chapter 2 Development of Environment Management Strategy in Chinese Manufacturing

2.1.2 Content of environment management strategy Environment Management Strategy (EMS) includes clean production, environment business and social contribution. Clean production includes production activities which try to reduce environment impact at site and in office. Corporate activity will not limit the introduction of green business and the reduction of environment impact of inter of corporation, corporation will try to reduce the environment impact on the product life cycle and supply chain, develop or transform to green business, contribute to enhance the environmental awareness of customer and market. On the other hand, enterprise do social construction can to enhance enterprise value. Environment management will take advantage of ISO14000, environmental performance assessment, CO2 reduction technology, recycling of waste, Material Flow Cost Accounting, zero emission, green purchase, chemicals management system, eco design, Life Cycle Analysis, eco label, environment report, environmental accounting, Stakeholder Dialogue and so on.

2.1.3 Current status of environment management strategy in China In China, trough literature search in China National Knowledge Infrastructure (CNKI), we can find attention to EMS became booming since 2006, news about EMS is more than paper, and experience introduction is more than theory research as shown in Table 2.2. Only Baosteel Group Corporation and Haier Group have taken environment management as its strategy. Environment performance of Chinese enterprise is poor, average score of top 300 enterprises was just about 20 in total score 100. It is necessary to promote EMS in China. But application of EMS in China is so few, so this study first need investigate the feasibility of application of EMS in China, and outline proposal for EMS application in China from clean production, environment business and social contribution so as to promote the spread of EMS application in China.2-5)

Table 2.2 Current status of research about EMS in China2-4) Publication method Content year News paper Theory Experience introduction 2000-2005 21 12 12 21 2006-2011 63 55 61 59 Total 84 67 71 80

2-3 Chapter 2 Development of Environment Management Strategy in Chinese Manufacturing

Environment responsibility 100 80 60 Sustainablility index 40 Social responsibility 20 0

Responsibility Market responsibility management

Fig 2.1 Average score of Chinese corporation in different aspect

2.2 Feasibility of application of environment management strategy in China

2.2.1 Support and problem in environment management In current, the ISO14000 series are the most widely used environment management tool in the world. ISO14000 series were developed by the International Standardization Organization in 1996. Up to the end of December 2010, at least 250,972 ISO 14001 certificates had been issued in 155 countries and economies, a growth of 27,823 (more than 12%).2-6) Chinese enterprises are eager to get ISO14001 certification. As shown in Fig 2.2, we can find more and more enterprise got ISO14001 certification. In 2007,China , since 2007, certification of China began more than Japan, became the top 1 in world, and be top 1 at less for three years. 2-7) To improve environment management level, China also issued the national environment standard GB／T24001－2004 in May 2005 which are the Chinese version of ISO14001:2004.

China Japan 70000 60000

50000 40000

14001 30000 20000

10000 Certification of ISO ISO of Certification 0 2005 2006 2007 2008 2009 2010

Fig 2.2 Certifications of ISO 14001 of China and Japan from 2005 to 20102-7)

2-4 Chapter 2 Development of Environment Management Strategy in Chinese Manufacturing

21% ISO 14001certifications was gotten by Chinese enterprise in 20082-8) as shown in Fig 2.3. However, enterprise with ISO 14001 certifications just took much fewer part of total enterprise in China, in 2008 about 15% enterprises had gotten ISO 14001 certification in Japan as shown in Fig 2.42-9)2-10)2-11).

21% China 60% Japan 19% Others

Fig 2.3 Share of Chinese certifications of ISO 14001 in 2008

China Japan

39195, 0% 35573, 15%

Certificated

202401, 9675405, No 85% 100% certificated

Fig 2.4 Share of enterprise with certification of ISO 14001in China and Japan

2.2.2 Eager and support for environment conscious product Environment conscious product is called as green product. Design of green product is also named as eco design of product. In current, many countries construct database or program of environment conscious product to support design of green product. 1) Current status of eco design of product Design for the Environment (DfE) of United States Environmental Protection Agency (EPA) was created to build on the current industry trends to incorporate environmental factors into design decisions. More recently, DfE has been helping consumers and industrial purchasers make wise choices by identifying safer and effective products. DfE allows products that have been determined to be effective and safer for human health and the environment to carry its label. 2-12) The product with logo contains only those ingredients that pose the least concern among chemicals in their class. Meanwhile DfE define Best Practices and identify safer

2-5 Chapter 2 Development of Environment Management Strategy in Chinese Manufacturing chemicals, including life cycle considerations, through Alternatives Assessment. Each of DfE's Partnership projects evaluates products, manufacturing processes, or businesses for: a. Human health concerns b. Environmental considerations c. Performance and cost of traditional and alternative technologies EPA's Design for the Environment Program (DfE) has allowed use of their logo on over 2000 products. Customer and other shareholders can search for the product with the DfE logo on the website of United State Environment Protection Agency, The DfE Criteria of Standard for Safer Cleaning Products are intended to cover cleaning products including but not limited to, glass cleaners, general purpose cleaners, washroom cleaners, carpet cleaners, floor care products, laundry detergents, graffiti removers, marine cleaning products, and drain cleaners. While this document includes the review criteria for both the whole product and each product component, DfE recognition applies only to the finished cleaning product.2-13) DfE focuses its review of formulation ingredients on the key (environmental and human health) characteristics of concern within a functional class. This approach allows formulators to use those ingredients with the lowest hazard in their functional class, while still formulating high-performing products. DfE applies the Criteria using EPA research and analytical methods to ensure that DfE-labeled products contain only the safest possible ingredients. To identify the total environmental impact of a product it is necessary to do a life cycle analysis. The life cycle analysis involves making detailed measurements during the life cycle of products from the mining of the raw materials used in its production and distribution, through to its use, possible re-use or recycling, and its eventual disposal. Life Cycle Analysis is the first terms used, later a number of different terms are created to describe this process. More recently two terms have come to largely replace that one: Life Cycle Inventory (LCI) and Life Cycle Assessment (LCA). Other terms such as Cradle to Grave Analysis, Eco-balancing, and Material Flow Analysis are also used. 2-14) The first stage of a life cycle analysis is inventory analysis. In an inventory analysis, the goal is to examine all the inputs and outputs in a product's life cycle, beginning with what product is composed of, where those materials came from, where they go, and the inputs and outputs related to those component materials during their lifetime. It is also necessary to include the inputs and outputs during the product's use, such as whether or not the product uses electricity. The purpose of the inventory analysis is to quantify what comes in and what goes out, including the energy and material associated with materials extraction, product manufacture and assembly, distribution, use and disposal and the environmental emissions that result. 2-15) The next stage of a life cycle analysis is the impact analysis, in which the environmental impacts identified in the previous stage are enumerated, such as the environmental impacts of generating energy for the processes and the hazardous wastes emitted in the manufacturing

2-6 Chapter 2 Development of Environment Management Strategy in Chinese Manufacturing process. Once the environmental impacts of all the inputs and outputs of a product's lifecycle are analyzed, the life cycle analysis generates a number that represents how much the environment is affected. However, the major purpose of the analysis is to evaluate, once the inputs and outputs are quantified, how the product affects the environment throughout its lifecycle. Once its general environmental impact is calculated, the next step is to conduct an improvement analysis to see how impact of the product on the environment.2-15) However some problem exists in the LCA, for example, Decisions, without scientific basis, such as whether three tons of emitted sulphur is more or less harmful than the emission of just a few pounds of a more toxic pollutant, are necessarily subjective. Some studies attempt to aggregate the various impacts into clearly defined categories like the possible impact on the ozone layer, or the contribution to acid rain. Others go still further and try to add the aggregated figures to arrive at a single 'score' for the product or process being evaluated. Reliable methods for aggregating figures generated by LCA, and using them to compare the life cycle impacts of different products, do not yet exist. However, a great deal of work is currently being conducted on this aspect of LCAs to arrive at a standardised method of interpreting the collected data. To promote the development of LCA, many countries developed different projects and database of LCA. U.S. Life-Cycle Inventory (LCI) Database helps life-cycle assessment (LCA) experts answer their questions about environmental impact. This database provides a cradle-to-grave accounting of the energy and material flows into and out of the environment that are associated with producing a material, component, or assembly. It's an online storeroom of data collected on commonly used materials, products, and processes.2-16) Canadian Raw Materials Database (CRMD) is a voluntary project involving a cross-section of Canadian materials industries to develop a database profiling the environmental inputs and outputs associated with the production of Canadian commodity materials. The database uses the techniques of life-cycle inventory (LCI), consistent with the method of life-cycle assessment (LCA). Industry associations are participating on a voluntary basis with Environment Canada as chair. Materials industries participating are: aluminum, glass, plastics, steel and wood. 2-17) The European Union’s European Reference Life Cycle Data System ELCD comprises - next to other sources - LCI data sets of the European Confederation of Iron and Steel Industries (EUROFER), The Association of Plastics Manufacturers in Europe (Plastics Europe, former APME), The European Federation of Corrugated Board Manufacturers (FEFCO), Groupement Ondulé (GO), and the European Container Board Organisation (ECO). The data sets to be provided by the European Aluminium Association (EAA) and the European Copper Institute (ECI) will be added to the ELCD database only by August 2006 due to the need for

2-7 Chapter 2 Development of Environment Management Strategy in Chinese Manufacturing further quality assurance from side of the respective association. All these data sets are officially provided and approved by the named association for publication in the Commission's ELCD core database. We wish to thank these associations for this important voluntary support to LCA practitioners in Europe and beyond, towards a system of high quality and harmonised LCI data.2-18) The LCA National Project in Japan funded by the Ministry of Economy, Trade and Industry (METI) since 1998 has been completed at the end of March 2003, in which (1) LCA methodologies, especially the LCIA method and the practical LCI method for recycling, (2) LCA database for Japan and (3) a network system to show the results of (1) & (2) have been developed. In the Inventory Study Committee, the LCI data for approximately 200 products were collected based on the sub-system, i.e. from Gate to Gate, by 22 industrial associations joined to the project officially, and by around 30 industrial associations contributed to the project unofficially. The inventory data such as resource exploitation and oversea transportation were prepared by the survey of the literatures. These LCI data were deployed into the system together with the LCIA characterization and weighting factors, which was developed to be operated easily at the website by users. 2-19) The other databases are shown in the table 2.3.

Table 2.3 Main LCA database Name Content Korea National LCI Database The database is based on the request from industries through series of surveys and it is accessible through KNCPC website.2 -20) Swedish National LCA The database was formed through a joint research forum database between 13 industrial corporations and Chalmers from an initiative beginning in 1996. The goal to make LCA reports informative and credible, prompt, and at reasonable cost was realized in the first release in 1998. 2-21) LCA Food Database- The present database is a result of the project "Lifecycle Denmark Assessment of Basic Food" (2000 to 2003). 2-22) Swiss National LCI Database The ecoinvent data contain harmonised generic LCA data EcoInvent covering the following sectors: energy, transport, waste treatment, buildings, chemicals, detergents, graphical papers and agriculture. The geographic scope comprises the supply situation in Switzerland and in Western Europe.2-23) 2) Current status of eco design in China This study surveyed 20 companies of different sectors in Chinese and Japanese manufacturing, and checked whether they take action in the following indicators as shown in

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Fig 2.5. We can find more than half of Chinese enterprise produce environment conscious product in total 20 sample enterprises, not less than that of Japan 20

16

12 China 8 Japan

4

0

on relevant on relevant aspect Amount Amount enterpriseof taking action

Fig 2.5 Amount of enterprise taking action on every aspects

On the other hand, government are promote actively the sales of green market by environment logos as shown in Fig 2.6.

Fig 2.6 Environment logos of China

However, not up to now, there is not any database support for eco-design in China.

2.2.3 Promotion of environment report and challenge 1) Survey of environment report in world In the modern times, many countries are legislating to promote corporation to report their environmental information, and making the guideline to direct the draw of environmental report. UK and Japan have issued the environment report guideline. Department for Environment, Food and Rural Affairs issued Environmental Key Performance Indicators-Reporting Guidelines for UK Business in 2006. The Ministry of the Environment of Japan has published the Environmental Reporting Guidelines: Fiscal Year 2003 Version in March 2003, and revised it in 2007. The environment report of Japan includes the five parts. They are the Basic Information (BI), Information and Indicators that Describe the Status of

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Environmental Management (MPI = Management Performance Indicators), Information and Indicators that Describe the Status of Activities for Environmental Impacts and Reduction Measures (OPI=Operational Performance Indicators, Information and Indicators that Describe the Status of the Relationship between Environmental Considerations and Management (EEI= Eco-Efficiency Indicators and Information and Indicators that Describe the Status of Social Initiatives (SPI= Social Performance Indicators). And Management Performance Indicators (MPI), Operational Performance Indicators (OPI) and Eco-Efficiency Indicators are to be called collectively Environmental Performance Indicators. Basic information is the fundamental contents which will ensure the reporting can function well as a communication tool between the organization and society to help them establish a partnership. The following five points as shown in the Table 2.42-25) should be included as basic information.

Table 2.4 Basic information of environment report BI-1: CEO’s statement BI-2: Fundamental requirements of reporting BI-2-1: Organizations, periods and areas covered by the reporting BI-2-2: Boundary of the reporting organization and coverage of environmental impacts BI-3: Summary of the organization’s business (including management indices) BI-4: Outline of environmental reporting BI-4-1: List of major indicators BI-4-2: Summary of objectives, plans and results regarding environmental initiatives BI-5: Material balance of organizational activities (inputs, internal recycling, and outputs)

Management Performance Indicators is concerned with the policies, targets, plans, and the results of an organization’s environmental activities. The following 12 points should be included as management performance indicators, as shown in the Table 2.5.2-25)

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Table 2.5 Management performance indicators in environment report MP-1: Status of environmental management MP-1-1: Environmental policy in organizational activities MP-1-2: Status of environmental management systems MP-2: Status of compliance with environmental regulations MP-3: Environmental accounting information MP-4: Status of environmentally conscious investment or financing MP-5: Status of supply chain management for environmental conservation MP-6: Status of green purchasing or procurement MP-7: Status of research and development of new environmental technologies and DfE MP-8: Status of environmentally friendly transportation MP-9: Status of biodiversity conservation and sustainable use of biological resources MP-10: Status of environmental communication

In addition, measures should be mentioned in this section which reduces the environmental impacts in the upstream and downstream of the business, such as the reduction of negative environmental impacts by producing or selling products that cause less environmental impacts throughout their lifecycle. The following 10 items should be included as Operational Performance Indicators, as shown in the Table 2.62-25).

Table 2.6 Operational performance indicators in environment report OP-1: Total amount of energy input and reduction measures OP-2: Total amount of material input and reduction measures OP-3: Amount of water input and reduction measures OP-4: Amount of materials recycled within an organization’s operational area OP-5: Total amount of manufactured products or sales OP-6: Amount of greenhouse gas emissions and reduction measures OP-7: Air pollution, its environmental impacts on the living environment, and reduction measures OP-8: Amount of release and transfer of chemical substances, and reduction measures OP-9: Total amount of waste generation and final disposal and reduction measures OP-10: Total amount of water discharge and reduction measure

2) Survey of current status of environment report in China Under the requirement of Stock Exchanges, amount of environment report has increased sharply since 2006, became more than that of Japan, as shown in Fig 2.6. However, the quality of report is poorer. This study surveyed report of 5 big company and 20 general

2-11 Chapter 2 Development of Environment Management Strategy in Chinese Manufacturing companies as shown in Table 2.7. The content of environment report of China is smaller than report of Japan for big and general companies as shown in Fig 2.7, and report is lack of quantity description. Baosteel issued best environment report in this survey, but it still has a long way to run towards the perfect environment report issued by KAO Group of Japan.

Table 2.7 List of companies in survey China Japan Big company Haier ASAHI Baosteel SANYAN Sinopec SANYO Advancetex fashion garment manufactory SHARP Faw-volkswagen KAO General company Hainan robber group ASICS corporation Zhejiang NHU company, Ltd ADEKA Group ZTE Iodata Sun paper KYOTO Printing Group Danmao ITO HAM Yangor group ASAHI KASE Group Hebei Steel company AICHI STELL KWEICHOW MOUTAI CO., LTD ITO EN AUSTRALIA PTY. LIMITED Foxconn, AUO Toshiba , ULVAC, Inc. Lenovo Panasonic Changhong Alpine Electronics, Inc, DENDSAN Shantui, Jingwei textile machinery Co,Ltd. ISEKI & CO.,LTD Shenyang blower worker group Dongfeng motor, China FAW group, Akebono Brake Industry CO., AISIN , aisen aw Janagsu yangnong chemical group IDEMITSU Group Guangming group ITOKI Guangzhou Baiyunshan pharmaceutical , Pecking beilu Chugai Group pharmaceutical

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Japan China 1000 900 800 700

600

t 500 400 repor 300 200 100

0 Amount of environment report report or environment of Amount CSR

Fig 2.6 Comparison of development of environment report or CSR report In China2-26) and Japan2-27)

Japan China Kao 249 120

100

t Baosteel 80

60

40 Pages of Pages repor 20

0 Average of Average of big best one generals ones

Fig 2.7 Pages of environment report or CSR report in China and Japan

Fortunately, Guideline on Drafting on Corporate Environment Report was issued by Ministry of Environmental Protection of China in June, 2011, and came into force in October, 2011. The content of guideline is similar with Japanese environment guideline. This study compared the guideline system supporting≈ environment report of Japan and China as shown in Fig 2.82-25), we can find there is not environmental accounting guidelines and recording guidelines in China, it leas that Chinese environment report is lack of quantity description.

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Fig 2.8 Guideline system supporting environment report of Japan

2.2.4 Support and problem in enterprise value The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere who may also be considered as stakeholders. The concept of Corporate Social Responsibility (CSR) turned out to be a vital strategy for companies to survive in a ruthless market environment. Corporate Social Responsibility is more and more popular. Many countries issued the guideline of corporate social responsibility. Version 3 of the sustainability reporting of Global Reporting Initiative is a most widely used guideline, which was launched in 2006. It led to a dramatic increase in the number of sustainability reports produced by organizations. State Grid Corporation of China disclosed its first CSR report in 2005 which is also the first CSR report in the china CSR report history. Before this CSR report, the PetroChina Co. had issued the Health and Safety and Environment Report in 2002. Under promotion of government office and Share Exchange of Shanghai and Shenzhen, Chinese corporations are actively undertaking social responsibility. and Chinese CSR reports have been booming science 2008 as shown in Fig 2.6. According to one survey, among 1556 A-share listed companies, near to 400 companies disclosed CSR report in the first half year of 2009, taking about 25% of all A –share listed companies. By December, 2011, among top 500 listed companies, 125 companies was forced to disclose, 149 companies disclosed voluntarily CSR report, and 221 CSR reports are independent CSR report, 53 CSR report come out as a part of financial report.2-33)

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China also issued Guideline of CSR Report (CASS-CSR1.0）in December, 2009 and issued the CASS-CSR2.0 in March, 2011. On the other hand, Shenzhen Stock Exchange in 2006 and China Shanghai Stock Exchange in 2008 also issued respectively the regulations to require listed companies to disclose the corporate social responsibility information using the standalone CSR report or annual report. However, CSR performance of CSR is worrying. According to Corporate Social Responsibility Blue Book issued by Economics Division of China Academy of Social Sciences in 2011, about 70% enterprises are with score less than 20 in top 300 Chinese enterprises as shown in Fig 2.92-28).

8.67% 〜0：debtor 0〜20：Bystander 20〜40：Beginner 40〜60：Pursuer 59.70% 60〜80：Elite 80〜100：Leader

Fig 2.9 CSR Scoring of top 300 enterprises in China

In Japan, manufacturing issued about 70% CSR report of total report in 2012. 2-26) Compared to the CSR report of Japanese manufacturing, CSR report of Chinese manufacturing just took 46% of total report in 2012 2-27). Therefore CSR of Chinese Manufacturing still need be promoted as shown in Fig 2.10.

others Japan China manufacturing

Transportation industry constuction and estate 70% 45.9% Mining industry

Fig 2.10 Amount of CSR report of different industries in China and Japan

2.2.5 Promotion of green financing Green-credit policy begins in 2007 in China. Government required bank to credit money to environment friendly programme .Shanghai Stock exchanges developed SRI index.

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Meanwhile most provinces issued green credit policy; only Xinjiang, Tibet, Qinghai, Jiangxi and Jilin did not issued green credit policy by 2010,2-29) as shown in Fig 2.10, green provinces have issued green-credit policy.

Fig 2.10 Provinces with green-credit policy

However, green-credit increased slowly and just took a few part of total credit. The information record and disclosure of green credit of China Construction Bank is most overall. So this study take China Construction Bank as example2-30), as shown in Fig 2.11, China Construction Bank began to credit money to environment-friendly project in 2007, the green-credit just took 4% of total credit from 2007 to 2011.

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green credit other credit

6000

5000

4000 credit credit billion / - 3000

2000

1000

Balance green of Balance 0 2007 2008 2009 2010 2011

Fig 2.11 Green-credit of China Construction Bank

In china, Lack of unified assessment standards is one main reason of slow development of green credit.2-29) 2.3 Proposal for applying environmental strategy in China

2.3.1 Popular environment management tool 1) Eco design of product Under the promotion of government, and increasing of environment protection, many enterprises have realized the big opportunity of environment business. As important part of environment business, green product will bring benefit and reduce environment risk for enterprise. Many countries have developed eco regulation for product, and developed many method of eco design for example LCA. Chinese manufacturing is mainly taking charge of manufacturing, while multinational companies like Nike, Nikon and Apple Inc are mainly taking charge of product design. Therefore for Chinese manufacturing, it is important to know well about the requirement of eco design. 2) Material Flow Cost Accounting (MFCA) Environmental accounting bring environmental costs to the attention of corporate stakeholders who may be able and motivated to identify ways of reducing or avoiding those costs while at the same time improving environmental quality. Environmental management accounting is a subset of environmental accounting. Material Flow Cost Accounting is one of the environmental management accounting methods aimed to reduce both environmental impact and costs at the same time.2-31) MFCA was developed at the Institute of Management and the Environment Germany in the late 1990s and adopted widely in Japan. ISO 14051:2011 provides a general framework for material flow cost accounting (MFCA). Under MFCA, the flows and stocks of materials within an organization are traced and

2-17 Chapter 2 Development of Environment Management Strategy in Chinese Manufacturing quantified in physical units (e.g. mass, volume) and the costs associated with those material flows are also evaluated. The resulting information can act as a motivator for organizations and managers to seek opportunities to simultaneously generate financial benefits and reduce adverse environmental impacts. MFCA is applicable to any organization that uses materials and energy, regardless of their products, services, size, structure, location, and existing management and accounting systems. MFCA can be extended to other organizations in the supply chain, both upstream and downstream, thus helping to develop an integrated approach to improving material and energy efficiency in the supply chain. This extension can be beneficial because waste generation in an organization is often driven by the nature or quality of materials provided by a supplier, or the specification of the product requested by a customer. By definition, management accounting and environmental management accounting (EMA) focus on providing organizations with information for internal decision-making. MFCA, one of the major tools of EMA, also focuses on information for internal decision-making, and is intended to complement existing environmental management and management accounting practices. Although an organization can choose to include external costs in an MFCA analysis, external costs are outside the scope of ISO 14051:2011. The MFCA framework presented in ISO 14051:2011 includes common terminologies, objective and principles, fundamental elements, and implementation steps. However, detailed calculation procedures or information on techniques for improving material or energy efficiency are outside the scope of ISO 14051:2011. ISO 14051:2011 is not intended for the purpose of third party certification. 2) Socially Responsibility Investment Socially Responsibility Investment (SRI) is an important tool to promote the development of corporate social responsibility. Through knowing about the scope and history of SRI, we can know well about the current status of CSR. Socially Responsible Investment (SRI) describes an investment strategy of funds owned by individuals or institution, which seeks to maximize both financial return and social good. It is also known as sustainable investment, green investing, responsible investing, ESG (Environment, Social, and Governance) investing, mission-related investing or ethical investing.2-32) When socially responsible investors making investment decisions, they consider environment, social and governance aspects and give preference to the companies that cherish such values as sustainable development, environmental protection, consumer rights protection, human rights or biodiversity. The socially responsible investors encourage corporations indirectly to increase their commitment to such areas as environmental protection, corporate governance, and social good.

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The SRI is a booming market in the US and Europe. In recent year, the SRI became more and more accepted by the investor in other regions. Pursuant to the report published by EuroSIF in September 2010, the level of socially responsible investing assets globally is currently at the level of approx. 7 trillion euros, of which almost 5 trillion euros is invested in Europe, more than 2 trillion euros in USA. For the comparison sake, the value of SRI in 2008 was around 5 trillion euros, which implies almost 40 per cent increase over 2 years. The SRI is carried out by a wide variety of institutional investors, including public pension funds, faith-based investors, and socially responsible mutual funds. Up to now, the number of SRI funds has up to 879 in Europe, while this number is about 420 in Asia Pacific.

2.3.2 Proposal for applying environmental strategy Above all, we can find it is feasible to apply EMS in China. But because China is lack of support for eco design, mass of product is suffering recall. Environment report is lack of quantity description, it make environment report and CSR report is just a reaction of requirement of government, enterprise cannot benefit from environment data recording. On the other hand, CSR performance of enterprise is poor, enterprise did not take responsibility comprehensively. Enterprise value is not high; the problem in market responsibility, environment responsibility and social responsibility may take risk for sustainable development of enterprise. Corporate social responsibility converting into corporate financial performance needs social responsibility market and the good manner and strategy by which corporation undertakes corporate social responsibility. The booming of SRI in Chinese capital market will direct correctly flow of capital, and develop a health and booming market so than enterprise with better CSR performance can finance easily. As shown in Fig 2.12, we drew proposal for application of EMS in China.

Fig 2.12 Proposal of development of environment management strategy

This study establish database for eco design in Chapter 3, and implement MFCA in Chinese enterprise , construct CSR database and assessment CSR in the view point of SRI.

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2.4 Conclusion

Through survey and analysis above, it is found that Chinese enterprise is eager to carry out environment management system and produce environment conscious product, and Chinese government provided policy, regulation, financial support. Therefore, it is feasible to implement environment management strategy in China. However, China is still facing some problem. China still is lack of support of Eco design from policy and technology. The content of environment report is fewer and lack of quantity description. Green-credit developed slowly, and lack of unified assessment standards. The performance of CSR is still very low, and most manufacturing has not pay attention to take social responsibility. To promote the development of EMS in China, we need to establish eco design database, promote environment accounting in China, introduce activities of CSR to enterprise and investigate the assessment method of CSR to promote the green-credit or green investment.

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Reference

2-1) Bangsheng Luo, Corporate Environmental Management, Chongqing University publisher, 2005. 2-2) ISO 14000 essentialshttp://www.iso.org/iso/iso_14000_essentials 2-3) ZAIMI, Keiko, current status and investigation of support for environment management for small and medium-sized enterprise, Journal of Japan Association for Social and Economic System Studies, October 2010. 2-4) Benyue Zhang,et al, Investigation about Feasibility of MFCA Instruction to China base on Environment Management , 2012 2-5) Chinese Academy of Social Sciences, Blue Book of Corporate Social Responsibility 2011, 2011. 2-6) ISO Press Release, 2010. 2-7) ISO, ISO survey 2008, 2009, 2010. 2-8) ISO The ISO survey-2008, 2008. 2-9) ISO The ISO survey-2008, 2008 2-10) State Administration of Industry and Commerce , Development report of Chinese market entity, 2008 2-11) Statistics bureau of Japan, industry statistics table 2009, 2-12) Design for the Environment, http://www.epa.gov/dfe/pubs/about/index.htm 2-13) Life cycle analysis and assessment, World Resource Foundation, http://www.gdrc.org/uem/lca/life-cycle.html 2-14) Life Cycle Analysis, Environmental Literacy Council, http://www.enviroliteracy.org/subcategory.php/334.html. 2-15) U.S. Life Cycle Inventory Database, http://www.nrel.gov/lci/ 2-16) Canadian Raw Materials Database, http://crmd.uwaterloo.ca/ 2-17) The European Union’s European Reference Life Cycle Data System ELCD, http://lca.jrc.ec.europa.eu/lcainfohub/datasetCategories.vm 2-18) Nobuhiko Narita, Yoshifumi Nakahara, Mamoru Morimoto, Ryohsuke Aoki, Shigeru Suda, The LCA Data Library -A result of National LCA Project in Japan. http://lcacenter.org/InLCA-LCM03/Narita-abstract.pdf. 2-19) Korea National LCI Database, http://www.kncpc.re.kr/eng/topics/Lci.asp 2-20) Swedish National LCA database SPINE@CPM, http://publicdb.imi.chalmers.se/CommDB/. 2-21) LCA Food Database- Denmark, http://www.lcafood.dk/lcamodel.htm 2-22) Swiss National LCI Database EcoInvent, http://www.ecoinvent.ch/ 2-23) Guide for Material Flow Cost Accounting, Ministry of Economy, Trade and Industry, http://www.meti.go.jp/policy/eco_business/pdf/mfca%20guide20070822.pdf. 2-24) Environmental Key Performance Indicators-Reporting Guidelines for UK Business,

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Department for Environment, Food and Rural Affairs, 2006. 2-25) Ministry of Environment, government of Japan, Environmental Reporting Guidelines (Fiscal Year 2007 Version) 2-26) METI, Environment Report Plaza, 2012. 2-27) China Sustainability Reporting Resource Center, 2012. 2-28) Economics Division of China Academy of Social Sciences, Corporate Social Responsibility Blue Book, 2011. 2-29) Ministry of Environment Protection of China, Report of development of green-credit policy China, 2010 2-30) China Construction Bank, CSR report of China Construction Bank, 2010, 2011. 2-31) Guide for Material Flow Cost Accounting, Ministry of Economy, Trade and Industry, http://www.meti.go.jp/policy/eco_business/pdf/mfca%20guide20070822.pdf. 2-32) Bloomberg, Calvert, Sentinel Investments, TIAA-CREF (2009). Investment consultants and responsible investing, Proceedings of an social investment forum foundation. p1. 2-33) ZHOU, Zucheng, research report about CSR of top 500 listed company in China, March, 2012, http://news.dayoo.com/finance/201201/09/54401_105631858.htm

2-22

Chapter 3

Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing

Content

3.1 Research background and purpose ...... 3-1 3.2 Investigation of Japanese and Chinese environment law and regulation system ...... 3-4 3.2.1 Instruction of environmental law system and history in China ...... 3-4 3.2.2 Comparison of Japanese and Chinese environment law and regulation ...... 3-13 3.3 Analysis of Legislation risk on Chinese manufacturing ...... 3-25 3.3.1 Identification of risk weighting of environment regulation ...... 3-25 3.3.2 Forecast of legislation risk for sectors of manufacturing ...... 3-31 3.4 Investigation of environment standardization in world ...... 3-33 3.4.1 Importance of knowing well about the global environment standards ...... 3-33 3.4.2 Main environment standards affecting manufacturing in the world ...... 3-39 3.4.3 Influence of environment standardization to Chinese manufacturing ...... 3-45 3.5 Database construction responding to global environmental standards for Chinese export...... 3-46 3.5.1 Construction of database of eco design ...... 3-46 3.5.2 Application of database for export manufacturing ...... 3-47 3.6 Conclusion...... 3-48 Reference ...... 3-50

Figure

Fig 3.1 Trend of environment accident and economic loss in China ...... 3-2 Fig 3.2 Amount of laws enacted or revised in different period ...... 3-2 Fig 3.3 Study purpose of chapter 3 ...... 3-4 Fig 3.4 Environmental law system in China ...... 3-6 Fig 3.5 Location map of cancer village ...... 3-22 Fig 3.6 Average concentration of PM 2.5 from 200 to 2006 in world ...... 3-27 Fig 3.7 Matrix analysis of EP & LP and risk weighting ...... 3-31 Fig 3.8 Total risk score of sectors ...... 3-33 Fig 3.9 Main export nation and amount of China from 2007 to 2011 ...... 3-34 Fig 3.10 Main area and amount of Chinese export from 2007 to 2011 ...... 3-34 Fig 3.11 Total export to these nations from 2007-2011 ...... 3-35 Fig 3.12 Export as share of China GDP ...... 3-35 Fig 3.13 Exchange rate of RMB/ USD ...... 3-36 Fig 3.14 Recalls of Chinese product by the U.S from 2000-2010 ...... 3-36 Fig 3.15 Total of recalls of different nations by U.S from 2000-2010 ...... 3-37 Fig 3.16 Recalls original different nations from 2005 to February 2012 by EU ...... 3-38 Fig 3.17 Product recalls origin of China by EU from 2005-2011 ...... 3-38 Fig 3.18 Main danger of recalled product by RAPEX ...... 3-39 Fig 3.19 Average export share of SMEs from 2003-2005 ...... 3-46 Fig 3.20 Image of content of database ...... 3-47 Fig 3.21 Requirement of PC export...... 3-47

Table

Table 3.1 Accidents reported to government in China and Japan ...... 3-1 Table 3.2 Comparison of bills on air and noise ...... 3-14 Table 3.3 Comparison of law and regulation about Water & Soil & Ground Environment ...... 3-16 Table 3.4 Comparison of law and regulation about waste and recycling...... 3-17 Table 3.5 Comparison of law and regulation about health and chemicals ...... 3-21 Table 3.6 Comparison of law and regulation about nature & resource ...... 3-24 Table 3.7 Comparison of environment policy in both countries ...... 3-25 Table 3.8 Main laws in the future ...... 3-25 Table 3.9 Rank explanation of environment pollution and legislation process ...... 3-26 Table 3.10 Assessment of environment legislative risk for China ...... 3-30 Table 3.11 Environment pollution coefficient of sectors in manufacturing ...... 3-31 Table 3.12 Evaluation basis of regulation of pollutant on sectors...... 3-32 Table 3.13 Evaluation basis of regulation on sectors ...... 3-32 Table 3.14 Explanation of REACH ...... 3-41 Table 3.15 Restriction substance and categories apply ...... 3-42 Table 3.16 Requirement of RoHS of nations ...... 3-43

Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing

3.1 Research background and purpose

In the past few years, the environment situation in China remains fundamentally stable. The environmental laws are made in time. The trend of fast growth of pollutant emission has been initiatively slowed down and the ecological conservation has been strengthened, and the public environmental awareness has been increasing. 3-1) Meanwhile, Chinese severe resource condition, the national strategy of sustainable development and the pressure of abroad competitiveness require the enterprise to take the environment factors into account. Chinese businesses are increasingly confident in adopting process standards. Mass Chinese enterprises got the ISO 14000 certification. Eleven Chinese companies now disclose their carbon emissions to the global Carbon Disclosure project. 1,161 Chinese companies in total: 879 in mainland China, 248 in Hong Kong, and 34 in Taiwan have adopted the Forest Stewardship Council (FSC) Principles and Criteria by 2009. By September 2009, among the members of UN Global Compact, 212 members are in China, including 185 enterprise members. More and more corporation is eager to disclose their environmental information to establish environmental friendly enterprise image and enhance the competitiveness. To promote enterprise taking environment responsibility, The Ministry of Environmental Protection of China had issue the Consultation draft of Environmental Information Disclosure of Listed Company in 2010 to require the listed company in A-share market of Shanghai and Shenzhen Exchanges to disclose the environment reports. And, the Guideline on Drafting on Corporate Environment Report was issued by the Ministry of Environmental Protection of China in June, 2011, and came into force in October, 2011. From 2000 to now, Chinese environment accident is decreasing but the economic loss is not decreasing, as shown in Fig 3.13-2). Moreover, with increasing awareness of the environment, the environment pollution dispute is increasing in recent years. Comparing to the statistics data of Japanese Statistics Bureau, we can find the environmental pollution accident in Japan is much more than in China shown in the Table 3.1. It is unimaginable. This paper will investigate the reason.

Table 3.1 Accidents reported to government in China3-2) and Japan3-3) Year China Japan 2000 2411 63782 2005 1406 66992 2006 842 67415 2007 462 64529 2008 474 59703

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Environment accidents Economic loss

2500 400

2000 320 yuan

t t 1500 240 uni 1000 160

500 80

Environmental accidents/ accidents/ Environmental 0 0 Economic loss million / Economic

Fig 3.1 Trend of environment accident and economic loss in China

The operation of enterprise is affected by the regulation of government. The potential environmental legislation will bring risk for manufacturing. Meanwhile, China speed up environmental legislation in last ten years, content of different period is different as shown in Fig 3.23-4). Enterprise should predict environmental legislative law and response it timely. Japan have a comprehensive environmental law system, it is also a main benchmark from which China learned. Therefore, it paper will compared the environmental law system of both countries. And then combining the situation of China, this paper will assess environmental risk for manufacturing.

act cabinet order ministerial ordinance 60

50

40 30 20 revised revised unit / 10

0 Amount of laws enacted enacted laws of Amount or 1979-1989 1990-2000 2001-2011

Fig 3.2 Amount of laws enacted or revised in different period

With the development of economic globalization, to protect limited resources, ecological environment and human health, a state will develop stringent environmental protection standards to limit the import of foreign goods. It is all called as the green barrier. The

3-2 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing manufacturing will be affected by the global standards and requirement. If the products do not meet the requirement of other nations, it will face the risk of recalls as shown above. Forms of green barrier are various. Generally speaking, the forms of green barrier mainly the following3-5)： A. Green tariffs and market access For the protection of the environment and ecology, nation may surcharge on imports, or restrict, prohibit their imports of the product, or even trade sanctions on its approach. B. Green packaging and labeling requirements Some countries in the packaging provisions of the domestic market sales of goods, including text on packing materials, packing, packing instructions, there is also a green labeling regulations. Imports must meet these requirements to be imported. So-called green labeling requirements are imported commodities "Green Passport", it is a printing graphics or logos on the goods or their packaging, is managed by the importing country related departments according to strict environmental standards for approval and issue to the manufacturer. C. Green technology standards Some developed country develop extremely demanding technical standards, production process did not meet the standards in respect of imported goods are import restrictions or prohibition of imports. D. Green health inspection system In recent years, with the spread of global diseases and the trade war intensifies, more and more attention to hygiene inspection of imported goods in many countries, hygienic examination of some countries an excuse to restrict the import of goods. Request for inspection of goods in these countries more and more, tests are also becoming more stringent, not only increased the cost of inspection of imported goods, and restricting the entry of a number of commodities. Testing early mainly for agricultural products such as 666, DDT residue, now requires testing of radioactive pollution, such as PCBs and dioxins, and shall not exceed the residue parts per million. Developed capitalist countries on peanuts and afflation inspection products, elements such as lead, arsenic inspection on cosmetics, and toys for lead, mercury, ceramic products and inspection, the meat is hormone technical inspection, and so on. These years also found dioxin residues in chicken in the world, plus the global spread of mad cow disease, avian flu, the H1N1 virus, which are strengthened in all countries on the import of meat inspection, or even prohibit meat import source country. As Fig 3.3 shown, this study will investigate domestic and global environment regulations, assessed legislative risk for manufacturing, and constructed database of global environment standards.

3-3 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing

Fig 3.3 Study purpose of chapter 3

3.2 Investigation of Japanese and Chinese environment law and regulation system

3.2.1 Instruction of environmental law system and history in China 1) The three phases of environment legislation The development of environmental law can be divided into three phases. Phase 1, the environment legislation of this phase focus on pollution prevention such as "end-of-pipe treatment". This kind law aimed at treatment of pollution Phase 2, after undergoing the malpractice of environmental pollution prevention, people summarize experience and begin to emphasize on controlling of whole of production process. The Cleaner Production Promotion Law enforced in 2003 is the one representative laws of this phase. Phase 3, the representative law of this phase is the recycling economic law. The laws of this phase focus on the sustainable development of society, it stand at the viewpoint of closed loop of ecosystem, required the harmony development of environment, resource, people and society. The phase 1 of China began of Suggestion about Environment Protection and Improvement in 1973. The phase 2 began of the enforcement of Cleaner Production Promotion Law in 2003. The phase 3 began of the Eleventh Five-Year Program for National Economy and Social Development in 2006. 2) The content and development history of Chinese environmental law

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The environmental laws of China include the environment protection laws and resource law. The foundation of all of environment protection laws and regulations are the Constitution of the People's Republic of China, requires that "the state protects and improves the environment in which people live and the ecological environment. It prevents and controls pollution and other public nuisance."3-6)3-4) This provision mandates environmental protection as a specific constitutional component and one of the important responsibilities of the state. Since this declaration, environmental protection legislation in China has been consistently developing. Besides of the Constitution of the People's Republic of China, the core environment protection law is the Environmental Protection Law, this law contains the seeds of most of the environmental laws introduced since 1979. To objectify the Constitution law and Environment Protection Law, the environmental protection special law was enacted to protect the specific objectives like the air, water, soil and so on. Up to January 2012, there are 30 environmental laws in China. Administration regulations of environment protection is issued by the State Council to explain law, set the provisions of administrative process and cover the shortage of Constitution law and Environment Protection Law. Up to January 2012, there are 40 administration regulations. The environmental protection department regulations are made by the administration department, there are 75 Ministerial Ordinance. Besides of these laws and regulations, there are local regulations and rules which cannot conflict with the laws and administration regulations, and the Environmental protection international convention. On the other hand, the environmental law system includes the 983 environment standards which provide the specific provision for the enforcement of laws and regulations, including the environment quality standard, pollutant emission standard, environment foundation standard and the method standard and environmental sample standard. The environment quality standard is to identify whether environment has been polluted, the pollutant emission standard is to identify whether emission is legal, environment foundation standard is to identify whether the evidence is legal in the environment dispute. The environment sample standard is to calibrate the environmental monitoring instruments and performance of environment protection equipment. The environmental law system is shown in the figure 3.4.

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Fig 3.4 Environmental law system in China

The foundational environmental law in China is, logically enough, the Environmental Protection Law. It was first enacted on a trial basis in 1979 and amended and reenacted, without the "trial" designation, in 1989. This law contains the seeds of most of the environmental laws introduced since 1979. Following closely on the heels of the Environmental Protection Law were a set of laws that established an environmental regulatory structure for China that is media-specific, end-of-pipe (it controls the discharge of pollutants rather than their creation) and command-and-control, meaning it relies on administrative enforcement of environmental-performance standards. Water, air, solid and hazardous wastes and noise pollution were each addressed by separate laws. On August 23, 1982, the National People's Congress (NPC) Standing Committee adopted the Law on Marine Environmental Protection of the People's Republic of China.3-7) The NPC Standing Committee later amended this law on December 25, 1999. 3-7) Its purpose is to "protect the marine environment and resources, prevent pollution damage, maintain ecological balance, safeguard human health and promote the development of marine programmes." 3-7) This law also provides for the formulation and submission of environmental impact statements for coastal construction projects. 3-7) Article Five establishes state authority to be in charge of the implementation of this law.3-7) Pollution prevention efforts are particularly applied to: coastal construction projects; offshore oil exploration and exploitation; land-source pollutants; discharge of oils, oil mixtures, wastes and other harmful substances into the sea by vessels; and dumping of wastes into the sea. 3-7) On May 11, 1984, the NPC Standing Committee adopted the Law on the Prevention of Water Pollution of the People's Republic of China.3-8) The NPC Standing Committee later amended it for two times and came into force in June 1, 2008. The purpose of this law is "to prevent and control water pollution, protect and improve the environment, ensure people's health, guarantee the effectively utilization of the water resource, promote the development of the modernized socialism construction."3-8) The law applies to the pollution prevention and

3-6 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing control of groundwater and surface water body including rivers, lakes, channels, canals, and reservoirs of the People's Republic of China.3-8) However, it does not extend to the sea area.3-8) The law provides that such water protection should be incorporated into the working plan of the State Council and people's government of each level.3-8) Additionally, the water pollution prevention and control countermeasures and actions should be adopted.3-8) This law also establishes that that environment protection department of the State Council should establish water environment quality standards3-8). In 2008, the law on the Prevention of Water Pollution revised enlarged the responsibility of local government. And the new law required the enterprise which emitted pollutant into water directly and indirectly need get permission of emission. On September 5, 1987, the NPC Standing Committee adopted the Law on the Prevention and Control of Atmospheric Pollution of the People's Republic of China, which was amended on August 29, 1995 and then April 29, 20003-9). Article One provides, "this Law is formulated for the purpose of preventing and controlling atmospheric pollution, protecting and improving people's environment and the ecological environment, safeguarding human health, and promoting the sustainable development of the economy and society." 3-9)Article Two establishes that the State Council and the local people's governments shall: incorporate the protection of the atmospheric environment into the national economic and social development plans, make rational plans for the geographical distribution of industry, improve scientific research in the prevention and control of atmospheric pollution, and adopt measures to prevent and control atmospheric pollution. 3-9) Additionally, the State, as provided in Article Three, is to take "measures to control or gradually reduce, in a planned way, the total amount of the major atmospheric pollutants discharged in different areas."3-9) Article Six stipulates that the administrative department for environmental protection under the State Council shall establish the national standards for atmospheric environment quality. 3-9) Additionally, Article 46 establishes legal liability for any unit or individual that violates the law, depending on the circumstances of the particular case. 3-9) On October 30, 1995, the NPC Standing Committee adopted the Law on the Prevention and Control of Environmental Pollution by Solid Waste of the People's Republic of China3-10). The law went into effect on April 1, 1996, and was later amended by the NPC Standing Committee on December 29, 20043-10). While this law provided fairly comprehensive provisions for controlling pollution in the production process, it came up short with regards to the recycling and disposal of used products and packages3-10). In response, the revised law created a system of extended producer responsibility which stipulates that "the central government will carry out the compelling recovery system for part of products and packing, and the administrative department of the State council will establish the catalogue and methods."3-10) The law also outlines the duties of the solid waste producer when separation, M&A, property transfer, withdrawal, dissolution, and bankruptcy occur3-10). Additionally, the

3-7 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing revision promotes sustainable development and the need for a "circular economy by focusing "on the principles that polluters should take charge in accordance with the law and organizations and individuals should be encourage to pay attention to the concept of recycling." 3-10) On October 29, 1996, the NPC Standing Committee adopted the Law on Prevention and Control of Pollution from Environmental Noise of the People's Republic of China, which went into effect on March 1, 19973-11). The purpose of the law is to prevent and control environmental noise pollution, protect and improve the living environment, ensure human health, and promote economic and social development.3-11) This law defines environmental noise pollution as noise which exceeds the environmental noise emitted limits set by the State and impairs people's daily life, work, and study.3-11) Article Five provides "local people's governments at various levels shall, when drawing up urban and rural development plans, give full consideration to the impact of noise emitted by construction projects and regional development and renovation projects on the living environment of the neighborhood, make unified plans and rationally arrange the layout of the function areas and the buildings, in order to prevent or minimize environmental noise pollution."3-11) This law establishes prevention and control measures specifically for noise resulting from industry, construction, traffic, and social activities.3-11) On June 28, 2003, the NPC Standing Committee adopted the Law on the Prevention and Control of Radiation Pollution of the People's Republic of China, which went into effect on October 1, 20033-12).The purpose of this law is to prevent and control radioactive pollution, protect the environment, ensure human health, and promote the development and peaceful use of nuclear energy and technology.3-12)The law establishes pollution and control measures for "radioactive pollution discharged in the course of site selection, construction, operation, and decommissioning of nuclear installations and in the cause of development and utilization of nuclear technology, uranium (thorium) and accompanying radioactive mines in the territory of the People's Republic of China and in the territorial waters under its jurisdiction."3-12) Article Three presents an important aspect of this law as it stipulates that, when concerning the prevention and control of radioactive pollution, the State should apply the principles of putting prevention first, combine prevention and control measures, exercise rigorous control, and give priority to safety.3-12) On September 20, 1984, the NPC Standing Committee adopted the Forest Law of the People's Republic of China, which was amended on April 29, 19983-13). This law was formulated to: protect, nurture, and rationally utilize the forest resources, speed up the greening of the country's territory, bring into play the roles of the forest in terms of storing water, saving soil, adjusting the climate, improve the environment, and supply forest products. The law applies to the conduct of forest and forest tree cultivating, planting, logging and utilization, and in the operation and management of forests, trees and woodlands. 3-13)Article

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Four divides the forests into five categories: protection forests, timber stands, economic forests, firewood forests, and special use forests, which includes environmental protection forests. 3-13)The law also provides certain protective measures for the forest resources including: a quota on forest cutting and the encouragement of forest planting in order to expand the area of forest coverage; economic support or long-term loans to the collectives and private individuals who plant and cultivate forests according to relevant stipulations of the central and local people's governments; comprehensive utilization and saving on the use of timber and encouragement of the development and utilization of timber substitutes; forest cultivate levies used exclusively for forest planning and cultivation purposes; ensuring that coal and paper sectors shall apportion out of their output of coal, pulp, and paper a certain amount of funds to be used exclusively for the nurturing of mine timber and timber for paper making; and a forestry fund system. 3-13) On June 18, 1985, the NPC Standing Committee adopted the Grass Land Law of the People's Republic of China, which was amended on December 28, 2002 and then went into effect on March 1, 20033-14). The purpose of the law is to protect, develop and make rational use of grasslands, improve the ecological environment, maintain the diversity of living things, modernize animal husbandry, and promote the sustainable development of the economy and society. 3-14) The law establishes provisions for activities pertaining to grassland planning, protection, development, use, and management. 3-14) Article Three stipulates, "the State applies the principles of scientific planning, all-round protection, giving priority to the development of key grasslands, and rational use, in order to promote the sustainable use of grasslands and the harmonious development of the ecology, economy and society."3-14) On January 20, 1986 the NPC Standing Committee adopted the Fishery Law of the People's Republic of China3-15). The purpose of this law is: (1) to enhance the protection of fishery resources, (2) increase the of development and reasonable utilization of fishery resources, (3) develop artificial cultivation, (4) protect fishery workers' lawful rights and interests, and (5) boost fishery production. 3-15) On June 25, 1986, the NPC Standing Committee adopted the Law of Land Administration of the People's Republic of China, which was amended on August 29, 1998 by NPC and then went into effect on January 1, 19993-15). In following the constitutional provisions of the People's Republic of China, the purpose of this law is: (1) to strengthen land administration, (2) maintain the socialist public ownership of land, (3) protect and develop land resources, (4) make proper use of land, (5) effectively protect cultivated land, and (6) promote sustainable development of the society and economy. 3-16) Under Article Four, the State formulates overall plans for land utilization. 3-16) Such plans define the purposes of use of land and classify land into three categories: (1) land for agriculture, (2) land for construction, and (3) unused land. In addition, the State "shall rigidly restrict conversion of land for agriculture to land for

3-9 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing construction, keep the total area of the land for construction under control, and give special protection to cultivated land." 3-16) On January 21, 1988, the NPC Standing Committee adopted the Water Law of the People's Republic of China, which was amended on August 29, 2002 by NPC and then went into effect on October 1, 20023-17). The law was formulated to promote "the rational development, utilization, preservation, and protection of water, for the prevention and control of water disasters, and for the sustainable utilization of water resources." In addition, water resources shall be owned by the State. 3-17) Article Four provides that the development, utilization, preservation, and protection of water resources and the prevention and control of water disasters shall be carried out through comprehensive planning. 3-17)Such "planning shall seek both a temporary solution and a permanent cure, with emphasis on multipurpose use and achieving maximum benefits to take advantage of the multiple functions of water resources and harmonize water use in production and the environment."3-17) On August 29, 1996, the NPC Standing Committee adopted the Mineral Resources Law of the People's Republic of China, which went into effect on October 1, 19963-18). This law was enacted to develop the mining industry and promote the exploration, development, utilization, and protection of mineral resources. 3-18) Mineral resources belong to the State. As such, those seeking to explore or mine mineral resources shall separately make an application according to the law and shall register after obtaining the right of exploration or mining upon approval. 3-18) The State protects the right of exploration, mining from encroachment, and the order of production and other work in the mining and exploration areas from interference and disruption. In addition, the State applies the principles of unified planning, rational geographical distribution, multi-purpose exploration, rational mining and multi-purpose utilization.3-18) On June 29, 1991, the NPC Standing Committee adopted the Law of the People's Republic of China on Water and Soil Conservation3-19).This law was enacted to prevent and control soil erosion, protect and rationally utilize water and soil resources, mitigate disasters of flood, drought and sandstorm, and improve the ecological environment and the development of production. Article Four provides, "the state shall, in relation to the work of water and soil conservation, implement the policy of prevention first, overall planning, comprehensive prevention and control, adoption of measures suited to local conditions, strengthening management and stress on beneficial results." 3-19) On January 8, 1988, the NPC Standing Committee adopted the Law of the People's Republic of China on the Protection of Wildlife, which went into effect on March 1, 1989. The purpose of this law is to protect and save rare or near extinct species of wildlife, to protect, develop and rationally utilize wildlife resources, and to maintain ecological balances. 3-20)

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Flood Control of The People's Republic of China came into force in August 29, 1997. For the prevention and control of flood in rivers, measures should be taken to protect and expand the coverage of forest, grass and other vegetation in river basins, conserve water resources and intensify the comprehensive control of water and soil conservation in river basins. Cleaner Production Promotion Law of the People's Republic of China approved by the Standing Committee of the National People's Congress (NPC) of the People's Republic of China in the 28th Session on June 29, 2002 and came into force in January 1, 2003. Cleaner production as used in this Law means the continuous application of measures for design improvement, utilization of clean energy and raw materials, the implementation of advanced processes, technologies and equipment, improvement of management and comprehensive utilization of resources to reduce pollution at source, enhance the rates of resource utilization efficiency, reduce or avoid pollution generation and discharge in the course of production, provision of services and product use, so as to decrease harm to the health of human beings and the environment. 3-21) this law draw specific articles on the realization, Implementation of cleaner production, Legal Liability and Inducement Measures. The State Council shall formulate fiscal and tax policies conducive to the implementation of cleaner production. Guidance catalogues on cleaner production technologies, processes, equipment and products will be release periodically. The relevant administrative departments shall organize the compilation of industry- or region-specific cleaner production guidelines or technical manuals illustrating methods for the implementation of cleaner production. The nation shall implement a time-limited system for the elimination of obsolete or obsolescent production technologies, processes, equipment and products gravely hazardous to environments and wasteful of resources. The relevant administrative departments responsible for education under the State Council shall integrate relevant courses of study on cleaner production technologies and management into higher education, professional education and technical training programs. 3-21) Governments at all levels shall give priority to purchase products conducive to energy and water conservation, waste reuse, environmental protection and resource conservation.3-21) When products and packaging are designed, their influences on mankind and natural environments during their life-cycle must be considered and priority accorded to selecting toxin-free, non-hazardous, easily degraded and easily recycled options.3-21) Environmental Impact Assessment Law (EIA Law) came into force on September 1, 2003. EIA law requires an environmental impact assessment to be completed prior to project construction. This law gave regulation on evaluation of environmental effects of plans and construction projects. When making arrangements for formulating plans for the utilization of land for construction in or development and utilization of certain areas river basins and sea areas, the relevant departments under the state Council，local people's governments at or above the level of the city divided into districts and the relevant departments under them shall

3-11 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing see to it that environmental effects are evaluated in the process of formulation and that in the plan is devoted to such effects a chapter or an explanation on the effects is given. The written report on the environmental effects of a special plan shall include the following： a. An analyses， prediction and assessment of the possible effects on the environment produced after implementation of the plan； b. Ways and measures for prevention or mitigating adverse environmental effects； and c. Conclusion on the evaluation of environmental effects.3-22) The state practices classified management over the appraisals of the environmental impacts of construction projects according to the seriousness of the impacts. The construction entities shall work out the report of environmental impacts, the report form of environmental impacts or the registration form of environmental impacts (hereafter "environmental impact appraisal documents") according to the following principles3-22): a. If the environmental impacts may be significant, it shall work out a report of environmental impacts so as to include an all-round appraisal of the environmental impacts; b. If the environment impacts may be gentle, it shall work out a report form of environmental impacts so as to include an analysis or special appraisal of the environmental impacts; c. If environment impacts may be very small so that it is not necessary to conduct an appraisal of the environmental impacts, it shall fill in a registration form of the environmental impacts. Evaluation of environmental effects mentioned in this Law consists of the analysis， prediction and assessment made of the possible environmental effects after implementation of plans and completion of construction projects, ways put forth and measures for preventing or mitigating the adverse effects on the environment， and the methods and systems applied for follow-up monitoring.3-22) The Law reaffirms the three different levels of "EIA documents" related criteria previously specified in the 1998 Regulations. Where a construction project’s potential impact is major, an environmental impact report is required, together with a comprehensive assessment of the resulting environmental impact. Where the potential impact is light, an environmental impact report form is sufficient, containing an analysis or special assessment of the resulting environmental impact. Where the potential impact is very small, filing of an environmental impact registration form is sufficient.3-22) The Law requires government plans to undergo varying types of EIA, some of which are subject to comments by experts, by concerned units and by the public. Circular Economy Promotion Law of the People's Republic of China became effective on January 1, 2009. This law listed the specific regulations on the decrement, recycling and resource recovery. The Clean Production Law and Circular Economy Law were products of this focus on stopping the creation – not just the discharge – of pollutants. Broadly speaking, these laws impose obligations to make products in a cleaner, more efficient way, by using less hazardous raw materials, energy and water, and producing fewer toxic wastes.

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Some of China’s more recent regulatory schemes (none of which has taken the form of a national law) have sprung up in reaction to regulations enacted elsewhere, particularly in the European Union. And so there is a China REACH to regulate new chemical substances, a China RoHS to restrict hazardous substances in IT equipment and a China WEEE to address the recycling and disposal of electrical and electronic waste. However, these names, while convenient short hands, suggest closer parallels between the European and Chinese regulatory approaches than in fact exists.

3.2.2 Comparison of Japanese and Chinese environment law and regulation 1) The comparison of bills on the air and noise In the air and noise pollution control, both countries have enacted the Noise Regulation Law, Air Pollution Control Law and regulation about the Offensive Odor Control. Japan has more specific legislation in noise pollution control. For example, Japan has enacted Law concerning the Prevention of Damage caused by Aircraft Noise in Areas around Public Airports and Law relating to Special Arrangements for Countermeasures against Aircraft Noise around Specified Airports. China just set the high limit of noise in airport. On the other hand, Japan has issued the Vibration Regulation Law to preserve living environment and contribute to protection of the people's health by regulating vibration generated by the operation of factories and other types of work sites as well as construction work affecting a considerable area, and by providing for requests regarding road traffic vibration3-23). China has not issued relative specific law, it just mentioned in the Environment Protection Law that producer must adopt effective measures to prevent and control the pollution and harms caused to the environment by vibration, and enforced the standards of environmental vibration in urban area in September 1989. In odor pollution control, china has not issued any law of offensive odor control. Just to implement the Atmospheric Pollution prevention and control, china issued the Emission Standard for Odor Pollutants, in this standard, the 8 odor substances and measurement of odor pollutant are regulated, while Japan regulated 22 odor substance. Japan is the first country which legislated for odor. Japan enacted the Offensive Odor Control Law in1971, and then enacted the Offensive Odor Control Law, Cabinet Order for Offensive Odor Control Law and Ordinance of the Prime Minister's Office for Offensive Odor Control Law, Measurement Method of Specified Offensive Odor Substances, and Calculation Method of Odor Index and Odor Intensity. It has established an integral system of odor control. According to the Annual Report of Chinese Motor Vehicle Emission Pollution in 2011, China has been the top one of automobile production and sale for two years since 2009, the environment pollution caused by the motor vehicle emission became more and more. Up to now, the specified law focus on the motor vehicle emission has not been enacted. But for implementation of Atmospheric Pollution prevention and control, the hazardous material control standards for motor vehicle gasoline(IV, V) and diesel (IV, V) are been in force. In

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Japan, the Law Concerning Special Measures for Total Emission Reduction of Nitrogen Oxides from Automobiles in Specified Areas is to clarify the responsibilities of the national government, local government, enterprises, and citizens towards preventing such pollution China also enacted the pollution control of Motor Vehicles emission. At the same time, with regard to specific areas in which such pollution is most severe, the law also sets forth the fundamental policies and plans for reducing the total volume of automobile emitted nitrogen oxide, establishes nitrogen oxides emission standards for specific automobiles which are registered in those areas, and employs necessary measures for restricting the amount of nitrogen oxides emissions resulting from use of automobiles for business activities, in order to achieve environmental quality standards for air pollution caused by nitrogen dioxide, combined with the measures based on the Air Pollution Control Law (Law No.97 of 1968) and others and therefore protect the health of the citizens and provide a secure living environment.3-24) On the other hand, Japan also enacted the regulation of emission from Non-road motor vehicle.

Table 3.2 Comparison of bills on air and noise China Japan  Atmospheric Pollution prevention and control  Air Pollution Control Law  Law on Prevention and Control of Pollution from  Noise Regulation Law Environmental Noise  No  Offensive Odor Control Law  Standards of environmental vibration in urban area  Vibration Regulation Law  No  Studded Tires Regulation Law  No  The Law Concerning Special Measures for Total Emission Reduction of Nitrogen Oxides from Automobiles in Specified Areas  No  Act on Regulation, Etc. of Emissions from Non-road Special Motor Vehicles

2) The comparison of law and regulation about Water & Soil & Ground Environment In japan, the acts relative to soil are Agricultural Land Soil Pollution Prevention Law, Soil Contamination Countermeasures Act. In China, the population increased in high speed after 1949, mass of forest was cut down, too much domestic animal was feed in grass land, vegetation was destroyed, and hill was reclaimed to be land for food. All these acts leaded to the water and soil erosion. Severe desertification drew attention of people, therefore, the legislation about soil focused mainly on the prevention of water and soil erosion. Law of the People's Republic of China on Water and Soil Conservation enacted in 1991, agricultural law enacted in 1993, Grass Land Law of the People's Republic of China enacted in 1985 and amended in 2002 and the Preventing sand law of the People's Republic of China enforced in 2002 drew articles so as to protect soil and prevent soil desertification. As a result, the soil desertification prevention has been making progress. However, about the soil pollution, there is few specified law or regulation. However, in the recent years, the soil pollution in China

3-14 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing became severe, the soil pollution survey is being carried out but the report has not been finished. Nobody can confirm the data of soil pollution. But it is no doubt that Chinese soil is suffering severe pollution through the lead poisoning in Fengxia of Shanxi province, the cadmium poisoning in Liuya of Hunan province, Deyang of Sichuan province and Suchang of Zhejiang province, the arsenic pollution in the Linyi of Shandong province and so on. In the Suggestion about the soil pollution prevention issued by the environment ministry in 2008, the law system of soil pollution control was expected to be established by 2015. The Soil Contamination Countermeasures Act and Agricultural Land Soil Pollution Prevention Law will be helpful for the Chinese legislation of soil pollution control. The purpose of Soil Contamination Countermeasures Act is to facilitate the implementation of counter-measures against soil contamination by formulating measures to apprehend situations of soil contamination by Designated Hazardous Substances and measures for the prevention of harmful effects on human health by such contamination, and thereby to protect the health of the citizens.3-25) Designated Hazardous Substance as used in this Act means any substance, including but not limited to lead, arsenic, trichloroethylene, and like substances (but excluding radioactive substances), which is designated by the Cabinet Order as being likely to bring harmful effects on human health because of the existence of such substance in soil. In the water pollution, the water pollution control refers to the underground water, lake, river and sea. Both countries have acted the Water Pollution Control Law. In the past, China mainly focused on the surface water and issued a lot of law and regulation about the sea, lake and river but ignored the protection of underground water. There is not any law to protect the underground water by 2011. Chinese underground water level has been descending seriously, and the underground water was polluted by the heavy metal and Toxic organic. According to one underground water survey, 90% underground water was polluted and 64% cities are polluted severely and the groundwater withdrawal was increasing by 2.5 billion per year by 2009.3-26) However, this situation has drawn attention Of China, the Environment Ministry has issued the Plan of Underground Water Pollution Control in October 2011. This plan introduced the situation of underground water pollution and set work goal in the future. Fortunately, some cities like Kunming, Yinchuang have enacted some local law to protect underground water.

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Table 3.3 Comparison of law and regulation about Water & Soil & Ground Environment China Japan  Law of the People's Republic of China on Water and  Agricultural Land Soil Pollution Prevention Soil Conservation Law  Preventing sand law of the People's Republic of China  Soil Contamination Countermeasures Act agricultural law  Pesticide forbid law  Water Pollution Control Law  Water Pollution PreventionControl Law  management regulations of Water intake permission  Hot Springs Law and water resources fee collection  Law concerning the Regulation of Pumping-up of Groundwater for use in Buildings  Law on Marine Environmental Protection  Law relating to the Prevention of Marine  Flood Control law Pollution and Maritime Disaster  Management method of Marine environmental  Law concerning Special Measures for the pollution prevention and control by Vessels Rejuvenation of Ariake Sea and Yatsushiro  Administrative Rules of Waste-dumping to the Ocean Sea of the P.C.C.  Law concerning Special Measures for  The Regulations Concerning the Prevention and Cure Conservation of the Environment of the Seto of Pollution Damage of Marine Environment by Inland Sea Pollutants from Land  Law for Reparation and Compensation of  Management regulations of marine environment Damage by Oil Pollution protection control by coastal engineering construction project administration law of Sea area use  Taihu lake basin management regulations  Law concerning Special Measures for the  The interim regulations of the huaihe river water Conservation of Lake Water Quality pollution prevention and control  No  Johkasoh Law  No  Law concerning Special Measures for Water Quality Conservation at Water Resources Area in Order to Prevent the Specified Difficulties in Water Utilization

3) The comparison of law and regulation about waste and recycling The list of law and regulation about waste and recycling is shown in Table 3.4. The Basic Act for Establishing a Sound Material-Cycle Society and Law for Promotion of Effective Utilization of Resources was enacted in Japan in 2000. While China also enacted similar law named as Circular Economy Promotion Law in 2008.

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Table 3.4 Comparison of law and regulation about waste and recycling China Japan  Wenchuan earthquake recovery act  Guidelines (Master Plan) for Disaster Waste  Guideline of management and treatment of disaster Management after the Great East Japan Earthquake waste after Wenchuan earthquake  No  Law on Special Measures concerning Removal of Environmental Problems Caused by Specified Industrial Wastes  management methods of End-of-Life Vehicles  Law for the Recycling of End-of-Life Vehicles  Urban construction waste management regulations  Construction Material Recycling Law  law of solid wastes environmental pollution control  Waste Management and Public Cleansing Law  Regulations on Recovery Processing of Waste  Law for the Recycling of Specified Kinds of Home Electrical and Electronic Products Appliances(Home Appliance Recycling Law)  Circular Economy Promotion Law  The Basic Act for Establishing a Sound Material-Cycle Society  No  Law for Promotion of Effective Utilization of Resources  No  Law for Promotion of Recycling and Related Activities for Treatment of Cyclical Food Resources (Food Waste Recycling Law)  No  Law for the Promotion of Sorted Collection and Recycling Containers and Packaging (Container and Packaging Recycling Law)  No  Law to Promote the Development of Specified Facilities for the Disposal of Industrial Waste  The import of solid waste management methods  Law for the Control of Export, Import and Others of  Waste import environmental protection Specified Hazardous Wastes and Other Wastes management provisional regulations

The core requirements of laws in both countries are reduce, reuse and recycle. However, Law for Promotion of Effective Utilization of Resources listed designated resource-saving industries, designated resource-recycling industries, specified reuse-promoted products, specified labeled products, specified resource-recycled products and specified by-products. China has not enacted the relative management methods. In general, the solid waste includes life waste, construction waste, home appliance waste, motor vehicle waste and Medical Waste. China amended the Law of Solid Waste Pollution Control in 2004 and issued Renewable Resources Recovery Measures in 2008. Chinese RoHS- Management Method of Electronic Information Products Pollution Control Electronic Waste Pollution Control came into force in 2007. Chinese WEEE- Regulations on Recovery Processing of Waste Electrical and Electronic Products was put into force by January 2011. The Japanese Home Appliance Recycling Law was enacted in June 1998 and was enforced in April 2001. Because of national situation, the home appliance recycling requirements of both countries are different, in Japan, the recycling fee are burden by customer, the recycling responsibility is taken by the manufacturers and importer, collection and transportation are carried out by retailer. Under the law, manufacturers or importers are required to meet the target of recycle rate (50-60%) in recycling post-consumer use home appliances, in addition to recovering CFCs from air conditioners and refrigerators.3-27) In order to ensure that the

3-17 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing post-consumer use specified kinds of home appliances are delivered from consumers to manufacturers via retail stores, a manifest system is established. This is a system in which consumers can check up that the waste they discharged has been correctly transported and disposed of.3-27) In China, the manufacturer and importer are stipulated to pay recycling fee. And government will establish the fund of waste electrical and electronic product disposal to manage the recycling fee. The recycling and disposal of waste electronic and electrical product should be carried out by the approved enterprise not the manufacturer or importer. In the waste regulation, both countries have suffered serious earthquake and issued the relative acts. In Wenchuan Earthquake Recovery Act, government just required to recycle construction waste as soon as possible. Guideline of Management and Treatment of Disaster Waste after Wenchuan Earthquake identified the management sequence of waste. It required dealing preferentially with the infectious waste and then dangerous life and waste, industry waste and construction waste in order. This guideline also listed the specific requirement of waste incineration and landfill. This guideline focused on the safe treatment of waste. In Japan, Guidelines (Master Plan) for Disaster Waste Management after the Great East Japan Earthquake focused on the recycling of waste and regulated in detail the treatment method of Combustible waste, Waste wood, Noncombustible waste, Scrap metal, Waste concrete, Home appliances & cars, Ships, Hazardous waste, PCB waste, asbestos containing waste, etc. About the recycling of end-of-life vehicle, China state council enact the management methods of End-of-Life Vehicles in 2001and required the qualified and certified organization to recover the end-of- life vehicles. This management method focused mainly on safety of vehicle and gave few provisions about the recycling of vehicle. According to one report of Chinese Automobile Circulation Association, 75% end-of-life vehicles are still used by customers. It is very dangerous. Because the recover enterprise need pay to the owner of vehicle to recover the end-of-life vehicle, income per vehicle of recover enterprise is little and the amount of recovered vehicle are few, the operation of vehicle recover enterprises are facing problem. In Japan, based on the concept of extended producer responsibility, automobile manufacturers and importers (hereinafter referred to as "manufacturers, etc. ") are obliged to collect and recycle (destruct in case of CFCs) air bags and shredder residues generated in treatment process of ELVs under the law.3-28) Recycling expenses of manufacturers, etc. is to be set aside by automobile owners as recycling fee when they purchase new cars. Fund management corporations are to administrate recycling fee, which will be claimed by manufacturers, etc. 3-28) Construction wastes including concrete blocks generated in construction works, asphalt/concrete blocks and timbers generated in construction works account for 20% of the whole volume of industrial wastes which equals to 20% of total volume of wastes put into final disposal sites, while they account for 70% of the total volume of illegal dumping. 3-29) according to the report of Xinhua, the solid life waste stock has up to 7 billion ton by 2011 in

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China, and construction waste is 2.1-2.8 billion ton by estimate. In the Urban construction waste management regulations issued in 2005, construction waste is prohibited to max with other kind of waste, and the transportation and treatment of construction waste should be carried out by approved enterprise. Because this management regulation did not give specific provision of waste recycling, the main treatment of construction waste is landfill and only 5% construction waste is recycled by 2011. Up to now, China has not issued the construction waste recycling law. In the Construction Material Recycling Law of Japan, the Construction Material Recycling Law requires to contractors to sort out and recycle wastes generated in demolition work of a building that the specified construction materials, such as concrete (including pre-cast plates), asphalt/concrete and wood building materials are used or construction work using the specific construction materials and is above certain scale.3-29) China has not the food waste recycling law. According to the incomplete statistics, the food waste per year of China is not less than 3 million ton. In the early of 2011, the state council emphasize on enforcement of food waste disposal. In Japan, The volume of the food waste is approximately 30% of total discharge of municipal solid waste. On the other hand, recycling rate remains approximately 10% of total food waste. In order to promote reduction of the food waste, the Law for Promotion of Recycling and Related Activities for the Treatment of Cyclical Food Resources were enacted. The food waste should be sorted into burnable waste and unburnable waste. Minister of the Environment and Minister of Agriculture, Forestry and Fishery formulate of fundamental policy and develop of criteria for food related businesses. The food waste is turned to be Fertilizer or feed, in addition, approved company also process it into the fuel. About the recycling of container and packaging, China has not issued formally any relative bills, although the management method of recycling of package had been going to come out since 2009. However, the environment standard HJ/T 209-2005, Technical Requirement for Environmental Labeling Products–Packaging Products came into force in 2006. It is an environment standard recommended and without legal force. And other environment standard of Technical Specifications for Pollution Control of Used Plastics -Collection, Recycle and Reuse is a tentative standard. In Japan, the Container and Packaging Recycling Law was enacted in 1997 in order to promote efficient use of recycled containers and packages generated and reduction of wastes by shifting those wastes into recyclable resources. This Law was enforced reduce the waste of glass containers, PET bottles containing drink or soy source and paper cartons (except for those cartons applying aluminum foil inside, plastic containers and packages, paper containers and packages, steel cans, aluminum cans, paper cartons, cardboard box. General practice of recycling is conducted through consignment to a designated corporation -the Japan Container and Package Recycling Association. Specified business entities like manufacturers of packages and containers and the business entities using

3-19 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing packages and containers pay recycling fee to the Japan Container and Package Recycling Association and provide the discharge provision of goods to customer. 4) The comparison of law and regulation about health and chemicals Table 3.5 listed main law and regulation about health and chemicals. In chemicals management, the State Council issued the Regulations on Safety Management of Hazardous Chemicals in January 2002 and amended it in February 2011, the Administration Regulation of Business Certification of Hazardous Chemicals, and enacted Administration Regulation of Ozone Depleting Substance in 2010. The Administration Regulation of Hazardous Chemicals Registration was enacted in 2002 by the Ministry of Economic and Trade. These laws stipulated the enterprise has to get the permission which produces, stores, transports, and uses hazardous chemicals, and the enterprise producing and importing hazardous chemicals should register the names, property, use, dangerousness and others to the management departments. The Administration Regulation of Ozone Depleting Substance enacted in 2011 adopted the quota management measure to decrease the ozone depleting substance step by step. In hazardous chemicals management, Chinese can learn more from Japan. For example, Japan established the management system on Pollutant Release and Transfer Register (PRTR). The Law Concerning Reporting, etc. of Releases to the Environment of Specific Chemical Substances and Promoting Improvements in Their Management also was translate into Act on Confirmation, etc. of Release Amount of Specific Chemical Substance in the Environment and Promotion of Improvement to the Management came into force in 9999. It required Businesses Handling Class I Designated Chemicals, etc. shall estimate the quantities of the Class I with 462 kind of designated chemical substances released to the environment in business activities and the quantity of the Class I Designated Chemical Substances transferred to other places, and report the qualities to the competent minister in each fiscal year on the items prescribed by the Competent Ministerial Order.3-31). Upon receiving the Request for Disclosure, the Competent Minister shall promptly disclose the information requested out of the File Records to the requesting party.3-31) In addition, the main the chemical substance control law of Japan is the Act on the Evaluation of Chemical Substances and Regulation of Their Manufacture, etc. and for the implementation of this act, there are one Cabinet Orders, 11 Ministerial Ordinances and 2 notices.

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Table 3.5 Comparison of law and regulation about health and chemicals China Japan  Regulations on Safety Management of  Law concerning the Evaluation of Hazardous Chemicals Chemical Substances and Regulation of  Administration Regulation Of Hazardous Their Manufacture, etc. (Chemical Chemicals Registration Substances Control Law)  Administration Regulation Of Ozone Depleting Substance  No  Law concerning promotion of Pollutant Release and Transfer Register (PRTR)  No  Law Concerning Special Measures against Dioxins  No  Law concerning Special Government Financial Measures for Pollution Control Projects  No  Pollution-related Health Damage Compensation Law  No  Law concerning the Settlement of Environmental Pollution Disputes  No  Law concerning Entrepreneurs’ Bearing of the Cost of Public Pollution Control Works  No  Law concerning Provisional Measures for Promotion of Administrative Work on Certification of Minamata Disease

China has not enacted the specified law for pollution-related health damage compensation and settlement of environment pollution dispute. The right of people is not being protected. However, timely and rapidly enacting relative law is facing Chinese government. In recent year, the cancer village is appearing in different provinces, cancer village means the area whether considerable people getting cancer increases in a considerable speed in designed period. More than 247 caner villages exist in China shown in the Figure 3.52-31).

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Fig 3.5 Location map of cancer village

In Japan, the law system about the environment pollution damage compensation is comprehensive; it includes Pollution-related Health Damage Compensation Law and Law concerning the Settlement of Environmental Pollution Disputes. To compensate to minamata patient, Japan also issued the Law concerning Provisional Measures for Promotion of Administrative Work on Certification of Minamata Disease. The Law Concerning Pollution-Related Health Damage Compensation and other Measures came into force in September 1974, in order to provide victims of pollution-related illnesses with compensation benefits, such as medical benefit, etc. This law is also aimed at enforcing the pollution health and welfare program in order to give prompt and fair protection to pollution victims.3-33) The main operation organization of damage compensation is the Environment Restoration and Conservation Agency of Japan (ERCA). It was reorganized into by the Pollution-related Health Damage Compensation and Prevention Association (PHDCPA) and the Japan Environment Corporation (JEC) in April 1, 2004. ERCA inherited their operations. PHDCPA was established in 1974. Its operations were to collect levies from industries and pay them to local governments as compensation for victims of public pollution, and to provide and assist pollution prevention programs. JEC was established in 1965. It carried out relocation of factories, building of green spaces and others for the prevention of industrial pollution.

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Those eligible for the compensation are certificated patients in the designated areas I (41 areas) defined as those where "significant air pollution results in a wide outbreak of disease" and in the designated areas II (5 areas) defined as those where a clear causal relationship between pollutants and illnesses such as Minamata disease and itai-itai disease is systematically established. The compensation expenses are provided by a government subsidy and the pollution load levy and the specified levy collected from businesses operating facilities that emit substances causing air pollution. ERCA collects the pollution load levy and the specific levy, and delivers them to the governments of local areas where the outbreak of the pollution-related diseases has occurred. ERCA provides 7 types of compensation benefits to certificated patient: medical expenses, disability compensation, survivors' compensation, survivors' lump-sum compensation, child compensation allowance, medical care allowance and funeral expenses. ERCA carries out 5 types of pollution health and welfare programs, in order to restore, maintain and improve health: rehabilitation program, climatotherapy program, medical care equipment supply program, home healthcare training program and subsidy program for influenza inoculation. 5) The comparison of law and regulation about nature and resource Table 3.6 listed main law and regulation about nature & resource. In China, Environmental laws include the environment protection laws and resource laws. China issued many resource laws to stipulate the ownership, utilization, protection and others of mineral resources, coal, land, grass land, water, and forest. In Japan, resource laws are not considered as the environmental laws. Japanese environmental laws about nature and resource focus on the resource protection. Both countries have enacted laws and regulations to protect nature, wild fauna and flora. But China has not enacted any law or regulation about the modified organism. The legislation works is being carried out and how to legislate is still in hot dispute. Act on the Conservation and Sustainable Use of Biological Diversity through Regulations on the Use of Living Modified Organism came into force in 2003 in Japan. This Law is aimed at ensuring the precise and smooth implementation of the Cartagena Protocol on Biosafety to the Convention on Biological Diversity, thereby contributing to the welfare of humankind and helping to assure healthy cultural lives for the people now and in the future, by devising measures to regulate the use of living modified organisms in order for the conservation and the sustainable use of biological diversity through international cooperation.3-34)

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Table 3.6 Comparison of law and regulation about nature & resource China Japan  No  Invasive Alien Species Act  Nature reserve regulation  Nature Conservation Law  Law for the Promotion of Nature Restoration  Natural Parks Law  Regulations on the protection of wild plant  Law for the Conservation of Endangered Species of  Law of the People's Republic of China on the Wild Fauna and Flora Protection of Wildlife,  Law concerning the Protection and Control of Animals  Summary of Wildlife Protection and Hunting Management Law  Act on Welfare and Management of Animals  No  Act on the Conservation and Sustainable Use of Biological Diversity through Regulations on the Use of Living Modified Organisms

The competent minister shall stipulate and publicly announce the matters defined in the Following： a. The basic matters concerning the implementation of measures designed to prevent adverse effects that are caused by the use of living modified organisms and pose unacceptable risks that impair biological diversity. b. The Basic matters that have to be taken into account by a person who makes use of living modified organisms in order to undertake such acts correctly. c. Besides those stipulated in the preceding two subparagraphs, important matters designed to ensure that the use of living modified organisms is undertaken correctly. This lay call the persons who use living modified organisms but not take measures specified as type 1 use, the person who use living modified organism and take measures specified as type 2 use. Type 1 user must obtain the approval of the competent minister, and A person who wishes to obtain the approval in the preceding paragraph must assess the Adverse Effect on Biological Diversity as stipulated by the competent minister, and must submit to the competent minister an application form, together with a document detailing the results of this assessment and other documents stipulated in the ordinance of the competent ministries, and the person have to report the changes to the minister. 3-34) On the other hand, this law also made provision about the Obligations of Persons Obtaining Approval, Changes to Approved Type 1 Use Regulations, Announcement of Approved Type 1 Use Regulations, Approval of Type 1 Use Regulations Pertaining to Exporters to Japan, Orders for Measures Concerning Type 1 Use and Type 2 Use and Measures in the Event of Accidents Concerning Type 1 Use and Type 2 Use. On the other hand both countries have issued the act to prevent the pollution of radiation or nuclear, because the distinctiveness of nuclear and limitation of paper space, this paper will not analyze it in detail. 6) The comparison of environment policy in both countries

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The Chinese environment policy is not enough, so the implementation of several separate laws is weak. In this aspect, Japan enacted a lot of policy law include the law on promoting green purchase, environment information disclosure. As Table 3.7 shown, the environment promotion laws of China are weak in the environment education. In Japan, environment education is one important part of social life, in all environments concerning action taken by enterprise, education ranked top two.

Table 3.7 Comparison of environment policy in both countries China Japan  No  Law on Promoting Green Purchasing  Environmental Protection Law  The Basic Environmental law  No  Law Concerning the Promotion of Business Activities with  Environmental Consideration by Specified Corporations, etc, by Facilitating Access to Environmental Information, and other Measures  Environment impact assessment law  Environmental Impact Assessment Law  No  Law for Enhancing Motivation on Environmental Conservation  and Promoting of Environmental Education  Cleaner Production Promotion Law  No  Energy conservation law  Act on the Rational Use of Energy  China Reusable Energy Bill

7) Summary of laws taking risk for manufacturing The law in Table 3.8 regulates directly on manufacturing, once these regulations are issued, it will take risk for sectors.

Table 3.8 Main laws in the future Topic Name of law Offensive Odor Control Law Air and noise Act on Regulation, Etc. of Emissions from Non-road Special Motor Vehicles Law concerning Special Measures for Water Quality Conservation at Water Resources Water and Area in Order to Prevent the Specified Difficulties in Water Utilization Soil Soil Contamination Countermeasures Act Food Waste Recycling Law Waste and recycling Container and Packaging Recycling Law Law concerning promotion of Pollutant Release and Transfer Register (PRTR) Law Concerning Special Measures against Dioxins Pollution-related Health Damage Compensation Law Health and chemicals Law concerning the Settlement of Environmental Pollution Disputes Act on the Conservation and Sustainable Use of Biological Diversity through Regulations on the Use of Living Modified Organisms

3.3 Analysis of Legislation risk on Chinese manufacturing

3.3.1 Identification of risk weighting of environment regulation 1) Identify the meaning of rank

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With the increasing environment protection awareness and increased the level of people's life, the blank of environment legislation will be filled in soon. For these law blanks, these regulations will take operation risk for enterprise. Manufacturing should avoid these risks as much as possible. This paper established a risk matrix of environment legislation to assess environment risk for manufacturing. The matrix assesses two aspects of environment pollution and legislation progress. The degree of both aspects are divided into 4 degree, the explanation of every degree are shown in the Table 3.9.

Table 3.9 Rank explanation of environment pollution and legislation process Rank Environment Pollution(EP) Legislation Progress(LP) The pollution has been very serious; the hazard has been The draft of law has been made. The 1 explicit; have direct relationship with death, and harm is lasting. enforce time has been identified. The pollution has been very serious; the hazards have been The prepare working is going, but the 2 explicit; and have no direct relationship with death. draft has not been made. 3 The pollution has not been serious but the hazard is explicit. In hot dispute. The pollution has not been so serious, and the hazard has not Has not got so much attention. 4 been so explicit, but regulation has been enacted in other countries.

2) Rank assessment of environment law A. Act on PM 2.5 The Particles less than 2.5 micrometers in diameter (PM2.5) are referred to as "fine" particles and are believed to pose the largest health risks. Because of their small size, fine particles can lodge deeply into the lungs. Health studies have shown a significant association between exposure to fine particles and premature mortality. The important effects include aggravation of respiratory and cardiovascular disease, lung disease, decreased lung function, asthma attacks, and certain cardiovascular problems such as heart attacks and cardiac arrhythmia.3-35) China has not brought the PM 2.5 into observation rang of air quality. National Aeronautics and Space Administration (NASA) issued an air quality chart of PM 2.5 in September 2010 as shown in the Fig 3.6.3-36)

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Fig 3.6 Average concentration of PM 2.5 from 200 to 2006 in world

The red parts is the area with highest average concentration of PM 2.5 from 2001 to 2006, we can find the concentration of North China, East China and Center China is very high,with about the 80μg /m3.WHO think the concentration of PM 2.5 below 10μg/m3 are safe. But PM 2.5 concentration of these area of China is higher than this safe limit. According to one research of Xiaochuan Pan published in the Science of Total Environment, when the concentration of PM 2.5 was increasing according the obersvation in Peking University, the patient of cardiovascular disease in 3th Hosipital of Peking University increased. In conclusion, the EP rank of PM 2.5 is 1. Up to now, China has not enacted laws to monitor and disclose mandatorily information of PM 2.5. The revision of Quality Standard of Environment Air carried on in 2011 specified the monitor of PM 2.5 will be developed step by step from the 2012. And the new Quality Standard of Environment Air will come into force by 2016. So, the LP rank is 1. B. Offensive Odor Control Law There is not official record about the complaint of offensive odors in China, so we search the offensive odor accident by internet, find the odor accident was not so much, and odor cannot cause death directly. The EP of offensive odor is 3. China Ministry of Environment Protection has taken advice for revision of standard of odor in 2010. But the standard for comment has not been drafted. The LP rank is 2. C. Soil Contamination Countermeasures Act In the recent years, the soil pollution in China became severe; nobody can confirm the data of soil pollution. But it is no doubt that Chinese soil is suffering severe pollution through the lead poisoning in Fengxia of Shanxi province, the cadmium poisoning in Liuya of Hunan

3-27 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing province, Deyang of Sichuan province and Suchang of Zhejiang province, the arsenic pollution in the Linyi of Shandong province and so on. So the EP rank is 1. The soil pollution survey is being carried out but the report has not been finished. In the Suggestion about the soil pollution prevention issued by the environment ministry in 2008, the law system of soil pollution control was expected to be established by 2015. Rank of LP is 2. D. Act on Emissions from Non-road Special Motor Vehicles The environment hazards of emission from non-road special motor vehicle should be same with the emission of road motor vehicles, but because of the emission of non-road special motor vehicles are in a small amount, the environment harm is not very serious and has not get enough attention in China. The rank of EP is 3 and LP rank is 4. E. Act on underground water pollution Chinese underground water level has been descending seriously, and the underground water was polluted by the heavy metal and Toxic organic. According to one underground water survey, 90% underground water was polluted and 64% cities are polluted severely and the groundwater withdrawal was increasing by 2.5 billion per year by 2009.3-26) However, this situation has drawn attention of China, the Environment Ministry has issued the Plan of Underground Water Pollution Control in October 2011. This plan introduced the situation of underground water pollution and set work goal in the future. Fortunately, some cities like Kunming, Yinchuang have enacted some local law to protect underground water. The EP rank is 2 and the LP rank is 2. F. Food Waste Recycling Law The food waste may pollute the underwater, and the illegal utilization of food waste like the drainage oil may harm health. And the food waste of China is not less than 3 million ton per year. In the early of 2011, the state council emphasize on enforcement of food waste disposal. Some cities like Jinan, Shanghai have issued administration method of food waste. As a result, both EP rank and EP rank are considered as 2. G. Regulation on the dioxins Dioxins are a group of dangerous chemicals known as persistent organic pollutants. Experiments have shown they affect a number of organs and systems. Once dioxins have entered the body, they endure a long time because of their chemical stability and their ability to be absorbed by fat tissue, where they are then stored in the body. In the environment, dioxins tend to accumulate in the food chain. The higher in the animal food chain one goes, the higher the concentration of dioxins. Short-term exposure of humans to high levels of dioxins may result in skin lesions, such as chloracne and patchy darkening of the skin, and altered liver function. Long-term exposure is linked to impairment of the immune system, the developing nervous system, the endocrine system and reproductive functions. Chronic exposure of animals to dioxins has resulted in several types of cancer.3-38) the food pollution

3-28 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing incidents of dioxins has not happened in China. However, according to some research result in the journal Atmospheric Environment and Chemosphere, the concentration of dioxins in air has near to safe limit of Japan, 0.6pg/m3in Pecking, Shanghai, Guangzhou and some rural area. The rank of EP is 3. Dioxins are unwanted by products of a wide range of manufacturing processes including smelting, chlorine bleaching of paper pulp and the manufacturing of some herbicides and pesticides. The highest levels of these compounds are found in some soils, sediments and food, especially dairy products, meat, fish and shellfish. Very low levels are found in plants, water and air. In October 2010, the Ministry of Environment Protection and other 9 ministries required to enforce the management of dioxins and is making plan of organic pollutants, but the draft of dioxins measurement has not been drawn. So the rank of LP is 2. H. law for pollution-related health damage compensation As mentioned above, a large of caner villages exist in China. The case about environment pollution damage has been increasing by 5% per year, according to speech of Professor Canfa Wang in 2010.3-39) the rank of EP is 2. Provisions about pollution-related health damage compensation in the current laws are some principles, too simple, and lack of enablement. In recent years, the serious environment pollution incidents like the Zijin Mining did not give a satisfied compensation to the victim. Some professors like the Canfa Wang, LimingWang appealed to enact the specific law about the pollution-related health damage compensation since 2006. So the rink of LP is 3. The enforcement of law for pollution-related health damage compensation will affect a large scope of manufacturing. The heavy pollution industry will be affected most definitely. I. Pollutant release and transfer register about special chemicals As we know Japan has establish a perfect PRTR system. Up to 2012, no law or regulation to require business to report the release of special chemicals in China. By google search, we the discussion and research about PRTR is not hot. Therefore, the rank of EP is 3, and the LP rank is 4. J. Regulation on the living modified organism At present, the hazard of living modified organism still is in discussion, some countries regulates it, but China has not enacted law to regulate it although its harm is in hot discussion. So the EP rank is 4, the LP rank is 3. Recycling rate of total waste is less than 20%. K. Sorted Collection and Recycling of packaging China spent 400 billion per year on packaging3-43). By 2009, the total value of output of packaging industry has surpassed Japan, and become the top 2 in the world. One third of the municipal waste comes from packaging. So the EP rank is 2. China is trying to establish recycling system of packaging, the State Council and Ministries are issuing some advice to manage and guide the packaging recycling. So the LP is 2.

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3) Identify risk weighting of environment regulations Table 3.10 show us rank of EP and LP.

Table 3.10 Assessment of environment legislative risk for China Environmental law Rank of EP Rank of LP Act on PM2.5 1 1 Offensive Odor Control Law 3 2 Soil Contamination Countermeasures Act 1 2 Act on emissions from Non-road Special Motor Vehicles 3 4 Act on underground water pollution 2 2 Food Waste Recycling Law 2 2 Act on Sorted Collection and Recycling of packaging 2 2 PRTR 3 4 Law about Special Measures against Dioxins 3 2 Act on the Living Modified Organisms 4 3 Pollution-related Health Damage Compensation 2 3

To summarize, we make a risk matrix of environment regulation as shown in Fig 3.7. We can find that for manufacturing, soil, PM 2.5 and underground water contamination control may take highest risk for manufacturing. The regulation on emission of non-road special motor vehicles, PRTR and living modified organism will not affect most operation of companies in the short run. The regulation on the recycling of construction waste, pollution-related health damage compensation, odor, dioxins and vibration will affect manufacturing in middle degree. We consider these three kinds of environment risk will affect industry with weighting 1, 0.3 and 0.7.

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5 Risk weighting: 0.7 Risk weighting：0.3

non-road motor

4 construction waste vehicles, PRTR recycling, health damage living modified compensation 3 organism

underground soil water problem 2 odor, dioxins

LP(Legislation progress) LP(Legislation food and packaging recycling 1 PM 2.5 Risk weighting: 1 Risk weighting: 0.7 0 0 1 2 3 4 5 EP(Environment Pollution)

Fig 3.7 Matrix analysis of EP & LP and risk weighting

3.3.2 Forecast of legislation risk for sectors of manufacturing Because different sectors impact differently on environment, the same environment law must impact on sectors differently. To assess pollution evaluation of every sector, we set environment pollution score for sectors of manufacturing, as shown in the Table 3.11.

Table 3.11 Environment pollution coefficient of sectors in manufacturing Pollution evaluation of sectors Very Serious Serious General Few pollution Score of regulation impact on sector (S) 3 2 1 0

Many sectors may discharge these pollutants like PM2.5, heavy metal and others. Sectors discharge more pollutant, impaction by relative legislation will more serious. Because the main source of PM 2.5 is fuel burning and industry dust. We got the statistics data of Chinese Statistics Bureau about the industry waste gas to identify the pollution coefficient. On the other hand, the main pollutant of underground water and soil is heavy metal; therefore, we use the amount of heavy metal of industry emission to identify the pollution coefficient. The

3-31 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing waste recycling law will take positive impact on the waste recycling industry. Therefore, we set the pollution coefficient as the -3. We divided regulations into regulation of pollutant and regulation on sectors. Table 3.12 shows us the evaluation basis of regulations.

Table 3.12 Evaluation basis of regulation of pollutant on sectors Regulation of pollutant Evaluation basis Act on PM2.5 Amount of Industrial waste gas emission3-39) Regulation on odor Odor index3-40) Law on soil pollution( heavy Amount of discharged heavy metal per enterprise3-39) metal) Law on underground water Amount of Pollutants Discharged in Industrial Waste Water per pollution (heavy metal) enterprise3-39) Pollution-related Health Comprehensive Pollution Degree3-41) Damage Compensation

Scoring standards are shown in Table 3.13.

Table 3.13 Scoring of environment pollution of sectors in manufacturing Pollution evaluation of sectors Very Serious Serious General No serious Score of regulation impact on sector (S) 3 2 1 0 Waste gas (million m 3) 200～ 100～200 50～100 ～50 Odor index 14～15 12～13 10～11 ～9 Heavy metal pollution for soil and 1000～ 100～1000 10～100 0～10 underground water (kg) Comprehensive Pollution Degree2) 0.5～ 0.1～ 0.5 0.01～0.1 0～0.01

Regulations in Table 3.13 just stipulate some specified sectors, therefore, regulation will completely impact on sectors, and scoring should be 3.

Table 3.13 Evaluation basis of regulation on sectors Regulation of sectors Evaluation basis Emissions from Non-road Special Motor Vehicles Sectors related to non-road special motor vehicles Food Waste Recycling Food sector Sorted Collection and Recycling of packaging Packaging mainly refer to paper, plastic, metal and glass PRTR Sectors stipulated in Japan PRTR law Living Modified Organisms Food and Beverages

The total risk of sector can be calculated by the following formulas (3-1)

R = ∑n 푊 × 푆 (3-1) 푓＝1 푓 푓

TS：Total risk score of sector

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W：Risk weighting of environment regulation S：Score of regulation impact on sector f：Environment regulations considered in this research (n=10) Total risk scores of sectors are shown in Fig 3.8

15

12

9

6

Total risk Totalscore risk 3

0

Agricultural Product Agricultural

Manufacture of Foods of Manufacture

Manufacture of Textile of Manufacture

Manufacture of Rubber of Manufacture

Manufacture of Plastics of Manufacture

Manufacture of Tobacco of Manufacture

Manufacture of Furniture of Manufacture

Manufacture of Medicines of Manufacture Beverages of Manufacture

Manufacture of Metal Products Metal of Manufacture

Communication Equipment,PC, Communication

Manufacture of Chemical Fibers Chemical of Manufacture

Recycling and Disposal of Waste of Disposal and Recycling

Artwork and Other Manufacturing Other and Artwork

Articles for Culture, Education,Sport Culture, for Articles

Manufacture of Leather, Fur, Feather Fur, Leather, of Manufacture

Raw Chemical Materials and product and Materials Chemical Raw

Processing of Petroleum, Coking, uel Coking, Petroleum, of Processing

Electrical Machinery and Equipment and Machinery Electrical

Manufacture of Transport Equipment Transport of Manufacture

Manufacture of Textile,Footware,Caps of Manufacture

Smelting and Pressing of Ferrous Metals Ferrous of Pressing and Smelting

Manufacture of Paper and Paper Products Paper and Paper of Manufacture

Manufacture of Special Purpose Machinery Purpose Special of Manufacture

Printing, Reproduction of Recording Media Recording of Reproduction Printing,

Manufacture of General Purpose Machinery Purpose General of Manufacture

Timber,Wood,Bamboo,Rattan,Palm product Timber,Wood,Bamboo,Rattan,Palm

Measuring Instruments,Machinery for Office for Instruments,Machinery Measuring Smelting and Pressing of Non-ferrous Metals Non-ferrous of Pressing and Smelting Manufacture of Non-metallic Mineral Products Mineral Non-metallic of Manufacture

Fig 3.8 Total risk score of sectors

High risk sectors include Manufacture of Metal Product, Agricultural product, Manufacture of Paper and Paper Products, Manufacture of Textile, Processing of Petroleum and Coking, Manufacture of Raw Chemical Materials and Chemical Products, Smelting and Pressing of Ferrous Metals, Manufacture of Non-metallic Mineral Products, Manufacture of special purpose Medicines. 3.4 Investigation of environment standardization in world

3.4.1 Importance of knowing well about the global environment standards The export of Chinese product is increasing considerably as shown in Fig 3.93-43); and China has been called as the world manufacturing center. As shown in the Fig 3.9 and Fig 3.10, China exports mass product to USA, EU, Hongkong and Japan. The safe standard, environmental standard and other trade policy will seriously impact Chinese manufacturing. Here, the export data just includes the data of main export nations of European Community

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(EC) like Germany, Netherlands and England. In fact the total export to EC is more than this data. Through Fig 2.11, we can find the export to this these area is stable and increasing in the recent five years.

1400

1120

840

560

280

TotalBillion / export USD 0

Target nation

Fig 3.9 Main export nation and amount of China from 2007 to 20113-43)

1400 1120 840 560 280

0 Total export / Billion / USD export Total

Target nation

Note：the total export of EU here just includes these of Germany, Netherlands and England.

Fig 3.10 Main area and amount of Chinese export from 2007 to 2011

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3200 2560

1920

yuan 1280 640

Total export / Billion / export Total 0 2007 2008 2009 2010 2011

Fig 3.11 Total export to these nations from 2007-2011

Fig 3.12 shows us the share of total export to USA, UN, and Japan in GDP of china. Because the total export is record in USD, GDP of Chia are recorded in RMB. According to the exchange rate from 2007- 2011, as shown in the Fig 3.133-44), we take one average exchange rate 7 RMB/ USD to record GDP in Dollar. We can find the share of export in total GDP was decreasing; however, export still took a considerable part of GDP. Once the foreign trade takes a hit, it will affect economics development of China.

100

80

60

40

20 Export share of GDP /% GDP of share Export

0 2007 2008 2009 2010 2011

Fig 3.12 Export as share of China GDP

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Fig 3.13 Exchange rate of RMB/ USD

However, in recent years, Chinese products were recalled by some problems about the product safe and environment pollution. Chinese manufacturing is facing the challenge of green barrier. Fig 3.14 shows us the recall of Chinese product by U.S from 2000-2010.3-35) Recall of Chinese product is increasing in the past decade. Meanwhile, from the database of Consumer Product Safety Commission, we can find the total recalls of Chinese product in last ten years exported to U.S are top one in other countries as shown in the Fig 3.15.

350

280 210

140 product / Unit product

ecalls of of Chnese ecalls 70 R 0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Fig 3.14 Recalls of Chinese product by the U.S from 2000-2010

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1800 650

≈ 520 390 260

130 nations / nations Unit

0 Recalls of products of of of products Recalls

Fig 3.15 Total of recalls of different nations by U.S from 2000-2010

The main product recalled is toys, home appliance, fashion and accessories, motor vehicle, daily necessities and so on. The recalls of lead superscale took about 42% of total recalls in 2007. RAPEX is the EU rapid alert system for all dangerous consumer products, with the exception of food, pharmaceutical and medical devices. It allows for the rapid exchange of information between Member States via central contact points and the Commission of measures taken to prevent or restrict the marketing or use of products posing a serious risk to the health and safety of consumers. Both measures ordered by national authorities and measures taken voluntarily by producers and distributors are covered by RAPEX. Fig 3.16 shows us the recalls of Chinese product by EC. From 2005 to February 2012, 5483 recalls happened to Chinese product. The recalls of Chinese product has by EC have the same trend with that of USA, it was increasing from 2005 and began to decreasing in recent one or two years. In all recalls by PAPEX, Chinese product took a considerable percent, much more than recalls of other countries as shown in Fig 3.16.

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5483246

205 ≈

164

123

Recalls / Unit / Recalls 82

41

0 Brazil Japan Korea USA India China

Nation

Fig 3.16 Recalls original different nations from 2005 to February 2012 by EU

Meanwhile, as show in Fig 3.173-42) , recalls of Chinese product by EU was increasing in general. 21% products were recalled because of danger of chemical, as shown in Fig 3.183-42). 1200

960

720

/ Unit / 480

240

Recalls of Chinese product of product Chinese Recalls 0 2005 2006 2007 2008 2009 2010 2011

Fig 3.17 Product recalls origin of China by EU from 2005-2011

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17% 21% Chemical Strangulation or Injuries 18% Choking burns or fire Electric shock 28% 16%

Fig 3.18 Main danger of recalled product by RAPEX

3.4.2 Main environment standards affecting manufacturing in the world Humanity develops its own talents and wisdom product many substances which may be useful for nature of products. A large number of substances have been manufactured and placed on the market for many years. However, some substances are proved to be harmful for health. For some substance, yet there is insufficient information on the hazards that they pose to human health and the environment. On the other hand, the source and energy are limited, human society are making actively measure to save source and energy. Therefore, nations make standards for production to solve environment pollution and energy exhaustion. This paper will introduce and analyze several main standards with a great influence. 1) Registration, Evaluation, Authorization and Restriction of Chemical substances (REACH) The law REACH entered into force on 1 June 2007. REACH is the European Community Regulation on chemicals and their safe use (EC 1907/2006). It replaced 40 European directives and rules relative to chemicals. It is the biggest and complex chemical management system by now in world. It is aiming to preventively manage all chemicals entering into the EU market. REACH can ensure that industry is able to assess hazards and risks of the substances, and to identify and implement the risk management measures to protect humans and the environment so as to improve the protection of human health and the environment through the better and earlier identification of the intrinsic properties of chemical substances. The Regulation also calls for the progressive substitution of the most dangerous chemicals when suitable alternatives have been identified.3-46) It deals with the Registration, Evaluation, Authorization and Restriction of Chemical substances (REACH). The REACH brings 30 thousand chemical substances into management system of registration, evaluation, authorization and restriction, and monitors the whole of their life cycle and chain of distribution. If the importers or manufacturers import or produce more than 1ton relevant chemical substances, they have to register and provide the information of chemical substance, and implement safe assessment and make measure of risk reduction. According to the schedule of EC, the registration will spend 11 years, finish by

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2018. The products without registration cannot come into market in EU. The amount of products influenced by REACH is up to 5 million. REACH impacts on a wide range of companies across many sectors, even those who may not think of themselves as being involved with chemicals. In general, under REACH you may have one of these roles: Manufacturer: If you make chemicals, either to use yourself or to supply to other people (even if it is for export), then you will probably have some important responsibilities under REACH. Importer: If you buy anything from outside the EU/EEA, you are likely to have some responsibilities under REACH. It may be individual chemicals, mixtures for onwards sale or finished products, like clothes, furniture or plastic goods. Downstream users: Most companies use chemicals, sometimes even without realizing it, therefore you need to check your obligations if you handle any chemicals in your industrial or professional activity. REACH affects textile, toy, furniture, electro mechanic and other industries beside of chemical industry. The REACH Regulation places greater responsibility on industry to manage the risks from chemicals and to provide safety information on the substances. Manufacturers and importers are required to gather information on the properties of their chemical substances, which will allow their safe handling, and to register the information in a central database run by the European Chemicals Agency (ECHA) in Helsinki. The Agency acts as the central point in the REACH system: it manages the databases necessary to operate the system, co-ordinates the in-depth evaluation of suspicious chemicals and is building up a public database in which consumers and professionals can find hazard information.3-47) ECHA receives and evaluates individual registrations for their compliance, and the EU Member States evaluate selected substances to clarify initial concerns for human health or for the environment. Authorities and ECHA's scientific committees assess whether the risks of substances can be managed. Authorities can ban hazardous substances if their risks are unmanageable. They can also decide to restrict a use or make it subject to a prior authorization. In general, REACH system divides all chemical substance into two categories, as show in Table 3.14.

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Table 3.14 Explanation of REACH Category Explanation Manage method Impaction General All existing Chemical substance with hazards or not Registration Cost increasing Substances with the following hazard properties Authorization limit or ban may be identified as Substances of Very High Restriction manufacturing, Concern (SVHCs): placing on the a. Substances meeting the criteria for classification market or use of a as carcinogenic, mutagenic or toxic for reproduction substance category 1A or 1B in accordance with Commission Substances of Regulation (EC) No 1272/2008 (CMR substances) Very High b. Substances which are persistent, bioaccumulative Concern and toxic (PBT) or very persistent and very (SVHCs) bioaccumulative (vPvB) according to REACH (Annex XIII) c. Substances identified on a case-by-case basis, for which there is scientific evidence of probable serious effects that cause an equivalent level of concern as with CMR or PBT/vPvB substances

2) Restriction of Hazardous Substances (RoHS) A. Restriction of Hazardous Substances of Europe Union The Directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment 2002/95/EC; commonly referred to as the Restriction of Hazardous Substances Directive or RoHS) was adopted in February 2003 by the European Union.3-47) The RoHS directive took effect on 1 July 2006, and is required to be enforced and become law in each member state. The European Parliament and council recast the 2002/95/EC and published the directive 2011/65/ EU (RoHS2.0) in the Official Journal of the European Union on 1 July, 2011. This Directive entered into force on the 20th day following its publication. Directive 2002/95/EC is repealed with effect from 3 January 2013 without prejudice to the obligations of the Member States relating to the time limits for transposition into national law and application of the Directive 2011/65/ EU (RoHS2.0). RoHS restricts the use of hazardous materials in the manufacture of various types of electronic and electrical equipment and it applies to equipment as defined by a section of the WEEE directive. RoHS is often referred to as the lead-free directive, but it restricts the use of the six substances. The restricted substances and maximum concentration values tolerated by weight in homogeneous materials and numeric categories apply. However, because of the technique limit, these substances are necessary for some product, like the Mercury in straight fluorescent lamps, the RoHS give exempted some products. RoHS 2.0 listed 39 Items Exemption Clauses. The RoHS 2.0 required EEE placed on the market, including cables and spare parts for its repair, its reuse, updating of its functionalities or upgrading of its capacity, does not contain the restricted substances. And the substances extended the categories apply, the category 8. 9 and 11 become into the control scope. No more than the maximum concentration value by weight in homogeneous materials as specified in Table 3.15 shall be tolerated. No new restriction substances are added into the RoHS 2.0. To give time to manufacturer to apply the RoHS 2.0,

3-41 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing the restriction of hazards substance apply to medical devices and monitoring and control instruments which are placed on the market from 22 July 2014, to in vitro diagnostic medical devices which are placed on the market from 22 July 2016 and to industrial monitoring and control instruments which are placed on the market from 22 July 2017.

Table 3.15 Restriction substance and categories apply Directive Restriction substance Categories apply RoHS 1.0 1. Lead (Pb) (0.1 %) 1. Large household appliances 2. Mercury (Hg) (0.1 %) 2. Small household appliances 3. Cadmium (Cd) (0.01 %) 3. IT & Telecommunications equipment 4. Hexavalent chromium (Cr6+) 4. Consumer equipment (0.1 %) 5. Polybrominated 5. Lighting equipment—including light bulbs biphenyls (PBB) (0.1 %) 6. Electronic and electrical tools 6. Polybrominated diphenyl 7. Toys, leisure, and sports equipment ether (PBDE) (0.1 %) 8. Medical devices (currently exempt) 9. Monitoring and control instruments (currently exempt) 10. Automatic dispensers 11. Semiconductor devices RoHS 2.0 1. Lead (Pb) (0.1 %) 1. Large household appliances 2. Mercury (Hg) (0.1 %) 2. Small household appliances 3. Cadmium (Cd) (0.01 %) 3. IT and telecommunications equipment 4. Hexavalent chromium (Cr6+) 4. Consumer equipment (0.1 %) 5. Lighting equipment 5.Polybrominated biphenyls 6. Electrical and electronic tools (PBB) (0.1 %) 7. Toys, leisure and sports equipment. 6.Polybrominated diphenyl 8. Medical devices ether (PBDE) (0.1 %) 9. Monitoring and control instruments including industrial monitoring and control instruments 10. Automatic dispensers 11. Other EEE not covered by any of the categories above. It does not apply to fixed industrial plant and tools. Compliance is the responsibility of the company that puts the product on the market, as defined in the Directive; components and sub-assemblies are not responsible for product compliance. Of course, given the fact that the regulation is applied at the homogeneous material level, data on substance concentrations needs to be transferred through the supply chain to the final producer. B. Restriction of Hazardous Substances in other region Affected by the RoHS of EU, China took effect the Administrative Measure for Control of Pollution Caused by Electronic Information Products on March 1, 2007, which was often referred to as China RoHS3-48). While designing, producing, packaging and importing electronic information products, an electronic information product shall meet the requirements of the technology and complying with national standard or industrial standard for controlling the toxic and harmful substances or elements caused by electronic information products. Ministry of Information Industry (MII) should draw up the industrial standard for controlling toxic, harmful substances or elements caused by electronic information products through consultation with the Environmental Protection Administration (SEPA).

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A manufacturer or importer of electronic information products shall give indications on the toxic, harmful substances or elements contained in the electronic information products they put into the market, such as the names, contents, and on which part as well as the information about recycle of toxic or hazardous substances or elements, and recyclability, etc. The indications should be given in the user’s manual if they can’t be made on the product due to the limitation of the size or function of the product.3-49) The China RoHS did not restrict the use of hazardous materials, just required to disclose the relevant information. So when are these harmful substances restricted to be use? In the coming management method, it will be identified. Therefore the controlling method of hazardous substance of China is different with that of EU. Here we identified the controlling method like China as identification method, and identified the controlling method of EU as restriction method. The MII shall draft the national standard for controlling toxic, harmful substances or elements caused by electronic information products through the consultation with Standardization Administration of China (SAC). JIS C 0950 title "The marking for presence of the specific chemical substances for electrical and electronic equipment. " (J-Moss) is called as Japanese RoHS. JIS C 0950 is a Japanese Industrial Standard specifying the rules about "marking for presence" of 6 specific chemical substances for the 7 specific electrical and electronic products. It came into effective on July 1, 2006. These 6 specific chemical substances are the same with the RoHS of EU. It directs that some electronic products exceeding a specified amount of the nominated toxic substances must carry a warning label.3-49) The aimed products are personal computers, unit-type air conditioners, television sets, refrigerators, washing machines, clothes dryers, microwaves. Other nations all issued the RoHS. Summarization of restriction substance, concentration, effective date and controlling method is shown in the Table 3.16.

Table 3.16 Requirement of RoHS of nations Restricted China Vietnam India Korea Japan USA substance Pd (0.1%) ○ ○ ○ ○ ○ ○ Hg (0.1%) ○ ○ ○ ○ ○ ○ Cd (0.1%) ○ ○ ○ ○ ○ ○ Cr6+ (0.01%) ○ Cr6+ (0.1%) ○ ○ ○ ○ PBB (0.1%) ○ ○ ○ ○ ○ ○ PBDE (0.1%) ○ ○ ○ ○ ○ ○ effective date 2007/03/01 2011/09/23 2012/05/01 2008/01/01 2006/07/01 2010/07/01 Method Identification Restriction Restriction Identification Identification Restriction Note：○ means the same with the content of first line.

The Thai Industrial Standard Institute ("TISI") has adopted a new standard regarding chemical restrictions for electrical and electronic product, which became effective on 2

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February 2009. The standard is non-binding. Under Thai law, there is no requirement to comply with this voluntary standard. Possible compliance benefits for companies are market-based and commercial; they may represent that their products comply with the Thai RoHS standard.3-52) 3) WEEE(Waste Electrical and Electronic Equipment) The Waste Electrical and Electronic Equipment Directive (WEEE Directive) is the European Community directive 2002/96/EC on waste electrical and electronic equipment (WEEE) which, together with the RoHS Directive 2002/95/EC, became European Law in February 2003, setting collection, recycling and recovery targets for all types of electrical goods.by 2006, all member states transposed it into law. On January 19, 2012, European Parliament voted through the revision of WEEE.3-53) The directive imposes the responsibility for the disposal of waste electrical and electronic equipment on the manufacturers or distributors of such equipment. 3-53) It requires that those companies establish an infrastructure for collecting WEEE, in such a way that "Users of electrical and electronic equipment from private households should have the possibility of returning WEEE at least free of charge". The directive saw the formation of national "producer compliance schemes" into which manufacturers and distributors paid an annual fee for the collection and recycling of associated waste electronics from household waste recycling centers. Chinese WEEE- Regulations on Recovery Processing of Waste Electrical and Electronic Products was put into force by January 2011. 4) Eco-design of Energy-using Products( EdP) and Energy-related Products (ErP) To ensure that manufacturers of Energy-using Products ( EuP) will, at the design stage, be obliged to reduce the energy consumption and other negative environmental impacts of products, the Council and the European Parliament t adopted a Commission proposal for a Directive 2005/32/EC in 2005 which established a framework for setting Eco-design requirements (such as energy efficiency requirements) for all energy using products on the EU market and to imported products3-52) The framework directive applies to all energy-using products and parts that are intended to be incorporated into products that are placed on the market as individual parts for end-users, the environmental performance of which can be assessed independently. However, means of transport (vehicles) for people or goods are excluded.3-53) All energy sources are covered, in particular electricity and solid, liquid and gaseous fuels. The Directive will be applied to the following product groups as a matter of priority: a. electric motors; b. lighting in the residential and tertiary sectors; c. domestic appliances; d. office equipment in the residential and tertiary sectors; e. consumer electronics;

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f. HVAC (heating, ventilation and air conditioning) systems. The manufacturer or authorized representative or, in their absence, the importer is responsible for guaranteeing that the product complies with the relevant implementing measures. They must keep the EC declaration of conformity and the technical data on the appliance. Under the implementing measures, the manufacturer may be required to inform the consumer of: The characteristics and environmental performance of the product; The directive does not introduce directly binding requirements for specific products, but does define conditions and criteria for setting requirements regarding environmentally relevant product characteristics (such as energy consumption) and allows them to be improved quickly and efficiently. It will be followed by implementing measures which will establish the eco-design requirements.3-52) Directive 2009/125/EC is a recast of Directive 2005/32/EC, it extended its scope from EuP to Energy-related Products (ErP) such as windows, insulation materials and certain water-using products. Its scope currently covers more than 40 product groups (such as boilers, lightbulbs, TVs and fridges), which are responsible for around 40% of all EU greenhouse gas emissions. 3-56) This Directive establishes a framework for the setting of Community ecodesign requirements for energy-related products with the aim of ensuring the free movement of such products within the internal market.3-57) Ecodesign Directive does not set the minimum ecological requirements. Based on EU internal market rules governing which products may be placed on the market, implementing measures are made, Manufacturers who begin marketing an energy using product covered by an implementing measure in the EU area have to ensure that it conforms to the energy and environmental standards set out by the measure

3.4.3 Influence of environment standardization to Chinese manufacturing With the enforcement of environment protection, many countries and economic units are setting environmental restriction of product, or are preparing and discussing to issue similar acts and standards. China, as a big export country, is affected greatly by the global standards. Therefore, manufacturing should investigate the trend of global and domestic environmental standards of product. The REACH will enhance the export cost of Chinese manufacturing. Meanwhile, because some hazardous substances are restricted to be placed on market, Chinese manufacturer need replace the produce technique. European Council are updating the list of SVHCs continuously, these substance will be restricted in laws of other countries because of their hypertoxicity. Therefore, manufacturing should pay great attention to these substances and try to replace them, so as to enhance the competition. RoHS is booming in the world. This brings big challenge for the sectors relevant electronic and electrical product and parts. The standards similar with WEEE and Eco-design of Products also be applied and

3-45 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing developed. In the future, manufacturing need consider the environment factor from the product design, product use and product recycling. The manufacturer without environment consideration will face considerable environment risk brought by global standard. In China, average export of small and medium-sized enterprises (SMEs) took 65% of total export from 2003to 2005 as shown in Fig3.19. For SMEs, it is difficult to know well about all environment standards in world. This study will collect global environment information to collect database of requirement of eco design to reduce export risk caused by environment factors.

34.63%

SMEs others

65.37%

Fig 3.19 Average export share of SMEs from 2003-2005 3.5 Database construction responding to global environmental standards for Chinese export

3.5.1 Construction of database of eco design We construct database of eco design by Access Software. Database collected information from restricted substance, energy saving and product disposal. Database includes five forms as shown in Fig 3.20.

3-46 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing

Fig 3.20 Image of content of database

3.5.2 Application of database for export manufacturing

User of database can insert product and export nation in step 3. Database can draw report of product requirement so as to provide consult service for enterprise. For example if enterprises export PC to EU and U.S it can insert the PC and EU and U.S in query model of Access. Requirement report can be gotten as shown in Fig 3.21.

Fig 3.21 Requirement of PC export.

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On the other hand, if enterprise export different product to the same countries, the database can provide requirement report. 3.6 Conclusion

From the survey we can find the speed of environment legislation of China is high in recent years. Government is enforcing the environment protection, the awareness of people is increasing, and corporations have beginning to aim at the corporate environment performance. The environmental law system of Japan is very comprehensive. Through the comparison with the Japanese law and the survey of environment pollution situation of China, we find many shortage and disadvantage of Chinese environment regulation and management as following： 1. In the regulation of air and noise pollution control, Chinese have enacted almost as many regulations as Japanese. However, the regulation of China is not enough specific. With the increasing of motor vehicle being used, the air pollution due to motor vehicle will became more severe, China need enact the bill about the air pollution control of motor vehicle. 2. In the regulation of water and soil, Chinese need issue the act on soil contamination countermeasures to facilitate the implementation of counter-measures against soil contamination by formulating measures to apprehend situations of soil contamination by Designated Hazardous Substances and measures for the prevention of harmful effects on human health by such contamination, and thereby to protect the health of the citizens. On the other hand, the regulation of underground water is also blank in China. 3. In the law and regulation about waste and recycling, the waste management is weak. In the disposal of earthquake waste, China focused on the safe disposal in the bills. In the future, the recycling should be added into the bills. To be help for the recycling, Chinese acts all need to list the industries required to recycle in acts. To establish the recycling society, China need promote the use of recycling products. On the other hand, China need enforce the recycle of end-of-life motor vehicle, food and package by legislation. 4. In the law and regulation about health and chemicals, Chinese need enact health damage compensation law as soon as possible. 5. In the nature and resource, the regulations on the use of living modified organism are called for by people. The production and use of modified organism are still out of any regulation in China. Government should enact regulations to require the producer and use of living modified organism to apply for the authorization, to disclose the relative information to shareholders. Government should establish the competent minister to stipulate and publicly announce the matters concerning the implementation of measures designed to prevent adverse effects that are caused by the use of living modified organisms and pose unacceptable risks that impair biological diversity, and the matter that have to be taken into account by a person who makes use of living modified organisms in order to undertake such acts correctly. Meanwhile, the government should ensure that the use of living modified organisms is undertaken correctly. 3-48 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing

6. For manufacturing, soil, PM 2.5 and underground water contamination control may take highest risk for manufacturing. The regulation on emission of non-road special motor vehicles, PRTR and living modified organism will not affect most operation of companies in the short run. The regulation on the recycling of construction waste, pollution-related health damage compensation, odor, dioxins and vibration will affect manufacturing in middle degree. 7. High risk sectors include Manufacture of Paper and Paper Products, Manufacture of Non-metallic Mineral Products, Manufacture of Chemical Fibers, Smelting and Pressing of Non-ferrous Metals, Extraction of Petroleum and Natural Gas, Processing of Food from Agricultural Products, Manufacture of Foods, Smelting and Pressing of Ferrous Metals, Processing of Petroleum, Coking, Processing of Nuclear Fuel, Manufacture of Raw Chemical Materials and Chemical Products, Production and Distribution of Electric Power and Heat Power, Manufacture of Plastics, Mining and Washing of Coal, Manufacture of Medicines, Manufacture of Metal Products. 8. Database of eco design collected global environment standards, classified content of global environment standards into category of restricted substance, energy saving and product waste disposal. Once enterprise insert key word, database can draw automatically requirement report of eco design.

3-49 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing

Reference

3-1) Ministry of Environmental Protection of the People's Republic of China, http://www.mep.gov.cn/ 3-2) National Bureau of Statistics of China, environment report of 2010. 3-3) Japanese Statistics Bureau, 2010. 3-4) Ministry of Environmental Protection of the People's Republic of China, law database, 2012. 3-5) Green barrier in international trade, http://chinawestproducts.com/07/08/green-barrier-international-trade/ 3-6) Constitution art. 26, (1982) (P.R.C.), http://english.people.com.cn/constitution/ constitution.html. 3-7) Marine Environmental Protection Law (promulgated by the Nat'l People's Cong., Aug. 23, 1982) Law Info China (last visited Mar. 8, 2007) (P.R.C.). 3-8) Law on the Prevention of Water Pollution (promulgated by the Nat'l People's Cong., May 11, 1984) Law Info China (last visited Mar. 8, 2007) (P.R.C.). 3-9) Law on the Prevention and Control of Atmospheric (promulgated by the Nat'l People's Cong., Apr. 29, 2000) LawInfoChina (last visited Mar. 8, 2007) (P.R.C.). 3-10) Law on the Prevention and Control of Environmental Pollution by Solid Waste (promulgated by the Nat'l People's Cong., Oct. 30, 1995) LawInfoChina (last visited Mar. 8, 2007) (P.R.C.). 3-11) Law on Prevention and Control of Pollution from Environmental Noise (promulgated by the Nat'l People's Cong., Oct. 29, 1996) LawInfoChina (last visited Mar. 8, 2007) (P.R.C.). 3-12) Law on the Prevention and Control of Radiation Pollution (promulgated by the Nat'l People's Cong., June 28, 2003) LawInfoChina (last visited Mar. 8, 2007) (P.R.C.) 3-13) Forest Law (promulgated by the Nat'l People's Cong., Apr. 29, 1988) LawInfoChina (last visited Mar. 8, 2007) (P.R.C.). 3-14) Grassland Law (promulgated by the Nat'l People's Cong., June 18, 1985) LawInfoChina (last visited Mar. 8, 2007) (P.R.C.). 3-15) Fishery Law (promulgated by the President, Jan. 20, 1986, effective Jul. 1, 1986) (1986) (P.R.C.), http://english.sepa.gov.cn/zffg/fl/198601/t19860120_49705.htm. 3-16) Land Administration Law (adopted by the Standing Comm. of the Nat.'l People's Cong., Aug. 29, 1998, effective Jan. 1, 1999, revised Aug. 28, 2004) (2004) (P.R.C.), available at http://english.sepa.gov.cn/zffg/fl/198606/t19860625_49742.htm. 3-17) Water Law (promulgated by the Nat'l People's Cong., Aug. 29, 2002) LawInfoChina (last visited Mar. 8, 2007) (P.R.C.). 3-18) Mineral Resources Law (promulgated by the Nat'l People's Cong., Mar. 19, 1986) LawInfoChina (last visited Mar. 8, 2007) (P.R.C.).

3-50 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing

3-19) Law on Water and Soil Conservation (promulgated by the Nat'l People's Cong., June 29, 1991) LawInfoChina (last visited Mar. 8, 2007) (P.R.C.). 3-20) Law of the Protection of Wildlife (promulgated by the Nat'l People's Cong., Aug. 28, 2004) LawInfoChina (last visited Mar. 8, 2007) (P.R.C.). 3-21) Cleaner Production Promotion Law of the People's Republic of China. June 29, 2002. 3-22) Environment Impact Assessment Law, Article 2. 3-23) Vibration Regulation Law. 3-24) Law Concerning Special Measures for Total Emission Reduction of Nitrogen Oxides from Automobiles in Specified Areas. 3-25) Soil Contamination Countermeasures Act. 3-26) China Geological Survey, opportunity and Challenge of underground water science of China, Science publisher, ISBN：9787030245403, May 2009. 3-27) Law for the Recycling of Specified Kinds of Home Appliances. 3-28) Law for the Recycling of End-of-Life Vehicles (End-of-Life Vehicle Recycling Law). 3-29) Construction Material Recycling Law. 3-30) Container and Packaging Recycling Law. 3-31) Law Concerning Reporting, etc. of Releases to the Environment of Specific Chemical Substances and Promoting Improvements in Their Management. 3-32) Location map of cancer village. http://map.sogou.com/topic/html/7002.html. 3-33) Environment Restoration and Conservation Agency of Japan, http://www.erca.go.jp/english/activities/ac_01.html 3-34) Act on the Conservation and Sustainable Use of Biological Diversity through Regulations on the Use of Living. 3-35) U.S Environment Protection Agency, http://www.epa.gov/ttnnaaqs/pm/pm25_index.html 3-36) New Map Offers a Global View of Health-Sapping Air Pollution, http://www.nasa.gov/topics/earth/features/health-sapping.html 3-37) China Statistical Yearbook. 3-38) World Health Organization, Dioxins and their effects on human health, May 2010, http://www.who.int/mediacentre/factsheets/fs225/en/ 3-39) National Bureau of Statistics of China, environment statistic data 2010, 2010. 3-40) Ministry of Environment of Japan, Odor index countermeasure guideline, 2000. 3-41) WANG Shou-bing, et al, Comprehensive Pollution Degree( PD) Assessment Method and Case Study on China Industrial Economic Systems ( CIES) ,China Population, Resource and Environment, pp130-131, 2008. 3-42) European Commission, http://ec.europa.eu/environment/chemicals/reach/reach_intro.htm. 3-43) General Administration of Custom of China, http://www.customs.gov.cn

3-51 Chapter 3 Analysis of Environmental Legislation Risk and Construction of Global Eco design Standards Database for Chinese Manufacturing

3-44) Exchange rate, http://www.zhijinwang.com/rmb/ 3-45) Consumer Product Safety Commission. http://www.cpsc.gov/ 3-46) European Commission http://ec.europa.eu/environment/chemicals/reach/reach_intro.htm. 3-47) DIRECTIVE 2002/95/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 27 January 2003, Eur-lex.europa.eu. 3-48) Kuschnik, Bernhard; The European Union's Energy Using Products - EuP - Directive 2005/32 EC: Taking Transnational Eco - Product Design Regulation One Step Further, 27 Temple Journal of Science Technology & Environmental Law 1 (2008), 1, (2). 3-49) Measures for Administration of the Pollution Control of Electronic Information Products, article 13. 3-50) Law for the Promotion of Effective Utilization of Resources from the Japanese Ministry of Economy, Trade and Industry. 3-51) California RoHS Lighting Requirements to Become Effective on January 1, 2010 3-52) Thailand RoHS Standard, http://www.eiatrack.org/p/469 3-53) http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-%2f%2fEP%2f%2fTEXT% 2bTA%2bP7-TA-2012-0009%2b0%2bDOC%2bXML%2bV0%2f%2fEN 3-54) Ecodesign for energy-using appliances, http://europa.eu/legislation_summaries/other/l32037_en.htm 3-55) Energy efficiency, http://ec.europa.eu/energy/efficiency/ecodesign/eco_design_en.htm. 3-56) European Ecodesign Directive, http://en.wikipedia.org/wiki/. 3-57) 2009/125/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCILof 21 October 2009, Official Journal of the European Union, October 31.2009.

3-52

Chapter 4

Proposal of Modified Material Flow Cost Accounting and its Integration in Financial Report

Content

4.1 Research background and purpose ...... 4-1 4.1.1 Definition of Material flow cost accounting ...... 4-1 4.1.2 Difference of MFCA and Material Flow Accounting ...... 4-2 4.1.3 Current research of MFCA ...... 4-2 4.2 Problem of current MFCA ...... 4-4 4.2.1 Discontinuity of current MFCA calculation ...... 4-4 4.2.2 Inaccuracy of cost allocation in current MFCA ...... 4-6 4.3 Modification of current MFCA and financial report improvement ...... 4-9 4.3.1 Modification of costing method of MFCA ...... 4-9 4.3.2 Integration of MFCA and ERP ...... 4-14 4.3.3 Financial report improvement based on the MFCA ...... 4-16 4.4 Case study of modified MFCA in Chinese small enterprise ...... 4-18 4.4.1 Company profile ...... 4-18 4.4.2 Definition of quantity center ...... 4-18 4.4.3 Data collection and cost calculation ...... 4-19 4.4.4 Draw the income statement in October 2011 ...... 4-211 4.5 Conclusion ...... 4-21 Reference ...... 4-23

Figure

Fig 4.1 Japanese enterprises which has applied MFCA ...... 4-3 Fig 4.2 Traditional costing model ...... 4-5 Fig 4.3 Costing model of MFCA ...... 4-6 Fig 4.4 Which factor is important when enterprise apply MFCA ...... 4-6 Fig.4.5 The process low of gum roller ...... 4-7 Fig.4.6 Cost allocation chart by T account in the traditional accounting ...... 4-11 Fig 4.7 Simplified data flow of ERP ...... 4-14 Fig 4.8 Traditional Income Statement format ...... 4-17 Fig 4.9 Improved income statement format ...... 4-18 Fig 4.10 Process of production ...... 4-19 Fig 4.11 New income statement of Lianchuang ...... 4-21

Table

Table 4.1 Maternal balance statistical format in the current table...... 4-4 Table 4.2 The proposal in the case example in Japan ...... 4-5 Table 4.3 Necessary data in current MFCA ...... 4-7 Table 4.4 MFCA Balance Form ...... 4-8 Table 4.5 Data for costing of defective and positive product ...... 4-12 Table 4.6 Cost of defective product and positive product ...... 4-12 Table 4.7 Collection of material input ...... 4-13 Table 4.8 Data collection of Waste treatment ...... 4-13 Table 4.9 Cost calculation of waste ...... 4-13 Table 4.10 Cost calculated by modified MFCA ...... 4-13 Table 4.11 Improved completion record ...... 4-15 Table 4.12 Costing form of defectives and positive product ...... 4-166 Table 4.13 Data form of waste disposal ...... 4-16 Table 4.14 Cost form of waste ...... 4-16 Table 4.15 Data collected by company ...... 4-20 Table 4.16 Analysis of positive, defective product and waste in QC1 ...... 4-20 Table 4.17 Investigation of waste product and waste ...... 4-20

Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

4.1 Research background and purpose

4.1.1 Definition of Material flow cost accounting In the past 150 years, the world economic growth has risen from estimated 500 to 6500, measured in GDP per capita and international dollars4-1). Basis of this economic growth is the increasing industrial mass production of material goods. The corresponding material flows from extraction of natural resources to the diffuse disposal of the remnants of product use have numerous effects on human life style, on global economic developments, on climate and on the natural environment. Governance and control of these material flows and their effects have become an essential condition of human existence4-2). Material flow cost accounting (MFCA) was developed by IMU (Institute fur Management und Umwelt), which was founded by B. Wagner and M. Strobel in Germany. MFCA is one kind of environmental management tools which can help companies boost their economic and environmental performance. This tool is designed for organization decision- making. In the flow of materials from raw materials to the finished product, MFCA tracks and calculates the amount of useless waste of each manufacturing processes as to most savings in resources, waste and emissions can be achieved. MFCA provides data on costs and quantities related to products and material losses (waste, recycled materials, emissions) in different parts of production process including material, system, labor, energy and waste management costs. This allows organizations to make decisions based on more precise data compared to traditional cost accounting leading to better material efficiency and cost savings. The calculation of manufacturing costs for a product is based on the following concepts in MFCA.4-4) A. Dividing costs into positive and negative product costs for calculation • Positive product cost: Costs put into process products (positive product) released to the next process • Negative product cost: Costs put into wasted or recycled items (negative product) B. Calculating costs throughout all the process • Positive product cost of a process is added to the new input cost in the following process, totaling the input costs for calculation. C. All manufacturing costs are categorized into the following four groups for the above calculation. • MC: Material costs (costs of materials including main materials put in from the initial process, sub materials put in during midstream processes, and auxiliary materials such as detergents, solvents and catalysts) • SC: System costs (Processing costs including labor, depreciation, overhead costs, etc.)

4-1 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

• EC: Energy costs (Electricity, fuel, utility and other energy costs) • Waste treatment costs Materials are dived into the direct material, indirect material and the good intermediate goods of prior process. Direct material is the material which composes final product. Indirect material is the material which dosed compose final product.4-5)

4.1.2 Difference of MFCA and Material Flow Accounting MFCA is also called resource flow cost accounting or material and energy flow cost accounting. MFCA is easily mistaken for the material flow accounting. But in fact, they are different. Material flow accounting (MFA) is the study of material flows on a national or regional scale. It is sometimes also referred to as regional, national or economy-wide material flow analysis, and usually carried out by national statistics bureaus. MFCA is a management tool of environment and cost of companies. The goal of material flow accounting is to ensure national planning, especially for scarce resources, and to allow forecasting. It also allows to assess environmental burdens through economic activities of a nation or to determine how material intensive an economy is. However, MFCA goal is to reduce cost and the environmental burden of enterprises. In MFA studies for a region or on a national level the flows of materials between the natural environment and the economy are analyzed and quantified on a physical level. However, MFCA analyzes and traces cost and physical amounts of material and energy flow in enterprises.

4.1.3 Current research of MFCA An original idea and method of MFCA was developed by IMU (Institute fur Management und Umwelt), which was founded by B. Wagner and M. Strobel in Germany. Several projects are promoting MFCA in Germany. In English speaking countries such as USA and UK, MFCA has not yet been very popular. In Japan the MFCA get great progress. It was already mentioned that the IMU of Germany developed the principal concept and basic technique of MFCA and apply it in practice. Japan solved alone practical problem during the introduction of MFCA and developed Japanese version of MFCA4-3). The Japanese METI started EMA project in 1999 and published an EMA workbook in 2002. The METI EMA project (Ministry of Economics, Trade and Industry, Environment Management Accounting) developed the following six EMA tools: environmental capital investment appraisal, environmental target costing, environmental cost matrix, life-cycle costing, environmental conscious corporate performance evaluation and material flow cost accounting (MFCA). EMA project based on IMU’s theory and somewhat modified it when introducing MFCA into Japanese companies in 2000. METI commissioned the Japan Environmental Management Association for Industry to investigate this methodology. Finally METI issued the first guideline of MFCA on the world in 2007.4-4) Guide to Introducing Material Flow Cost Accounting described basic steps and concepts of introducing MFCA. During this period, the larger companies like Nitto Denko

4-2 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

Corporation, Takiron Co., Ltd, Tanabe Seiyaku Co., Ltd, Canon Inc. and some SMEs, nearly a hundred of companies of many industries applied MFCA as an experiment as shown in Fig 4.1.4-5)

80

60

40

20 Enterprise /unit

0

Fig 4.1 Japanese enterprises which has applied MFCA

From 2007 to now, Japanese METI issued the report of MFCA case example to promote the application and development of MFCA. And On 2009, the version 2 of guideline of MFCA was issued. With the perfection and development of MFCA theory and practice, the standardization of MFCA becomes essential to globally disseminate MFCA, under this situation, Japan submitted a proposal of a new work term named Environmental management – Material flow cost accounting – General principles and framework to the ISO (International Standard Organization) on Dec, 2007. Therefore, ISO/ TC 207/WG8 was established in 2008 to finish the work on the development of ISO 14051, Environmental management–Material flow cost accounting–General framework, targeted for publication early in 20124-6). ISO 14051 is one part of ISO 14000 families of standards, these standard are the responsibility of ISO Technical Committee 207 on environmental management. TC 207 has a close relationship with ISO TC 176 on quality management and quality assurance. The cooperation is intended to provide mechanisms to ensure compatibility between the key standard of the two committees4-7). The aim of this international standard is to offer a common platform for MFCA by providing a general framework. As of September 2010, ISO14051 is at Draft International Standard Development stage; the Draft International Standard is under circulation for voting and comments among 74 member countries. 57 experts from 26 countries are engaged in the standard development4-8). This standard focuses on principle and fundamental elements; no detailed approach is included in the standard unless it has been agreed to be considerably necessary. And the standard is not designed for third party certification4-9). The contents of ISO 14051include scope, terms and definitions, objectives and principles of MFCA, fundamental elements and implementation steps. On the other hand,

4-3 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

draft of ISO 14051 includes three annex which are difference between MFCA and traditional cost accounting, cost calculation and allocation in MFCA, case example of MFCA. There are about 20 papers about MFCA in China National Knowledge Infrastructure (CNKI) by 2012. In China, Zhen Guohong4-10), Zheng Ling, Xiao Xu4-11) and other scholars introduced the evolution and the foundational principle of MFCA. Only Feng Qiaogen4-12) Xiao Xu4-13), ZHANG Benyue4-14) applied the MFCA to companies and did case analysis. Onsui Ryoiti and Deng Mingjun introduced the research results of MFCA theory and cases of Japan in their paper4-15). Generally speaking, the research on the theory or the case study of MFCA in China is not much. In the current times the Chinese MFCA research is mainly on the MFCA theory and lack of practice research. Few enterprises are applying the MFCA to the specific corporate management. But in these few years, the development of MFCA in China is rapid. Just in 2011, four papers about MFCA are published in the key journal. 4.2 Problem of current MFCA

4.2.1 Discontinuity of current MFCA calculation Before 2006, because the collection of data of MFCA need speed a large amount of time and labor, and allocation of energy and system cost was cumbersome, some enterprise would not like to apply it to batch office or apply it continuously.4-16) In 2006, form software of MFCA calculation was developed. When the companies carry out the current MFCA, they will use the balance statistical form as shown in the Table 4. 1. Table 4.1 Maternal balance statistical format in the current table4-17) Simple MFCA Target product: Product amount in the target period Target period: Target amount: Mass balance Survey time: Real amount :

Output Explanation of mass Input Diff. Positive product Negative product loss Materia Amount Amount/uni Total Total Total Diff. NO. Unit Unit Unit content Unit l (a) t (b) (c=a-b) (d) (=c-d) 1. 2. 3.

≈ ≈ n.

Total

To finish this table, companies need collect a large amount of data. All of waste happening in the production process, even the cutting waste and impurity, need be collected, measured and recorded. Even though company spends time and labor in a large amount, the improvement based on MFCA analysis are shown in the table 4.2. We can find most of

4-4 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report findings based on MFCA can be seen with half an eye. Therefore, compared to find reason of negative product for one time, it is more meaningful for enterprise to monitor and reduce continuously cost and weight of negative cost. On the other hand, cost allocation of MFCA is quite different with traditional costing. In traditional costing, cost of finished products is composed by semi-finished products of former process and input of material, energy, labor and other system cost of last process, as shown in Fig 4.2. So accountants first calculate cost of semi-finished products of former process, and then consider semi-finished product as material and calculate cost of finished product. But in MFCA, cost of material, energy, labor and other system cost are allocated in every process as shown in Fig 4.3. It leads to cost allocation more cumbersome. It is not fit to be carried continuously; so many companies just choose one part of produce line for one or two times to apply MFCA.

Table 4.2 The proposal in the case example in Japan4-15) Company Target process Finding based on MFCA analysis NITTO DENKO Dissolution, batch, composition, coating, MFCA highlighted the hidden cost. Corporation heating, cutting and inspection, packaging SUMIRON Adhesive compound, coating and aging, Solvent and cutting loss became main CO.,LTD inspection intermediate product inventory, material loss. stacking, laminating and cutting TOYO INK Mixing, extrusion molding, inspection, Indirect materials became material loss. MFG.CO.,LTD filling CANNO Inc. Grinding, smoothing, polishing, centering, Cut-out material is main loss. coating inspection TS Corporation Exterior plate shape process, bending Material loss account for a large percentage, work, assembly. the punching loss is main loss. Katagiri Cutting, annealing, machining, inspection Most significant material loss happens in Seisakusho Co.,Ltd the machining and cutting process. Shimizu Printing Preparation, production, operational Invest in new equipment for double-sided Inc. change printing. Kohishin Rubber Calendar, laminator, roll inspection Material loss generated in the process in CO.,Ltd which material could not be returned to the in-process recycling. Shinryo Co.,Ltd Manufacturing of brown sugar, molding, Recycling the defective sugar and dry, packaging packaging loss account a lot.

Fig 4.2 Traditional costing model

4-5 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

Fig 4.3 Costing model of MFCA

According to questionnaire about which factor is important in symposiums of MFCA promotion hold by Japan from 2007 to 2011, more and more people also think simplification of MFCA calculation tool, example of application of MFCA and improvement of data handing is important as shown in Fig 4.44-15).

50 2007 2008 2009 2010

40 30 20 10

appearing % / 0 Percentage of factors

Fig 4.4 Which factor is important when enterprise apply MFCA

4.2.2 Inaccuracy of cost allocation in current MFCA The method of cost allocation is very important; it will directly affect the rationality of the cost information. But the current MFCA allocates the system cost and energy cost to the positive products and negative products according to the weighting ratio of material of negative product and positive product4-18), this kind of allocation method of cost is not very accurate in fact. In the current MFCA, we measure the material loss, and then, allocate system and energy costs to the negative product by the material loss ratio. However, Generally speaking, the energy and system cost change with the product amount, have not directly relationship with the cutting wastage, auxiliary material and other kinds of waste. Although the defective

4-6 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report product is also a kind of waste, it consumes the labor resource, material and energy resource. As a result, the writer thinks energy and system cost should be allocated between positive product and defective product. What we have to indicate is that system and energy cost are consumed for production not for the disposal of waste. It does not make sense that we allocate the energy and system cost for production to the waste such as the cutting waste, waste water and so on. We will take the example in MFCA Simplified Procedure Guideline to explain how the negative cost is exaggerated because of calculation method. In this guideline, production process of gum roller was used to illustrate the simple application method of MFCA As shown in the following flow chart in the Fig 4.54-18), the gum is stacked to the shaft to get the gum roller.

Fig.4.5 The process low of gum roller

The data need be collected is shown in Table 4.3. Table 4.3 Necessary data in current MFCA4-18) Bill of material Price of material Shaft：1unit Shaft：100¥/unit Gum：300¥/kg Gum：100kg Vulcanizing agents：10,000¥/kg The mix standard of gum, vulcanizing agent Foaming agent：10,000¥/kg and the foaming agent Adhesive agent：5,000¥/kg Thinner：25¥/kg Gum ： Vulcanizing agents ： Foaming Electric price：200¥/kwh agent=1000:1:1 Disposal cost of gum mixture：50 ¥/kg The mix standard of adhesive agent and thinner Disposal cost of adhesive agent：100 ¥/kg Adhesive agent：thinner= 1:1 Disposal cost of thinner：100¥/kg Input of material Analysis of product standard Shaft：5000 units Gum：500kg product：150g/unit Vulcanizing agents：0.5kg Shaft：100g/unit Foaming agent：0.5kg Adhere, Adhesive agent： 4kg the gum mixture is 50g/unit Thinner：6.6kg Adhesive：0.6g/unit (technique standard) Production performance System cost and energy cost used to produce The amount of positive product：4950 units Labor cost ：500,000¥ Depreciation expense： 200¥ The amount of defective products ：50 units Electric amount ：400kwh Electric cost ：80,000¥/kwh

4-7 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

In current MFCA, system cost and energy cost are allocated by the weight ration of negative materials as shown in formulas (4-1)

NC= MC푛＋（SC푝 − 1＋SC푝＋EC푝 − 1＋E푪p）× + DCw (4-1) NC：Negative cost EC：Energy cost SC： System cost MC푛：Material cost included in waste and defective products M푛：Amount of negative material (material in waste and defective products) M푖：Amount of all material input

DCw：Waste disposal cost P：This process P-1：Former process We got negative cost took 21% of total cost as shown in Table 4.44-18).

Table 4.4 MFCA Balance Form Input Output 1164000 Negative 310000¥ The total cost of input 1474000¥ Positive products 79% product 21% Price Amount Cost Amount Cost Amount cost Material 3 3 Ratio 3 Ratio 3 10 ¥/kg kg 10 ¥ kg 10 ¥ kg 10 ¥ Shaft 1 500.0 500 495.0 48.9% 495 5.0 0.5% 5.0 Gum mixture 0.319 501.0 160 247.5 24.5% 79.0 253.5 25.1% 81 Adhesive 5 4.0 20 3.0 0.3% 14.9 1 0.1% 5.2 agent Thinner 0.025 6.6 0.2 - 0% 0 6.6 0.7% 0.2 Subtotal (b)73.7 - 1011.6 680.2 745.5 588.9 266.1 (c)26.3% 91.3 % share of cost 46.2% 40% 6.2% Disposal of Price Amount Cost Amount Cost Amount Cost 3 3 3 3 waste 10 ¥/kg kg 10 ¥ kg 10 ¥ kg 10 ¥ Gum mixture 0.05 253.5 12.7 - - 253.5 12.7

Adhesive 0.10 1.0 0.1 - - 1.0 0.1 agent Thinner 0.10 6.6 0.7 - - 6.6 0.7

Subtotal - - 13.5 - - 261.1 13.4

Share of cost 0.9% 0.9% Utility and Price Amount Cost Ratio Cost Cost 3 3 3 Ratio(B) 3 system 10 ¥/kWh kg 10 ¥(a) %(b) 10 ¥(a×b) 10 ¥(a×c) Power 0.20 400 80.0 73.7% 59.0 26.3% 21.0 Labor cost - - 500 73.7% 368.5 26.3% 131.5 Depreciation - - 200 73.7% 147.4 26.3% 205.1 Subtotal - - 780 - 574.8 - 184.2 Share of cost 52.9% 39% 13.91% 4-8 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

In this example, input of energy and system takes a large percent of total input, as a result, the allocation of system and energy cost will have a great effect for the negative product cost. The material loss mainly came from gum mixture which is cut. To reduce the waste, company will try to shorten the both ending of com mixture which need be cut. But this method cannot reduce the input of energy and system cost of action of cutting. So energy and system cost has not direct relationship with amount of waste. It just has direct relationship with amount of product. Labor cost of negative product take a large part of total negative cost, so another proposal is reducing labor cost 50%, however, reduction of labor cost will not lead to reduction of waste , so environment load will not decease with reduction of labor cost. Labor cost for production should not be considered as negative cost. The costing method of current MFCA exaggerated the cost of defective product. In the next content, this study will modify costing method of MFCA to make it more accuracy and easier to apply. This study will integrate MFCA and Enterprise Resource Planning (ERP) to as to MFCA to be used in daily costing, and improve Income Statement. At last apply the modified MFCA in Chinese company. 4.3 Modification of current MFCA and financial report improvement 4.3.1 Modification of costing method of MFCA

1) Modification in account subject In the current MFCA, product is divided into positive product and negative product. But in the modified MFCA, negative product will be divided into defective products and waste in further. In modified MFCA, company should add three account subjects of defective product, positive product and waste. By this kind of accounting subject setting, managers can easily mater cost information of waste and defective product, and find easily key reason of negative cost. The reasons leading to defective product and waste are quite different, distinguishing the defective products and waste will be good to find key point of cost control. General speaking, the defective product is due to the production technology, raw material nature, skill of employee and so on. We can reduce waste by replacing old material, recycle, installing waste disposal equipment and so on. Some finished products or semi-finished products are discarded because of not up to the product standard in the process of product inspection or are discharged because of damage when it is in stock, these kinds of finished product and semi-finished products are identified as defective product. In addition of defective products, the material loss like cutting wastage, dropping material and impurities, set-up loss like the remaining material and adjustment, auxiliary materials like solvents and detergent to wash equipment, and the raw materials in stock discarded by some unusable reasons, these kinds of material loss are identified as the waste in modified MFCA. In addition, waste also includes waste gas and other waste solid

4-9 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report which has changed physical form and become to another substance. We call all of this kind of waste as emission. Material cost of wastewater, waste gas and waste solid is difficult to calculate in current costing system because enterprise did not buy emission and emission has not value. Therefore, material cost of emission is zero. With the increasingly attention to these three kinds of waste, more and more countries has require enterprises to disclose the amounts and disposal cost of emission. With the enforcement of waste disposal, payment of waste will increase; risk of waste disposal will increase. Enterprise has to enforce control and audit of wastewater, waste gas and waste solid. 2) Modification of cost allocation Product costing is the process of tracking and studying all the various expenses that are accrued in the production and sale of a product, from raw materials purchases to expenses associated with transporting the final product to retail establishments. It is widely regarded as an extremely important component in evaluating and planning overall business strategies. In the traditional accounting, the product cost includes material cost, labor cost, manufacturing overhead, and auxiliary cost of manufacture. Manufacturing overhead is expense happening for manufacturing in work shop like energy cost, depreciation cost, travel expense, deprecation consumables and so on. Auxiliary cost of manufacture is cost allocated to product from other workshops which provide semi-finished product or labor for main workshop. We use the "T" account to show the product costing. The simplest account structure is shaped like the letter T. The account title appears above T. Debits (abbreviated Dr.) always go on the left side of the T, and credits (abbreviated Cr.) always go on the right. From the Fig 4.6, we can find the cost of defective product and waste is hided in product cost in the traditional costing accounting. The waste disposal expense is hided in the management expense. In current MFCA, cost includes material cost, energy cost (like water, electricity, gas and others) and system cost (labor cost, depreciation cost and deprecation consumables and others). Energy cost is hided in manufacturing overhead in traditional costing; it is not good for control of energy. In current MFCA, energy cost is listed as independent items; comprehensive data of energy will provide support for enterprise to reduce GHG emission. In modified MFCA, accountant need calculate cost of defective product, positive product and waste. Calculation method of positive product is the same with that of current MFCA. But the calculation method of defective product and waste are different with that of current MFCA. Company spends material, energy and labor to produce product, but output includes positive product and defective product, so both positive and defective product should burden cost of material, energy and system cost for production. Wastes does not compose product. Company does not spend energy and system cost to product cutting waste, impurity and other waste, so energy consumption and system cost for production should not be allocated to them. But, company spends gasoline fare, electrical fare, salary and other cost to dispose waste,

4-10 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report energy and system cost for disposal should be allocated to waste cost. As a result, waste cost includes material cost, system and energy cost for disposal.

Fig.4.6 Cost allocation chart by T account in the traditional accounting

In the modified MFCA, Accounting subjects of positive product, waste and defective product are set. Positive product is used to count the cost of product fit to the product quality standard. Material cost of positive product can be calculated according to the product standard. About allocation of system and energy cost, there is a costing principle, that is products or the departments benefiting from cost bears the cost, we do not intend to produce waste. Therefore, we should not allocate the system and energy cost for production to waste. Energy cost, manufacturing expense and labor cost of positive product are allocated to it by the ratio of positive product and defective product. Cost of positive product can be calculated by the formulas (4-2) and cost of defective product can be calculated by the formulas (4-3)

Cd＝ MCp×Ad＋(ECp ＋ SCp)×DP (4-2)

Cp＝ MCp×Ap ＋(ECp ＋ SCp)×(1－ DP) (4-3)

Cd：Cost of defective product MCp：Material cost per positive product

Ad：Amount of defective product Ap：Amount of positive product

ECp：Energy cost for production SCp： System cost for production

Cp：Cost of positive product DP：Defective percent

4-11 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

When company disposes the industry waste, it will cost material, energy and labor. For example, to transport the solid waste to the industry waste disposal company, the transportation expense, payment to the porter, payment for the rubbish treatment, pollutant charge and other will be record as waste disposal expense. This expense have not any relationship with the product, it should be allocated to waste cost completely. On the other hand, revenue of valuable waste can directly offset waste disposal cost. Waste cost can be got by formulas (4-4).

Cw＝MCi－MCp ( Ad＋Ap) ＋DCw (4-4)

Cw：Waste cost MCi：Cost of all material input

MCp：Material cost of one positive product DCw：Waste disposal cost

Ad：Amount of defective product Ap：Amount of positive product

Next, this study will apply modified MFCA in the process of gum roller. Three steps of modified MFCA are shown in following. Step 1：Prepare bill of material and calculate cost of positive and defective product. In this step, enterprise need analyze standard of product composition it is also called as bill of material, and collect price and amount of energy cost and system cost as shown in Table 4.5. And then, according to defective percent, calculate cost of defective product and positive product as shown in Table 4.6.

Table 4.5 Data for costing of defective and positive product Bill of material of cum roller and material System costing (S) Energy costing (E) costing Material Amount Price Cost Name Amount Cost ¥ Name Amount Cost ¥ Shaft 1 unit 100¥ 100 Salary - 500,000 Electricity 400kwh 80,000 Cum 49.9g 0.3¥/g 14.97 Depreciation - 200.000 Vulcanizing 0.05g 10 ¥/g 0.5 agent Foaming 0.05 10¥/g 0.5 agent Adhesives 0.6g/unit 5¥/g 3 Subtotal 118.97 700,000 80,000

Table 4.6 Cost of defective product and positive product Defective Amount of Price Material cost System cost Energy cost Defective percent Total cost \ material (A) (P) (A×P) (D×S) ( D×E) product (D) 50 118.97 5948.5 1% 7,000 800 13,750 Amount of Material cost 1-Defective System Cost Energy cost Positive Price (P) Total cost \ material (A) (AХP) percent (G) (G ХS) ( G Х E ) product 4950 118.97 588901.5 99% 699300 79920 1361,250

4-12 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

Step 2, data collection of input and waste costing. In this step, we need collect amount of all input and, and disposal cost for every kind of waste as shown in Table 4.7 and Table 4.8. Table 4.9 shows us the calculation of waste cost.

Table 4.7 Collection of material input Material Amount Shaft 5000 units Gum 500kg Vulcanizing agents 0.5kg Foaming agent 0.5kg Adhesive agent 4kg Thinner 6.6kg

Table 4.8 Data collection of Waste treatment Name of material Amount (g) Price (￥/g) Cost (￥) Cum mixture 253,500 0.05 12,700 Adhesive 0.1 0.1 100 Thinner 6,600 0.1 700 Revenue of valuable waste 0 0 0 Total 13,400

Table 4.9 Cost calculation of waste Cost Material cost Disposal cost All cost 103¥ 103¥ Material pos/def Waste Price Cost categry Input(a) Price cost sum103¥ Ratio% product (b) (a-b) Shaft 5000 5000 0 0.1 0 0 0 Gum Main 501kg 250 251 0.319 80.07 0.05 12.55 92.62 93.98 mixture Material Adhesive 4kg 3 1 5 5 0.1 0.1 5.1 5.18 agent Auxiliary Thinner 6.6 0 6.6 0.025 0.17 0.1 0.66 0.83 0.84 material Total 98.55 100

Cost ratio of defective cost, positive cost and waste are shown in Table 4.10. Negative product ratio is just 7.62% in modified MFCA. Compared to 21% negative cost, the difference is considerable. Therefore how to right and reasonable allocate system and energy cost is very important.

Table 4.10 Cost calculated by modified MFCA Items Positive product Defective product Waste Output Cost 103¥ 1361.25 13.75 98.55 1473.55

Ratio % 92.38 0.93 6.69 100

Step 3, draw proposal.

4-13 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

From Table 4.10, we can find waste took larger part of total cost. From Table 4.9, we find waste of 251 gum mixture take a large part of total waste cost. Through measure weight of cutout and scrap of grinding, we find the cutout of both ends is125kg, and the scrap is 75kg, 51kg error cannot be measured. 51kg gum mixture cannot be measured because they may stick to equipment. As a result, enterprise can know well about amount and cost of defective product and waste and draw proposal.

4.3.2 Integration of MFCA and ERP Enterprise resource planning (ERP) systems is widespread used in enterprise. It integrate internal and external management information across an entire organization, embracing accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate these activities with an integrated software application. Departments of enterprise fill different bill, other department can make freely use of information of bill by this software, ERP facilitates the flow of information as shown in Fig 4.7. If we can integrate theory of MFCA in ERP system, it will reduce the workload of data collection of MFCA and simplify calculation of cost. Many calculations of MFCA and data input can be finished automatically. Integration of MFCA and ERP will be good for spread of MFCA.

Fig 4.7 Simplified data flow of ERP

Besides of function models of Fig 4.7, ERP include many other function models like Master Production Schedule to make sure production goes on smoothly and timely. This paper aims at modification of costing, so we give an image of simplified data flow of ERP to illustrate it. in an enterprise with ERP, Sale department fill sales orders when it sales products, production department can calculate demand of material by product amount in sale order and material standard in bill of material. And then, according to the situation of inventory,

4-14 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report production departments make Material Requirement Plan, and then send the purchase requirement to purchase departments. Purchase departments will purchase materials and then fill purchase order. When materials come into stage, warehouse keeper will fill delivery receipt to make sure materials have come into warehouse and can be used. We take a batch production as example, Production departments make manufacturing order according to sales order, and then, according to manufacturing order, production planers assign work to workshop and send assignment list to responding workshop. And then workshop will pick material from stage according to bill of material and Assignment list and fill picking list. After that, production departments will begin to produce and fill completion record, at last send product to stage. To provide data used by MFCA, production department need measure and record more data than before. Table 4.11 is improved completion record base on MFCA, we can find workshop need measure and record name and amount of waste, amount of defective and positive product. Standard amount of every material imports automatically from bill of material. Input of material import automatically from picking list. For waste of material, Amount of waste is equal to input minus sum of amount of defective product and positive product. For emission which has changed physical form, work shop need measure amount of emission.

Table 4.11 Improved completion record Input Name Positive Defective of Waste Work Energy consumption Process product Product product work hours shop N A S A S A N A N A cutting W1 W2

Note：N is abbreviation of name; A is abbreviation of amount; S is abbreviation of standard amount of material in product.

After production department provide data above, ERP system can draw automatically costing form of defective product and positive product as shown in Table 4.12. In this table, price import automatically from purchase order. The data of Amount of defective product and positive product, name and amount of waste, work hour, amount and name of energy consumption and workshop import automatically from competition record. Depreciation cost can be got by depreciation ratio multiplied by actual work hours, or filled manually by accountant according to other allocation method of depreciation. Other cost means cost of deprecation consumables like gloves for worker. Amount and cost of deprecation consumables import automatically from picking list.

4-15 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

Table 4.12 Costing form of defectives and positive product Material cost Energy System cost Cost Energy and depreciation cost Other Positive Defective Energy Work Payment Work Labor depreciation N price N Price cost A C A C A C shop per hour hours cost cost

Total Note：N is abbreviation of name; A is abbreviation of amount; C is abbreviation of cost.

On the other hand, enterprise can set department of waste disposal to record information of waste disposal. Workers in department of waste disposal need fill Table 4.13. Amount and category of waste, disposal method and work hour and other information about disposal will be record in this table. Table 4.13 Data form of waste disposal Outer disposal Inner disposal Name Amount Price Cost Work hours Amount of energy Other cost W1 W2 Total

ERP system will draw automatically cost form of waste, as shown in Table 4.14. Amount and name of material import automatically from completion record, other information import automatically from data form of waste disposal. By this way, accountants can master easily cost of defective product and waste. When production department and department of waste disposal fill information of waste and waste disposal, environment awareness of them will be enhanced. By this way, environment management strategy can be integrated in every department and worker of enterprise.

Table 4.14 Cost form of waste Outer Material cost Inner disposal N disposal Total Labor Work Sub energy Amount of Sub Other Total A price C Price Cost cost hours cost price energy cost cost cost W1

W2

Total Note：N is abbreviation of name; A is abbreviation of amount; C is abbreviation of cost.

4.3.3 Financial report improvement based on the MFCA By integration of ERP and MFCA, all workers of enterprise will take part in environment management strategy, and manager can make better decision about environment business, reduce environment load and enhance economic profit. However for outer shareholder of

4-16 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report enterprise, it also need know well about environment performance of enterprise. The traditional external financial reports include Income Statement, Balance Statement and Statement of Cash Flow, among which the income statement is most attractive financial report, it reflect the earning ability and result of a company in a period of time. From the traditional income statement, shareholders cannot find the waste information. With the environment awareness increasing, the environment protection regulation from government and society will increasing, corporate environment risk and cost will increase. More and more shareholders hope to know well about environment performance. On the other hand, no matter big company or small company will issue Income Stamen. Therefore, taking waste cost information into Income Statement will promote corporation to reduce waste. Formats of traditional Income Statement in different countries are different. The general and simple format is shown in the Fig 4.8. We can find information of negative product is hided in the cost of goods sold

Income statement Company name: Period： Unit：

Sale revenues------6100.2 Cost of product------9954.4 Gross profit ------6145.7 Operating expense: research and development------610.0 sales and marketing------1002.0 general and administrative------420.0 Total operating expense------2032.0 Operating income ------4113.7 interest income-net------100.0 Income before taxes------4013.7 income tax expense ------350.0 Net income------3663.7

Fig 4.8 Traditional Income Statement format

Based on integration of MFCA and ERP, cost of defective product and waste are easy to get. In the improved Income Statement, the cost of defective products and waste will listed in Income Statement as shown in the Fig 4.9.

4-17 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

Income statement Company name: Period: Unit：

Sale revenues------16100.2 Cost of positive product------8331.7 Cost of waste------1614.4 Cost of defective product------8.3 Gross profit ------6145.7 Operating expense: research and development------610.0 sales and marketing------1002.0 general and administrative------420.0 Total operating expense------2032.0 Operating income ------4113.7 interest income-net------100.0 Income before taxes------4013.7 income tax expense ------350.0 Net income------3663.7

Fig 4.9 Improved income statement format

4.4 Case study of modified MFCA in Chinese small enterprise

4.4.1 Company profile Anhui Lianchuang drug chemical Co., Ltd produces mainly fine chemical products. In order to manufacture high quality chemical products, ingredients of high purity are needed. And a large amount of solvent waste and waste fluid are generated to prevent and dispose impure substance. This study introduced MFCA to this company, so as to master timely the waste cost information and draw an income statement which visualizes the negative product information.

4.4.2 Definition of quantity center Manufacturing process consists of the following operations:  The catalyst is added and heated for reaction after the solvent, raw materials A and B, and the collected solvent are all put in a reaction vessel.  The catalyst is collected upon termination of reaction.  Product is extracted, and then filtered for extraction of the product.  The solvent is collected by distillation. At this point, the residue and the waste fluid in the distillation boiler need to be processed as waste. 4-18 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

 After manufacturing, tools associated with the process, such as the container and other equipment are all rinsed with solvent and water. Quantity center is different parts of whole process divided by accountant in order to easy to evaluate material and energy loss. In this company, manufacturing of target products is conducted in a series of processes that include reaction, catalyst collection, filtration and inspection and switch-cleaning process. Because company made production plan according to batch, and calculate cost for every batch. Company have packaging workshop in charge of packaging of all product. Therefore reaction, catalyst collection, filtration and inspection and switch-cleaning are considered as QC1 (production process), packaging was considered as QC2 (packaging). Process of production is shown in Fig 4.10.

Fig 4.10 Process of production

4.4.3 Data collection and cost calculation The data collected is shown in Table 4.15.

4-19 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

Table 4.15 Data collected by company input Output Items Amount kg Cost ¥ items Amount Cost ¥ Material A 780kg 3000 Defective percent 0.1% Direct Material B 650kg 2610 Solvent collection 8200kg 410 material Packaging material - 500 Catalyst collection 15kg 75 Solvent for reaction 940kg 470 Waste fluid - - catalyst 20 kg 100 Waste for packaging 20kg Indirect Water for action 7300 29.2 material Water for cleaning 1300 5.2 Solvent for cleaning 90 45 For reaction 130 Energy For cleaning 70 System For reaction 2600 cost For cleaning 1350 Waste For defectives 88.2 disposal For other waste 40

Cost of defective product, positive product and waste are shown in Table 4.16. We can find main negative cost comes from waste. We checked waste composition as shown in Table 4.17. We can find system cost for cleaning take a large part of total waste cost. Switching cleaning spent a lot of labor cost, so enterprise should try to avoid switching as possible as they can.

Table 4.16 Analysis of positive, defective product and waste in QC1 Items Positive product Defective product Waste Output Cost 103 \ 8331.66 8.34 1614.4 9954.4 Ratio % 83.70 0.08 16.22 100

Table 4.17 Investigation of waste product and waste Waste material Amount Cost \ Catalyst 5kg 25 For reaction Water 7300kg 29.2 Solvent 100kg 50 For clean Solvent 90kg 45 Water 1300kg 5.2 Energy cost for cleaning 6.6kWh 70 System cost for cleaning 1350 Disposal cost for waste fluid 40 Waste packaging 400

4-20 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

4.4.4 Draw Income statement in October 2011 In the end of October, we drew a improved income statement based on the MFCA as shown in the Fig.4.11. Income statement Company name: Anhui Lianchuang drug chemical Co Period: 2011.10.01-2001.10.31 Unit：yuan

Sale revenues------16100.2 Cost of positive product------8331.7 Cost of waste------1614.4 Cost of defective product------8.3 Gross profit ------6145.7 Operating expense: research and development------610.0 sales and marketing------1002.0 general and administrative------420.0 Total operating expense------2032.0 Operating income ------4113.7 interest income-net------100.0 Income before taxes------4013.7 income tax expense ------350.0 Net income------3663.7

Fig 4.11 New income statement of Lianchuang

4.5 Conclusion

Modified MFCA divides negative products into defective products and waste. To make cost allocation is more rationale and accurate, modified MFCA treats differently energy and system cost for production and for waste disposal, Energy and system expense for production should be allocated according to the defective ratio. Energy and system expense for the waste disposal should be allocated to the waste cost. For the process or company with low ratio of material cost, the allocation of energy and system cost is very critical. So during applying to the improve MFCA, enterprise need identify the following points.  Prepare bill of material, and identify the direct material composing products and indirect material no composing product. The indirect material cost will be allocated directly to waste cost.  Collect data of input. For the material which does not change to be another material after the process, according to the product standard, get the material waste by the

4-21 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

input minus the material contained in the positive product. For waste which has changed physical form, enterprise measure and record name and amount of waste.  Divide energy and system expense into energy and system cost for production and waste disposal.  Record information of waste disposal in detail.  Calculate cost of positive product, defective product and waste This study integrated MFCA and ERP, It make calculation of MFCA can finished automatically by software. It will promote the application of MFCA in China. This study improved Income Statement based on information provided by MFCA. Improved Income Statement will list the defective product cost and waste cost in report. If this kind of Income Statement can be applied in future, it will promote greatly enterprise to reduce waste and environment load under public scrutiny. Under integrate of MFCA and ERP, cost of defective product and waste in ERP can import to Income Statement automatically. At last, this study applied MFCA to a Chinese small company. Through case study, we can find MFCA is a good tool for Chinese enterprise to find main reason of waste.

4-22 Chapter 4 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report

Reference

4-1) Maddison, A. The World Economy: Historical Statistics, OECD, 2003. 4-2) Bernd Wagner, The Role of MFCA in Coping With the Challenges of 2020, The 9th International Conference on EcoBalance November 9-12, 2010, Tokyo, Japan, p1. 4-3) Katsuhiko Kokubu, Michiyasu Nakajima (s), material flow cost accounting in Japan：a new trend of environmental management accounting practice, Fourth Asia Pacific Interdisciplinary Research in Accounting Conference, Singapore, June 2004, p3. 4-4) Ministry of Economy, Trade and Industry, Guide for Material Flow Cost Accounting, March 2007. 4-5) Ministry of Economy, Trade and Industry, Report of MFCA application and countermeasure, 2011. 4-6) Michiyasu Nagajima, On the Difference between Material Flow Cost Accounting and Traditional Cost Accounting, Kansai university review of business and commercial, No.6 March 2004, p6. 4-7) John E. (Jack) west, Standards Column, Quality engineering, 2009, p463. 4-8) Hiroshi Tachikawa , Yoshikuni Furukawa, International Standardization of MFCA (ISO 14051), The 9 th International Conference on EcoBalance November 9-12, 2010, Tokyo, Japan, p2. 4-9) Hiroshi Tachikawa, Yoshikuni Furukawa. International Standardization of MFCA (ISO 14051), The 9th International Conference on EcoBalance, November 9-12, 2010, Tokyo, Japan, p1. 4-10) Zhen Guohong, The Basic Princip les of Material Flowing Cost Accounting, Taxation and Economy, No.4 July 15, 2007. 4-11) Zheng Ling, Xiao Xun, The discussion about the condition of material flow cost accounting, Accountig Monthly, May, 2009. 4-12) Feng Qiaogen, Material Flow Cost Accounting Based on Environment Management and Its Application, Accounting Monthly, December 2008. 4-13) Xiao Xu Zhou Zhifang Li Xiaoqing, The Application of Resource Flow Cost Accounting to Lead-Zinc Smelting Enterprise, Accounting Research, No.6, 2008. 4-14) ZHANG Benyue, et al, Feasibility of MFCA application in environment Management Strategy(in Japanese), 2012. 4-15) Onsui Ryoiti, Deng Mingjun, Current Status and Research of Japanese Small-Medium Enterprises Applying Material Flow Cost Accounting, accounting monthly, July 2009. 4-16) Katsuhiko Kokubu, Material Flow Cost Accounting 2008, p36. 4-17) Ministry of Economy, Trade and Industry, Material Flow Cost Accounting-MFCA Case Example, 2010, pp8-55. 4-18) Ministry of Economy, Trade and Industry, Research report of investigation of MFCA Calculation tool Facing Small-medium Enterprise (in Japanese ), 2010, p5.

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Chapter 5

Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing

Content

5.1 Introduction ...... 5-1 5.1.1 Definition of corporate social responsibility (CSR) ...... 5-1 5.1.2 Philosophic theory of CSR ...... 5-1 5.1.3 Subjects and contents of CSR ...... 5-2 5.2 Purpose of the study ...... 5-3 5.2.1 Current status of CSR ...... 5-3 5.2.2 Study purpose ...... 5-5 5.3 Establishment of indicator system of CSR assessment ...... 5-6 5.3.1 Current status of CSR assessment ...... 5-6 5.3.2 Establishment of CSR indicator ...... 5-7 5.4 Construction of CSR database in China and Japan ...... 5-27 5.4.1 Structure of CSR database ...... 5-27 5.4.2 Content of CSR database ...... 5-28 5.5 Investigation enterprises how to take CSR both in China and Japan in Manufacturing . 5-32 5.5.1 Method ...... 5-32 5.5.2 Result and analysis ...... 5-33 5.6 Conclusion ...... 5-42 Reference ...... 5-45

Figure

Fig 5.1 Amount of CSR disclosed by different industries from 2002- Mar,2012 ...... 5-4 Fig 5.2 Study purpose ...... 5-6 Fig 5.3 Composition of CSR and indicators ...... 5-8 Fig 5.4 Image of database of CSR ...... 5-28 Fig 5.5 Disclosure ratio of indicator in both counties ...... 5-33 Fig 5.6 DR of companies in Japan ...... 5-34 Fig 5.7 DR of companies in China ...... 5-34 Fig 5.8 Action in aspects or indicators of CSR management taken by enterprise ..... 5-35 Fig 5.9 Action in relevant aspect of market responsibility taken by enterprise ...... 5-36 Fig 5.10 Actions or indicator taken by more than half of enterprise in Japan ...... 5-37 Fig 5.11 Actions or indicator taken by more than half of enterprise taken in China . 5-38 Fig 5.12 Comparison of action of environment management taken by enteprise ...... 5-39 Fig 5.13 Amount of enterprise taking action in global warming prevention ...... 5-40 Fig 5.14 Action of responsibility for employee and community taken by enterprise 5-41

Table

Table 5.1 Subjects and contents identified in popular CSR standard and guideline .... 5-2 Table 5.2 Comprehensive CSR guidelines ...... 5-3 Table 5.3 Uptake of standards for sustainability in China ...... 5-4 Table 5.4 Aspects and indicator of CSR management ...... 5-9 Table 5.5 The aspect and indicator of market responsibility ...... 5-12 Table 5.6 Aspects and indicator in the environment responsibility ...... 5-16 Table 5.7 method for payment of social responsibility ...... 5-18 Table 5.8 Aspects and indictors of responsibility for employee ...... 5-20 Table 5.9 The method and aspects of community development ...... 5-25 Table 5.10 The aspects and indicator of responsibility for government ...... 5-26 Table 5.11 CSR compact or code of conduct for sectors ...... 5-31 Table 5.12 Amount of CSR action of indicators ...... 5-32

Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing

5.1 Introduction

5.1.1 Definition of corporate social responsibility (CSR) Corporate Social Responsibility is also known as corporate responsibility, corporate citizenship, responsible business, sustainable responsible business (SRB), community relations or corporate social performance. If we search for the definition of CSR online, we can find many definitions. The shared view about CSR definition of most scholars is that corporate social responsibility is a corporate strategy which has a close relationship with the corporate decision-making, operation and corporate competitiveness and so on. The goal of CSR is sustainable development. Under the guide of CSR perspective, the company takes the preserving environment, resource and Cultures, preserving the right of people and future generations, keeping biodiversity, promoting a reduction in social inequalities and others into account, and establishes business goal and makes decision to achieve the company sustainable development compatible with society’s sustainable development. CSR is not a series of activities beyond the legal obligation like donation, voluntary activities and other. It also is not some activities after getting profit. Of course, it is also not the action just belonging to the large and big-profit companies.

5.1.2 Philosophic theory of CSR Enterprises survived historically by generating maximum profits for their shareholders and providing a service at the least cost to the taxpayers. Today this approach is simply not enough to guarantee survival. The professor Sinyiti TOMONARI affiliated in Waseda University mentioned the octopus theory in his book; every octopus lives in the octopus bottle. The characteristics of octopus bottle are segmentation, discrimination and collision, that is to say, every octopus lives in the different octopus bottle. The octopus may conflict with each other, therefore, every octopus try to make the octopus bottle stronger and better to protect itself. Professor Sinyiti TOMONARI thinks the individual and organization also can be viewed as the octopus. For individual, the octopus bottle includes the money, position, education background and so on. For the organization, the management system, policy, nation, law and others are the octopus bottle. According to the octopus theory, every enterprise can be viewed as one octopus; the enterprises living in the society, as the octopus living in the octopus bottle, hope to make their octopus bottle stronger and better. Profit is blood of the enterprise, after the enterprise ensuring alive, it is going to try their best to make their octopus bottle stronger. Now, there are many global issues facing business and wider society: poor corporate governance practices and widespread corruption, labor abuses and supply chain management, the economic crisis and soaring food prices, scandals over product safety and severe environmental damage, climate change and natural resource shortage. Enterprises are trying their best to make the octopus bottle strong enough to survive for a long time. Corporate Social Responsibility (CSR) is an essential factor of the survival for any

5-1 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing organization, given that all organizations have some connection with society. More and more companies are adopting Corporate Social Responsibility. They are demonstrating socially and environmentally responsible to the public, consumers, communities, investors and other shareholders.

5.1.3 Subjects and contents of CSR International Organization for Standardization (ISO) is a worldwide federation of national standards body. It issued the International Standard ISO 26000:2010, Guidance on social responsibility in 2010 which provided harmonized, globally relevant guidance for private and public sector organizations of all types based on international consensus among expert representatives of the main stakeholder groups, and so encouraged the implementation of best practice in social responsibility worldwide5-1). The standards of ISO have a wide impact in the world. Global Reporting Initiative (GRI) is a non-profit organization that promotes economic sustainability. It seeks to make sustainability reporting by all organizations as routine as, and comparable to, financial reporting. GRI produces many sustainability reporting guidelines also known as ecological footprint reporting, Environmental Social Governance (ESG) reporting, Triple Bottom Line (TBL) reporting, and Corporate Social Responsibility (CSR) reporting. There sustainability reports are applied widely in the world. The G3 launched in 2006 are the so-called "Third Generation" of the GRI’s Sustainability Reporting Guidelines. GRI seeks to continually improve the Guidelines. The G3 build on the G2 (released in 2002), which in turn are an evolution of the initial Guidelines, which were released in 2000. 5-2) The G3 Guidelines consist of principles and disclosure items, it provide universal guidance for reporting on sustainability performance. Up to now, the G3 is most popular reporting guideline in world In addition, some exports think CSR is the responsibility corporation should take for all their shareholders like customer, stockholder, employee, community, government, suppler and partners, environment and so on. The main CSR subjects of these guidelines are shown in the Table 5.1.

Table 5.1 Subjects and contents identified in the popular CSR standard and guideline Guidelines ISO26000 G3 Shareholders Human rights Strategy and Profile Responsibility for: Labour practices Economic Stockholders Environment Environmental Customers Fair operating practices Labor Practices and Decent Employee Contents＆subjects Consumer issues Work Community Community involvement Human Rights Government and development Society Suppler and partners Product Responsibility Environment

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5.2 Purpose of the study

5.2.1 Current status of CSR 1) CSR standards and compact in the world To promote enterprise to take social responsibility, government and organization has drawn a number of reporting guidelines or compacts. Enterprises actively apply these guidelines or joint to CSR compacts. As we know Corporate Social Responsibility refers to environment affairs, market action, social affairs, human right and many aspects. But not all guidelines or compacts are comprehensive, some just emphasize on the human right or work environment, some emphasize on environment. In addition, the different sectors have their specific social responsibility certification for their sectors. Take comprehensive CSR guidelines as example, as shown in Table 5.2, we can find comprehensive CSR guidelines issued by different organization are various.

Table 5.2 Comprehensive CSR guidelines Name issuer Purpose and content Guidelines for Organization for Economic A code of conduct to promote Multinational Enterprises Cooperation and Development (OECD) multinational enterprises to take SR ESG; TBL; G1,G2,G3 Global Reporting Initiative(GRI) Promoting the sustainability reporting AA1000 Series of AccountAbility Measuring and reporting of ethical Standards behavior in business ISO26000 ISO Helping organization to operate in a socially responsible manner SIGMA Guidelines British Standards Institution, Providing clear, practical advice to Forum for the Future, organizations to enable them to AccountAbility make a meaningful contribution to sustainable development Connected Reporting Accounting for Sustainability (A4S) An approach to reporting an Framework Project of UK organization’s environmental and social footprint and its financial impact. Sustainable Development Germany Providing SD-KPI, of 68 industries Key Performance Indicator (SD-KPI) Chinese CSR Report China Guiding for draw of CSR report Guideline (CASS-CSR)

2) Current status of Chinese CSR As mentioned in Chapter 2, Chinese companies take actively social responsibility under the promotion of government and Stock Exchanges. Meanwhile, Chinese enterprises are also adopting international CSR guidelines or compacts as shown in Table 5.3.

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Table 5.3 Uptake of standards for sustainability in China Name Numbers of companies certifying or implementing the standard China Social Compliance By December 2008, 314 members of the Responsible Supply Chain 9000 for Textile & Apparel Association adopted the standard, 53 of which have been accredited.5-3) Industry (CSC9000T) Forest Stewardship Council 1,161 Chinese companies in total: 879 in mainland China, 248 in Hong (FSC) Principles and Criteria Kong, and 34 in Taiwan.5-4) OHSAS18000 By July 2009, 22,667 Chinese enterprises were accredited.5-5) SA 8000 By March 2009, 223 Chinese enterprises were SA8000 certified.5-6) Sustainability Reporting By September 2009, 47 Chinese enterprises had adopted the G3 Framework(G3) of Global guidelines.5-7) Reporting Initiative (GRI) UN Global Compact By September 2009, 212 members in China, including 185 enterprise members.5-8) Worldwide Responsible By September 2009, more than 300 factories in China were WRAP Apparel Production certified.5-9) AA1000 by 2010, 33 Chinese companies register in the AA1000assurence standard, 1in Taiwan5-10)

CSR awareness of Chinese corporations has been increasing. However, Chinese corporations still face many problems. In addition, so surprising development speed of CSR also implies that there are still many works to do for perfection of CSR. As shown in Fig 5.1, we can find financial enterprise disclosed much more CSR reports than other enterprises. In manufacturing, smelting industry, chemical industry, electronic components and device and pharmaceutical manufacturers disclosed more CSR reports.

380

304 228 152

76 Amount Amount CSR of Unit / 0

Fig 5.1 Amount of CSR disclosed by different industries from 2002- Mar,2012

According to the "2009 China’s Corporate Social Responsibility Blue Book", we can find

5-4 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing the market responsibility scored the highest due to corporation’s profit-driven model. Environmental responsibility scored the lowest. Moreover, the CSR management score was also very low. However, Companies had a relatively better performance in the social responsibility than in CSR management and environmental responsibility. During the social responsibility, the disclosure of responsibility for employee was not sufficient and comprehensive, and the quantitative description is not enough. However, companies did better in donation. In the four sub-indexes of CSR management, the performance of responsibility promotion was worst. Most companies did not established social responsibility organization and management system, did not make the CSR payment plan, did not do enough work in the training of social responsibility and the requirement survey of the shareholder. Whole management level of social responsibility need be improved. In the environmental responsibility, enterprises did worst on disclosing their environmental issues, such as energy saving and pollution control. Up to April 2010, the least disclosed information was still environment protection investment and the carbon emissions. Among117 listed companies, 2 companies disclosed the carbon emission, and 7 companies disclosed the environmental protection investment. According to one international survey of Corporate Responsibility Reporting, almost 70% of top 100 companies did not report climate risks in 22 countries. In Japan and the United Kingdom, the ratio of company reporting on social responsibility and environmental impact is larger than in other counties. For Japan, it is due to environmental reporting regulations. For UK, it is due to consumer, media, employee and shareholder groups calling for accountability and transparency.

5.2.2 Study purpose Because of environmental degradation, resource and energy shortage, human right problem, gap between the Rich and the Poor and human being sustainability, the theory of enterprise value maximization was being challenged, and society are promoting enterprise to take more responsibilities from different aspect such as protecting environment, respecting human right, providing safe product and safe work environment, contributing to the community and so on. The perception and reality of an organization's performance on social responsibility can influence the following aspects: competitive advantage, reputation, ability to attract and retain workers or members, customers, clients or users, maintenance of employees' morale, commitment and productivity, view of investors, owners, donors, sponsors and the financial community, relationship with companies, governments, the media, suppliers, peers, customers and the community in which it operates. More and more enterprises find the positive role of CSR in the sustainable development. Pressure to take social responsibility comes from customers, consumers, governments, associations and the public at large. At the same time, far-sighted organizational leaders recognize that lasting success must be built on credible business practices and the prevention of such activities as fraudulent accounting, environment pollution and labor exploitation. More and more enterprise is taking the CSR into operation

5-5 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing strategy. Meanwhile, international organization and government has developed projects or policy to support enterprise taking social responsibility. Many guidelines or standards are developed to identify the principle, content, practices, audit, certification and other aspects of CSR. To put the principles into practice and implement SR effectively and efficiently, this paper will try to specified the CSR practice for manufacturing, search and summarize issues an organization needs to address in order to operate in a socially responsible manner, and the best practice in implementing SR. On the other hand, to promote the CSR, assess the CSR performance and then stimulate enterprise with better performance is also an important procedure of CSR promotion, this paper will specified there action at the viewpoint of CSR performance assessment, and establish a CSR assessment indicator system as shown in Fig 5.2.

Fig 5.2 Study purpose

5.3 Establishment of indicator system of CSR assessment

5.3.1 Current status of CSR assessment About CSR performance assessment, there are about 60 main research organizations of social responsibility and socially responsibility investment in the world. KLD Research ＆

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Analytics INC in USA , EIRIS in UK and oekom research AG in Germany are famous SR research organization. And to improve the quality and the transparency of CSR research, and to facilitate procedure for control and compliance, the initial version of the standard of quality of CSR research (CSRR-QS1.1) are approved in October, 2003 in Europe. The present version is the CSRR-QS2.1 was approved in April, 2008. This guideline promotes the work of CSR research. In china, the RLCCW is the only independent CSR research established in 2007. It aims at become the Chinese KLD. However, up to now, it mainly does the ranking of CSR report, not the ranking of CSR performance. The other CSR performance awards are granted generally by the government office or magazine and other news media. And the assessment methods and criteria are not enough transparent. Therefore, the ranking results are lack of public trust.

5.3.2 Establishment of CSR indicator As we know, there are many CSR frameworks, principles, and guidelines in the world, and corporation also is enthusiastic to take SR. So which action is an effective action of taking social responsibility? This paper will specify CSR action for corporation. On the other hand, to assess performance of CSR, there paper will limit the scope of every aspect. For CSR to be accepted by a conscientious business person, it should be framed in such a way that the entire ranges of business responsibilities are embraced. The Carroll, Archie B. thought that economic, legal, ethical and philanthropic constituted the CSR. The guideline of China CSR report indicates that the CSR includes the following aspects：Market responsibility, CSR management, social responsibility and environmental responsibility.5-11) G3 of GRI depicts that the CSR includes economic responsibility, environmental responsibility and social responsibility. We integrated the content of G3, CSRR-QS2.1, ISO 26000 and SD-KPI, and get a comprehensive CSR performance indicator system. To assess the CSR, the scope of every indicator should not be aligned with the scope of other indicators. So in the indicator system, the scope of every indicator is strictly identified. To embrace the CSR contents as much and clear as possible, we collect all responsibility according to shareholders of enterprise, divided it into three aspects which are market responsibility, society responsibility and environment responsibility. Market responsibility includes the responsibility for the customer, supplier, and partner. The responsibility for government, community and employee are identified as community and society responsibility. On the other hand, CSR management is not responsibility for any shareholders but it supports payment of responsibility for every shareholder. In indicator system, this study extracted CSR management from environment responsibility, social responsibility and market responsibility to enhance CSR of Chinese enterprise from foundation. Fig 5.3 shows composition of CSR indicator.

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Fig 5.3 Composition of CSR and indicators

1) CSR management Responsibility management is the system by which enterprise make and implements decision to take better social responsibility. Enterprise takes social responsibility following a process of plan-action-check-improve. Generally speaking, the responsibility management includes the CSR management system, CSR promotion and CSR communication. Enterprise should firstly initiate the CSR or ecology version and strategy, develop CSR organization or Committee, and then draw CSR policy and plan. After that, enterprise should audit and monitor the performance of CSR and try to improve it by some measures like CSR education. At last, enterprise should communicate CSR with external organization, enquiry and feedback for shareholder by disclosing report or try to get third-part certification. Therefore, the responsibility management includes three aspects. Aspect 1 responsibility management Aspect 2 responsibility auditing Aspect 3 responsibility communication Responsibility management includes organizational structure, responsibility version or conduct, planning activities, responsibilities, practices, procedures, processes, and resources for developing, implementing, achieving, reviewing, and maintaining policy.

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The responsibility communication indicates all information communication with every shareholder so as that the shareholder can know well CSR concept and CSR performance. The methods of CSR communication include a. CSR inquiry and response like publishing magazine and paper for shareholder, engaging in dialogue with shareholder surveys, meeting with local residents, periodic visits and reporting, meeting with business partners. b. CS information disclosure like environment report, environment labeling, environment exhibit and conference, environment advertisement and so on. Relationship of indicators and aspects are shown in Table 5.4, ○ means the indicator is an action or practice of responding aspect.

Table 5.4 Aspects and indicator of CSR management Aspect 1 2 3 Indicators CSR or ecology version and strategy ○ Risk or sustainability analysis ○ Compact or other responsibility commitment ( like Global Compact) ○ CSR organization or Committee ○ CSR plan ○ CSR education ○ Promote partners or sub company to take responsibility ○ Audit and monitor the progress ○ Response to responsibility requirement of shareholder ○ Outer CSR communication ○

Practice of every indicator are collected as following： CSR or ecology version and strategy - Describe the version, strategy mission about CSR. Risk analysis or sustainability analysis - Affection analysis of enterprise on environment, society and economics. - Analysis of sustainable development. - Plan or countermeasure for sustainable development. Compact or other responsibility commitment - Join in the following compact or commitment about human right, such as convention of International Labour Organization (ILO), Universal Declaration of Human Rights (UN), SA8000, and Global Sullivan Principles and so on. - Join in the following compact or commitment for supply chain, such as the Worker Rights Consortium (US), Initiative Clause Social (France), ETI Base Code issued by the Ethical Trading Initiative of UK, ICC Business Charter for Sustainable Development, Occupational Health and Safety Assessment Series 18000 (OHSAS18000), BRC Global Standard – Consumer Products (UK), Supplier Ethical Data Exchange (UK), and so on.

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- Join in the industrial CSR compacts and commitments. CSR organization or Committee - Set leader of CSR affairs. - Set department charging for CSR. - Assign employee for CSR and set their right and responsibility. - Draw out social responsibility policy. CSR plan Enterprise should identify CSR plan and countermeasure to make it come true. CSR education, Enterprise let employee knowing importance of CSR and having specific image of CSR, It can hold meeting, do report of CSR for employee, set CSR column in company website, inner CSR journal, and education about law compliance. Promote partners or branch office to take responsibility - Promote branch office to take social responsibility and disclose CSR report. - Assess their CSR performance and award them. - Educate branch office. - Make sure partner which taking CSR. - help partner to taking CSR. Ensuring law compliance - Set version of law compliance. - Set code of conduct of law compliance. CSR auditing - Assess CSR performance by meeting or third part assessment CSR communication Because the inner communication is action of CSR action, so CSR communication just means outer CSR communication, that is to say, disclose CSR response the CSR requirement of CSR. Outer CSR communication - Disclose CSR report. - Hold conference of CSR with shareholder. - Managers take part in the conference about CSR. Response to responsibility requirement of shareholder - Identify shareholder of enterprise. - Survey the requirement of shareholder. - Response to their requirements. 2) Market responsibility As the blood of enterprise, profit is critical for enterprise. Enterprise have to make profit for stockholder and investors, provide satisfied product and service for customer, and keep good

5-10 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing relationship with suppler and partners. Therefore, the market responsibility includes the responsibility for customer, stockholder, investor, partner and suppler. For customer, enterprise should provide the qualified product and also need provide satisfied service. Qualified product is the responsibility enterprise take for customer on itself of product. Satisfied service is the responsibility enterprise take for customer, which include all activities happening between seller and customer. According to the ISO26000, the legitimate needs of consumer include safety, being informed, making choice, being heard, redress, education, healthy environment, respecting for the right to privacy, the precautionary approach, and promotion of gender quality and empowerment of women, promotion of universal design. Aspect 1 Qualified products When enterprise provide qualified product, it should focus on the quality of product, advanced products than other operators, sustainable consumption. Enterprise should ensure the product do not carry unacceptable risk of harm when used or consumed. The protection should cover both the intended use and foreseeable misuse. Aspect 2 Satisfied services The satisfied service includes the service when enterprise sell product and after the product sold. When enterprise sales products, it should provide factual, unbiased and adequate information related the product function, auction, warranty, repair information and so on. Enterprise should not force the consumer to buy. The after-sale service is mechanisms of complaint and dispute resolution after the products are sold. Such mechanisms include proper installation, warranties and guarantees, technical support regarding use, as well as provision for return, repair and maintenance. On the other hand, enterprise should protect the personal data a privacy of consumer. Aspect 3 Make profit For shareholder, partner and supplier, shareholder invest capital into enterprise, it must require maintenance and increasing of value. Aspect 4 Disclosing information in a timely and appropriate way On the other hand, the right to know is also the basic right of shareholder. Aspect 5 Fair competition and trade For supplier and partner, fair operating practice is one important aspect of responsibility for supplier and partners. Fair operating practice concern the way an organization uses its relationships with other organization to promote positive outcomes.5-21) Fair operating practice issues arise in the areas of anti-corruption, fair competition and others. Indicators of every aspect are shown in Table 5. 5.

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Table 5.5 The aspect and indicator of market responsibility Aspects 1 2 3 4 5 Indicators Product quality ○ Ensure the safety of product ○ Technique innovation ○ Satisfied Sale service ○ Satisfied after-sale service ○ Maintaining and enhancing corporate value ○ Disclosing information in a timely and appropriate way ○ Fair operation ○ Promoting social responsibility in the value chain ○

Practice of indicators are shown in following： Product quality - Adopt product quality management like ISO9000. - Make sure lasting of product. - Technique innovation. - Provide consumer with information about product and service including on performance, impacts on health and environment, country of origin, energy efficiency, contents or ingredients. - Hold quality meeting. Product safety - Establish the database product safety. - Ensure the safety of product, under normal and foreseeable conditions of use. - Go beyond minimum safety requirement. - Adopt measures that prevent from improper handing or storage, like using symbols. - Instruct customer in the proper use of products and warn them of the risk involved in intended of normally foreseeable use. - Assess the health and safe risk of product before it is placed on market. - Analyze product safety problem and improve safe design, for example, washer cannot be open when it is rotating in high speed. - Install part of prevent error operating. - Sign danger log in product. Satisfied Sale service - Fair marketing, factual and unbiased information, Fair contractual practice. - Providing clear, and all-sided product introduction, not mislead and force to buy. - Use contact which is written in clear, legible and understandable language, do not include unfair contract terms, and provide clear and sufficient information. - Consent to sharing relevant information in a transparent manner which allow for easy access and comparisons as the basis for an informed choice by the customer.

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Satisfied after-sale service - Actively get complaint and resolve dispute. For example, offering consumer the option to return products, review complaint and feedback it by hotline or email, clearly inform consumer the access after-supply service and support as well as dispute resolution and redress mechanisms.5-18) - Improve the satisfaction after sales by offering adequate maintenance and repair or recalling product or compensating the loss of consumer when finding product placed on market, presenting an unforeseen hazard or having a serious defect or containing misleading information. - Protect customer data and privacy, enterprise should limit the collection of personal data, refrain from making use of date of consumer which consumer unwanted, only obtain data by lawful and fair means, specify the purpose of data collection, and tell it to customer, not disclose, make use data for purposes other than those specified, except with the informed and voluntary consent of consumer or when required by laws. Enterprise should protect personal date by adequate security safeguards. Maintaining and enhancing corporate value - Providing an appropriate return of profits. - Pay tax to government. - Shareholder gift or discount. Information disclosure - Disclose the various reports to shareholder, like financial report, CSR report, and environment report Anti-corruption Enterprise can counter corruption from public policy, management system and public reporting. - Public policy • Prohibits giving and receiving bribes. • Commits to obeying all relevant laws. • Commits to restricting and controls facilitation payments. • Commits to restricting giving and receiving gifts. • Policy is publicly available. • Board level commitment. • Transparency of political donations. • Policy applies to contractors, suppliers and agents. - Management system • Communicates policy to employees. • Trains relevant employees. • Compliance mechanisms (e.g. assurance audits, monitoring, board reports)

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• Provides secure communication channels for employees to seek advice or voice concerns (e.g. hotlines, advice lines, whistle-blowing procedures for protection, internal reporting mechanism) • Procedures to remedy non-compliance. • Sanctions process. • Risk based assessment. • Communicate policy to business partners. • Appropriate systems for appointment and remuneration of agents. - Public reporting • Details of monitoring and auditing. • Details of compliance mechanisms. • Details of non-compliance/ breaches of policy. • Disclosure of risk/impact assessment and results • Details of communication of policy to employees and business partners. • Details of training disclosed. • Details of monitoring and auditing. • Details of compliance mechanisms. • Description of progress/performance. • Details of non-compliance/breaches of policy. • Details of third party performance. Fair competition - Conduct it activities in manner consistent with competition law and regulation. - Promote employee awareness of importance of compliance with competition legislation and fair competition. - Not take advantage of social condition to achieve unfair competitive advantage. Promoting social responsibility in value chain - Enterprise can integrate ethical, social, and environmental and gender quality criteria and health and safety, in its purchasing, distribution and contracting policy. - Encourage others to adopt similar policies. Also, enterprise actively participates in raising the awareness of CSR for other enterprise. - Promote fair and practical treatment of cost an benefit of implementing socially responsible practice throughout the value chain, such as ensuring that fair prices are paid and that there are adequate delivery times and stable contracts. 3) Environment responsibility The activities and decision of enterprise have an impact on the environment no matter what it operates or where it is located. These impacts may be associated with the emission or waste, consumption, and natural habitats. To reduce their environmental impacts, enterprise should to adopt integrated approach that take into consideration the indirect and direct economic,

5-14 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing social, health and environment implication of their decision and activities. Society is facing many environment challenges, including the climate change, depletion of natural resource, pollution, destruction of habitats, and loss of species and so on. Enterprise should take action in the following aspects. Aspect 1 Environment management Enterprise should establish a comprehensive environment management system so as to take well environment responsibility. Enterprise should following the management model of plan-action-check- promote. An organization should implement progrannmes using risk-based and sustainability perspective to assess, avoid reduce and mitigate environment risk. Enterprise should try to predict environment risk, develop the emergency response procedures, and bear the cost of pollution. Aspect 2 Pollution prevention An enterprise may cause air pollution, water pollution, solid waste pollution, and noise pollution. The pollutants of enterprise to air such as lead, mercury, volatile organic compounds

(VOCS), sulphur oxides (SOX), nitrogen oxides (NOX), dioxins, particulates and ozon-depleting substances can cause environmental and health impacts. These pollutant may come directly from production activities, or be caused indirectly by the use or end-of-life handling of its product and service. Enterprise may cause water pollution directly, intentional or accidental discharge into surface water or infiltration to ground water. The activities of enterprise may lead to the generation of liquid or solid waste that if improperly managed, may cause pollution of air, water, land, soil and outer space. It involves waste treatment and waste disposal. Aspect 3 Climate change mitigation

It is recognize that emission of greenhouse gases (GHG) like carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O), are very likely on the cause of global climate change. Every enterprise is responsible for some GHG emission and be affected in some way by climate change. The GHG main comes from transportation, energy supply and burn of fossil fuel. Reducing consumption of energy will mitigate climate change. Therefore, energy-saving will be good method for enterprise to face climate change. Enterprise can save energy in the production process or by producing energy-saving products. Aspect 4 Waste reduction Enterprise consumed source and must generate waste. Waste pollute environment. Enterprise should try to reduce waste in process of production and in life cycle of product. If enterprises reduce waste, they not only save resource but also reduce waste and protect environment. Enterprise can reduce waste by reusing, recycling and reprocessing. Take one example, enterprise recycle water is an action of waste reduction not an action of pollution

5-15 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing prevention. Aspect 5 Protection of biodiversity and habitats Since the 1960s, human activities has changed ecosystem more rapidly and extensively than in any comparable period in history. Rapidly growing demand for natural resource has resulted in a substantial and often irreversible loss of habitat and diversity. Enterprise should become more socially responsible by restoring natural habitats and valuing and protecting biodiversity, using land and natural resource sustainably, advancing environmentally sound urban and rural development. To assess CSR performance, environment performance indicator system are established as shown in Table 5.6 the ○ means the action in this line have close relationship with the environment responsibility aspect in respect row.

Table 5.6 Aspects and indicator in the environment responsibility Aspects 1 2 3 4 5 Indicators Adopt environment management system ○ Plan of environment management ○ Action of environment management ○ Check of environment management ○ Improvement of environment management ○ Water pollution prevention ○ Solid pollution prevention ○ Air pollution prevention ○ Noise pollution prevention ○ Logistical CO2 emissions reduction ○ Promoting Efficient Energy Use at Sites and energy saving ○ Use of Renewable or new Energy at Sites ○ Energy conservation in office or life ○ Saving resource ○ Recycling ○ Adopt chemical management system Record and report chemical Biodiversity ○

Plan of environment management plan - Make plan of emission or waste reduction. Action of environment management - Establish environment risk assessment. - Adopting environmental education, such as hold conference of environment protection, issue handbook of environment protection. - Adopt environment accounting like MFCA or input-output analysis. - Adopt chemical management system like REACH, record and report chemicals. - Waste management.

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- Measure, record and disclose publicly the amounts and type of pollutants, the significant toxic and hazardous material, environment risk, health impact of enterprise and environment information. - Adopt environment management system, like ISO14001. - Adopt Chinese environment management system GB／T24001－2004. Pollution prevention - Identify the source of pollutant and impacts. - Instant equipment of pollution control to prevent pollution. - Change production technique to reduce pollutant. - Prevent volatilizing or leak of harmful substance like o VOCS. - Reduce the utilization of harmful substance in the production process. - Complies with environment law. Logistical CO2 emissions reduction - Choose transportation with low CO2 like railway or eco-car. - Change the packaging method so as to transport more good in one time. - Improved our loading ratio as well as shortening the transportation distance Use like using GPS. - Reduction in the thickness and weight of the main unit has reduced the size of packaging. - During transportation Promote employee to buy eco-car, or take the subway or bus. Promoting Efficient Energy Use at Sites and energy saving. - Install energy-saving production equipment, for example, replacing its existing boilers with a highly efficient boiler system. - Enforce power management. - Recover waste heat. - Install LED lights. - Installation of an automatic control system for indoor building lighting. - Reducing standby power consumption of machines. - Using local air-conditioning systems or change high efficient air condition. Energy conservation in office or life - Automatic lighting control and Participated in the lights-down campaign. - Stimulate employee to go to work by public transport means. - The target temperature as high as possible in summer, as low as possible in winter. Saving resource Saving resource means enterprise use the minimum resource to finish maximum work, do not waste resource - Print on both side of paper, save and read electron data. - Save resource, like turn off the water tap in time.

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- Adopt new equipment or production technique to save resource like water and others Recycling - Recycle the by-products, solvent and other waste. - Comply with the Home Appliance Recycling Law and other recycling laws. - Reuse waste to produce product. - Adopt reusable packaging. - Complies with environment law. Biodiversity - Use water-permeable bricks for walkway. - Formulated the Toshiba Group Biodiversity Guidelines. - Use the certificated forest. On the other hand, the following three methods will be good for achievement goal as shown in Table 5.7.

Table 5.7 method for payment of social responsibility Goals Aspect 2 Aspect 3 Aspect 4 Aspect 5 Methods Green product ○ ○ ○ ○ Environment protection technique ○ ○ ○ ○ Green purchase ○ ○ ○ ○

Green product - Produce the energy-saving product or nontoxic product, for example actively facing RoHS, and ErP standard, get environment label, and so on. - Promote the sale of green product. - Adopt the life cycle analysis to assess environment impact of product. - Promoting the use of materials that are easy to recycle. - Designing products and packaging so that they can be easily reused, repaired or recycled. - Offering high quality product with longer use life. - Make use of reliable and effective, indecently verified labeling schemes or other verification schemes, such as eco-labeling or auditing activities, to promote the application of green product. - Reduce use of harmful chemical substance in product. Green purchase - Preferring supplies that can contribute to sustainable development. 4) Society responsibility Beside of the market activities of enterprises, enterprises employ labors and occupied space, pay tax. Creation of jobs, as well as wages and other compensation paid for work performed are among of most important economic and social responsibility. These activities affect labor

5-18 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing and community, it play an important role in the people life, social stability. Therefore we identify the responsibility for employee, government and community as the social responsibility of corporation. A. Responsibility for employee The inherent vulnerability of workers and the need to protect their basic right is reflected in many compacts such as the Universal Declaration of Human Right and so on. The opportunities of an organization to support human rights will often be greatest among its operations and employee. Governments issued labor laws to protect the right of human. The primary responsibility for ensuring fair and equitable treatment for workers lies with government. These labor laws and practices vary from country to country. Enterprise however, government is adopting generally legislation consistent with Universal Declaration of Human Right and applicable ILO standards. Therefore, enterprise ensure firstly comply with these labor laws. Human right just the most basic social responsibility enterprises taking. Enterprise has to take more advanced responsibility for employee so as to develop sustainability. Therefore, the other aspects of responsibilities for employee are shown in Table 5. 9. Aspect 1 employment and employment relationship As mentioned above, the human right has been generally identified in the labor law of every country. Generally speaking, it required enterprise should entitle employee their right of freedom of association and collective bargaining, eliminate all forms of forced or compulsory labor, eliminate arbitrary or discriminatory dismissal practices, not employ child labor, and eliminate discrimination regarding employee and occupation. Enterprise should comply with these laws to no matter employee or self-employee. On the other hand, equal opportunity for all workers is not easily identified or affirmed in form of laws. But the equal opportunity for all workers is a good form for enterprise taking social responsibility. Aspect 2 condition of work Conditions of work include performance evaluation and compensation, working time, holidays, rest period, disciplinary and dismissal practices, employee care, maternity protection and so on. Enterprise should ensure that the work condition comply with national laws and regulations and consistent with applicable international labor standards. Observe at least those minimum provisions defined in international labor standards as established in the ILO. Wherever possible, allow observation of national or religious traditions and customs. Enterprises have to ensure the fairness of performance evaluation and compensation, providing equal pay for work of equal value. Enterprises have to provide reasonable holiday and working time for employee so that employee can achieve life-work balance. Aspect 3 communication of employee and employer Communication includes all types of negotiation, consultation or exchange of information between or among employer and workers, on matters of common interest relating to economic and social concerns. The worker representatives should be freely elected, in accordance with

5-19 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing national laws, regulations or collective agreement. They should not be designated by government or employer. Effective communication provides a mechanism for developing policy and finding solution which meet the both need of employer and employee. Social communication can take many forms and can occur at various levels. At times, through communication, a dispute resolution process can be established. Social communication can also concern grievances. Aspect 4 health and safety at work Health and safety at work concerns the promotion and maintenance of highest degree of physical, mental and social well-being of workers and prevention of harm to health caused by working condition.5-12) Generally speaking, the health and safety at work include the occupational health and safe production. Aspect 5 career development Career development concerns the expanding human capabilities by training or providing access to political, economic and social opportunities, thus enabling them to lead long and healthy lives, to be knowledgeable and to have a decent standard of living. Aspects and indicator of responsibility for employee are shown as Table 5.8.

Table 5.8 Aspects and indictors of responsibility for employee Aspects 1 2 3 4 5 Indicators Complying with labor law ○ ○ ○ ○ Equal opportunity for all workers ○ Employee care ○ Evaluation and compensation ○ Work-life balance ○ Communication between employer and employee ○ Occupation health ○ Safe production ○ Career development ○

Practices are shown as following： Equal opportunity for all workers - Employ the female and foreigners. - Employ the disables. - Employ the retired. Performance evaluation and compensation - Disclose the performance evaluation method. - Set hotline or counseling counter for complaint about the evaluating and compensation.

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- Eliminate any discriminatory dismissal practices. - Compensate workers for overtime. Employee care Employee care includes the enhancement of working environment and caring employee life. Enterprise can enhance the working environment by the following practice - Provide the traffic payment or provide shuttle for working. - Provide specific facility for disabled individual. For example, Sony Taiyo Corporation has introduced "Custom Cell" work areas that can be adjusted to suit disabled individuals. - Permit flexibly select working styles. - Support the system for baby care or nursing care. The practice of life care of employee includes - Support the baby care and family care. - Give birthday gift to employee. - Provide the psychological counseling. - Literature and art and sports for employee. - Care the retired. - Provide or support children education. - Help family of employee to come over trouble by donate and others. Work-life balance - Provide holiday for baby care or nursing care. - Provide the paid holiday. - Shorten the overtime of work. - When require workers to work overtime, taking into account the interests, safety and wellbeing of workers concerned and any hazard inherent in the work. - Provide the flexibility work time. Communication between employee and employer - Set complaint channel by telephone, letter box or email. - Not obstruct worker who seek to form or join their own organization and to bargain collectively, for instance by dismissing them or other threat. - Disclose all information about the corporate policy, or change of operation. - Let employee to take part in the decision making. Occupational health - Develop implement and maintain an occupational health policy. - Understand and apply occupation health management such as the OHSAS 18001. - Analysis and control risk of the occupation disease. - Record, report and investigate all occupation health incidents and problem in order to minimize or eliminate them.

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- Ensure employee can freely inquire and be consulted on all aspects of their health and safety related to their work. - No force employee to do work that is reasonably considered posing an imminent or serious danger to their life or health, or to their life. - Let employee participate in health and safety decision and activities including investigation of incidents and accident. Safety production - Let employee participate in health and safety decision and activities including investigation of incidents and accident. - Seek outside advice about occupation disease and production safety. - Install production safe equipment in case of production accident. - Record, report and investigate the incident of safe production. - Analyze the reason and take action to prevent the production incidents. - Provide adequate safe production education and training to all people on all relevant matters. - Provide equal health and safe protection for part-time and temporary workers, as well as subcontracted workers. - Provide timely the physical and mental health checkups for all employees. Career development - Provide the opportunity of oversea working. - Provide all workers at all stages of their work experience with access to skill development, traning and opportunity for career advancement on an equal and non-discriminatory basis. - Promote female employee with better performance. - Consider the benefit of creating directly employment rather than using temporary work arrangement. B. Corporate responsibility for community Enterprise is located anywhere; it must have a relationship with the community. This relationship should base on the community involvement so as to contribute to the community development. Community involvement and community development are both integral parts of sustainable development. Community involvement goes beyond identifying and engaging stake holders in regards to the impacts of activities of an organization. It also encompasses support for and building a relationship with the community. In one word, the community involvement arises out of recognition that the organizing is a stakeholder in the community. Community development, generally understood, is the improvement of life quality of a population. It is not a linear process; moreover, it is a long-term process of integration of different interest and culture. Community development is usually advanced when the social forces in a community strive to promote public participation and pursue equal rights and

5-22 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing dignified standards of living. Enterprise should consider itself as part of community, recognize and have due regard for the right of community member to make decision in relation to their community and pursue ways of maximizing their resource and opportunities, recognize and have due regard for the characteristics like religions, traditions, cultures and history of the community while interacting with it, recognize the value of working in partnership, supporting the exchange of experiences, resources and efforts. Before deciding upon an approach to community involvement and development, enterprise should assess its potential impacts on the community and make plan to mitigating negative impact and optimizing positive impacts. For example, an enterprise planning to build an access to underground water engage the community at the planning stage to identify how the road could be built to also meet the need of surrounding villagers. Enterprise may be confronted with circumstance that threaten to disrupt community life, like food security emergencies, natural disaster, displacement of populations and armed conflicts On the other hand, the UN Millennium Declaration set out goals that, if met, would help solve the world main development challenges. The eight Millennium Development Goals are eradicating extreme poverty a hunger, achieving universal primary education, promoting gender equality and empower women, reduce child mortality, improving maternal health, combating HIV/ADIS, malaria and other disease, ensuring environment sustainability, developing a global partnership for development. Enterprise can achieve the goals of contribution to community by social investment and volunteer activity. Aspect 1 community involvement to be a good citizen of community Community involvement is proactive outreach of enterprise, it is aimed at preventing and solving problems, fostering partnership with local organizations and stakeholders and aspiring to be a good organizational citizen of community. An organization should respect the cultural, social and political rights of traditional and indigenous communities, neighborhood associations or internet network. Aspects 2 supporting community development Beside of being a good organizational citizen of community, enterprise also can focus on solving the problem of whole of society and contribute to the development of society development. Compared to the community involvement, solving social problem and supporting society development are some actions taken by enterprise at the higher viewpoint of whole society. It include supporting education, science, culture, healthy, supporting victims in disaster and accident, and solving other local and specific social problems. Education and culture are foundation of social and economic development and a part of community identity. Health is a foundation of life; enterprise can contribute to community by support health system Enterprise should support neighboring communities in case of a disaster and

5-23 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing accidents. Practices of community responsibility are shown as following： Community involvement - Protect surrounding environment, for example, organize employee to plant or clean. - Encourage and support people to be volunteers for community service, for example, take care of elderly person of no family, and donate blood. - Contribute to policy formulation and establishment, implementation, monitoring and evaluation of development programmers. - Maintain transparent relationship with local government officials, free from bribery or improper influence. - Assess its own existing community-related initiatives and report to community and people. - Participate in local association with the objective of contributing to the public good and the development goal of community. - Consult the suggestion of representative community group in decision impacting on community. Supporting community development a. Solve specific and local society problem - Help solve social problem, for example deal with declining birthrate and aging population, communications with welfare facilities, and donate for poverty. - Contribute to public construction. b. Education and culturing - Promote and support education by denote money, book, stationary and other equipment of study, etc. and engage in actions to improve the quality of and access to education, promote local knowledge and help eradicate illiteracy. - Promote learning opportunity, for example, provide the opportunity of factory visit, invite children to come to factory and explain the production theory, etc. - Respecting different customs and cultures, for example, participate into festival activity, support the Museum of Arts, offer the awards of music and sports. - Conserve and protect culture heritage. - Promote the use of traditional knowledge and technology of indigenous communities. - Support the environment education for community for example, advertising environment protection. c. Health - Combating some disease like HIV/ADIS by helping patient. - Advertise knowledge of some disease like HIV/ADIS. - Support the local Medical facilities. - Donate blood.

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d. Disaster and accident - Donate for the victim of nature disaster. - Launch drunk-driving eradication movement in case of traffic accident. - Take action or invest some pragrammes to decrease disaster risk, for example, increase the number of service stations capable of serving as emergency response facilities that can fuel emergency vehicles even during blackouts in the event of earthquakes. The four aspect of community development and method of contribution are shown in the Table 5.9.

Table 5.9 The method and aspects of community development Goals Solving social Education, Healthy Disaster, Methods problem culture accidents Technology development and access ○ ○ ○ ○ Social investment ○ ○ ○ ○

When organization adopt these method to take responsibility or community, it can practice by the following actions a. Technology development and access - Consider developing innovative technologies that can help solve social and environment issues in local community. - Respect for property right. Property right cove both physical property and intellectual property and include interest in land other physical asset, copyrights, patents, geographical indicator right, funds, moral right and other right. Enterprise should implement policies and practices that promote respect for property right and traditional knowledge, pay fair compensation for property, conduct proper investigation to be confident it has lawful title permitting use or disposal of property. - Adopt practices that allow technology transfer and diffusion. Organization should set reasonable terms and conditions for licenses or technology transfer so as to contribute to local development, improving access to information and others. - Engaging in partnership and cooperation with university or research laboratories and so on. - Consider developing potential local and traditional knowledge and technologies while protecting the right of community to that knowledge and technology. b. Social investment Social investment takes place when organization invests their resource in initiatives or progarmmes which aims at improving community life. These projects may be related to education, training, health care, culture, income generation, and infrastructure development. Here, social investment also includes philanthropy like grants, volunteering and donation and

5-25 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing so on. - Take into account the promotion of community development in planning social investment, for example increasing local procurement and any outsourcing so as to support local development. - Consider partnering with other organization, including government, business or NGO to improve community life. - Consider contributing to programmers that provide access to food and other essential projects. C. Responsibility for government Enterprise also undertakes more responsibility in a larger scope. Because enterprise as an organization might not contribute directly to the whole of nation, government as the leader of all enterprise, require enterprise to do what, and then government take integrated action to enhance the life of people. So enterprise undertakes some responsibilities for government. Government has the responsibility of making the society stable and enhancing the material foundation of people life. So enterprise also should take responsibility of these both aspects. Aspect 1 raise their awareness of public contribution Aspect 2 employment creation and skill The aspects and indicators of responsibility for government are shown in the Table 5.10.

Table 5.10 The aspects and indicator of responsibility for government Aspects 1 2 Indicators raise their awareness of public contribution ○ Increasing employment ○

Action and practice of responsibility for government： Comply with all laws and responsible political involvement - Have not illegal record. - Train its employee and representatives and raise their awareness of public contribution. - Avoid political contribution that amount to an attempt to control or could be perceived as exerting undue influence on politicians or policymaker. - Fulfill its tax responsibility. Employment creation and skills development Employment is an internationally recognized objectives related to economic and social development. Skill development is an essential component of employment promotion. - Analyses the impact of its investment decision on employment creation, and make investment that alleviate poverty through employee creation.

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- Cooperate with the group with regard to employment and capacity building. - Consider the impact of technology choice on employment, where economically viable in the longer term, select technology that maximizes employment opportunity. 5.4 Construction of CSR database in China and Japan

5.4.1 Structure of CSR database Manufacturing is the use of machines, tools and labor to produce goods for use or sale. It is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale. Compared to the service industry, agriculture and trade, manufacturing has a close relationship with the employment, environment pollution, and resource degradation. Therefore, the study on the Corporate Social Responsibility (CSR) in manufacturing will play active roles in environmental protection, sustainable use of resource, society harmony and so on. In 2005, the first CSR report came to the world, and then Shenzhen Stock Exchange in 2006 and China Shanghai Stock Exchange in 2008 issued respectively the regulations to require listed companies to disclose the corporate social responsibility information using the standalone CSR report or annual report. Economics Division of China Academy of Social Sciences issued the Guideline of Chinese Corporate Social Responsibility Report (CASS-CSR1.0) in December, 2009 and issued the CASS-CSR2.0 in March, 2011, it promotes quickly the quality of Chinese CSR report. Therefore, the name of Chinese corporate social responsibility report is unified, named mostly as the Corporate Social Responsibility Report. In fact, many different types and names of reports exists under the umbrella of CSR reporting, such as ‘environmental reports’, ‘social reports’, ‘climate change reports’, ‘carbon reports’, ‘environment reports’ and ‘sustainability reports’ and others. For example, In Japan, many companies issued the relative reports named as sustainability report, environmental＆Social report, CSR report and so on. After World War Ⅱ, the idea of corporate social responsibility was introduced to Japanese business society from United States. The Japan Society for Business Ethics Study was established in 1993.5-20) In 2003, Keizai Doyukai which is composed of top managers and corporate executives published The 15th Corporate White Paper on "Market Evolution' and CSR Management: Toward Building Integrity and Creating Stakeholder Value" after investigating European CSR situation. More Japanese companies have set up division of CSR and published CSR report since 2003. By 1 March, 2012, 806 Japanese companies issued the environmental report or CSR report for fiscal 2011. This study established database of CSR practice to promote CSR in China and provide suggestion for Japanese company in China as shown in Fig 5.4. Database includes two parts, one part is CSR guidelines and compact for different aims, it includes content of various CSR guidelines and compact. Another part is about CSR practice. Because standalone CSR report can disclose CSR information as much as possible and as

5-27 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing good as possible, more and more companies choose to issue the standalone CSR report, This study chose at random 20 standalone CSR reports in China and 20 independent CSR reports in Japan, and classified and recorded the action of companies according to 50 indicators. On the other hand, because the amount of the standalone CSR report in one sector is limited, it is difficult to collect 20 CSR reports in one sector in China and Japan, we select CSR reports coming from different sectors like Electronic, Food and drink, Metal casting and working, Transportation facilities, Plastics, Chemical industry, petroleum product, Com sector, Paper, Textile. For every company, database record three part：basic information of company, information of CSR report and CSR action. Basic information of company includes company name, industry, report year and location. Information of CSR report includes CSR guideline, period of report, name of report and third part check.

Fig 5.4 Image of database of CSR

5.4.2 Content of CSR database 1) CSR guidelines and compact This paper sorted the CSR standards according to their main content：CSR compacts and guidelines with emphasis on the human right; comprehensive CSR guidelines, CSR compact

5-28 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing or code of conduct in sectors or supply chain. A. CSR compacts and guidelines with emphasis on the human right In recent years, organization and council have drawn a lot of compact or international code of conduct to guide and audit the conduct of corporate social responsibility. These compact and the code of conduct emphasis mainly on responsibilities relative with human like respecting human right and enhancing the labor standard and environment. Several global conventions and principles become the foundation of these compacts and codes of conduct. They are the convention of International Labor Organization (ILO), Universal Declaration of Human Rights (UN), SA8000, and Global Sullivan Principles and so on. And, SA800O (USA) drew by the Social Accountability International is the first international standard of social responsibility for third-party certification. Opportunities of an organization to support human rights will often be greatest among its operations and employee. However, based on these international compact and convention, many different codes of conduct or alliances are established to promote enterprise to take the social responsibility both in the inner of enterprise and in the supply-chain, such as the Worker Rights Consortium (US), Initiative Clause Social (France), ETI Base Code issued by the Ethical Trading Initiative of UK, ICC Business Charter for Sustainable Development, Occupational Health and Safety Assessment Series 18000 (OHSAS18000), BRC Global Standard – Consumer Products (UK), Supplier Ethical Data Exchange (UK), and so on. These compact and principle emphasize mainly on human right. Human right is the basic rights to which human being are entitled. It concerns civil and political right such rights as the right to life and liberty, equality before the law and freedom of expression. It also concerns economic, social and cultural right such as the right to work, to food, to highest attainable standard of health, the right to education and the right to social security. Generally speaking, these principles include no exploitation of child labor, payment of a living wage, no excessive working hours, safe and healthy working conditions, employment free, freedom of association and the right to collective bargaining. B. Comprehensive CSR guidelines Guidelines for Multinational Enterprises were developed by the Organization for Economic Co-operation and Development (OECD) in 1976. The Guidelines were updated in 2011 for the fifth time. They provide non-binding principles and standards for responsible business conduct in a global context consistent with applicable laws and internationally recognized standards. The Guidelines are the only multilaterally agreed and comprehensive code of responsible business conduct that governments have committed to promoting.5-13) The United Nations Global Compact, also known as Compact or UNGC, is a United Nations initiative to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation. It was officially launched at UN

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Headquarters in New York on July 26, 2000. Global Report Initiative (GRI) is a non-profit organization that promotes economic, environmental and social sustainability. It issued many guidelines of sustainability report, like Environmental Social Governance (ESG) reporting, Triple Bottom Line (TBL) reporting, Corporate Social Responsibility reporting (G1, G2, G3). Among which, G1 or G2 or G3 of Global Reporting Initiative (USA) is used most widely for the draw of CSR report. Accountability 1000 (AA1000) developed by ISEA, also known as AccountAbility, in the UK. The AA 1000series of standards are audit and management standards for the CSR. The AA1000 Series consists of: the AA1000 AccountAbility Principles Standard (2008)(AA1000APS) , the AA1000 Assurance Standard (2008) (AA1000AS) and AA1000 Stakeholder Engagement Standard (2005) (AA1000SES). The SIGMA Project - Sustainability - Integrated Guidelines for Management - was launched in 1999 with the support of the UK Department of Trade and Industry. It is a partnership between the British Standards Institution (the leading standards organisation), Forum for the Future (a leading sustainability charity and think-tank), and AccountAbility (the international professional body for accountability). ISO 26000 is an ISO International Standard giving guidance on SR. ISO 26000 will help all types of organization – regardless of their size, activity or location – to operate in a socially responsible manner by providing guidance on: a. Concepts, terms and definitions related to social responsibility. b. Background, trends and characteristics of social responsibility. c. Principles and practices relating to social responsibility. d. Core subjects and issues related to social responsibility. e. Identifying and engaging with stakeholders. f. Communicating commitments, performance and other information related to social responsibility.5-1) The Connected Reporting Framework was first set out in a report by The Prince’s Accounting for Sustainability Project (A4S) in 2007. It was updated in 2009. A4S says that a shift to a reporting model that supports the information needs of long-term investors, such as pension funds, and reflects the interconnected nature of financial, environmental, social and governance factors, is an essential step towards the creation of a sustainable economy. Sustainable Development Key Performance Indicators (SD-KPIs) are the three most important sustainability indicators for the financial performance of 68 industries. SD-KPIs have been called a "minimum reporting standard" for sustainability information in annual reports/management commentaries of companies by the German Federal Environment Ministry according to the EU accounting directives and several laws of member states. Chinese CSR Report Guideline was issued in 2009; it identified the environment, market and society responsibility of corporation and CSR management.

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In a word, the framework and guidelines have promoting and supporting CSR from the CSR report, audit, and implementation and so on. These guidelines identify the social responsibility core subjects differently, but basically they all include the responsibility for the environment, customer, employee, partner, supplier, community, and society and CSR management. Therefore, these standards are referred by enterprise to develop the CSR strategy and draw CSR report; they can give a clear and comprehensive guideline or requirement to enterprise. C. CSR compact or code of conduct in sectors or supply chain To promote CSR, some alliance or council compact are designed to promoting responsible ethical, human rights, social and environmental practices in industries or in supply chain. These specific standards are shown in the Table 5.11. Enterprise actively jointed into these alliances or programme to show themselves action in CSR.

Table 5.11 CSR compact or code of conduct for sectors Name Sectors Forest Stewardship Council principle and criteria Wood manufacturing Certification system of Responsible Jewelry Council Jewelry supply chain Electronic Industry Citizenship Coalition Electronic industry Business Social Compliance Initiative (BSCI) initiative Textiles industry Global Social Compliance Programme Retailer Fair Wear Foundation Fashion industry International Council of Toy Industries Toy Industries Worldwide Responsible Accredited Production Fashion industry Equator Principle Financial industry Oil and Gas Industry Guidance on Voluntary Sustainability Oil and gas industry Reporting Leadership in Energy and Environmental Design Certification Building industry Worldwide Responsible Apparel Production Fashion industry

2) Database of CSR practice This database recorded 50 indicator and more than 300 actions as shown in Table 5.12

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Table 5.12 Amount of CSR action of indicators Indicator Action Indicator Action 1.CSR or ecology version and strategy 2 26. Improvement of environment management 3 2. Risk or sustainability analysis 3 27. Water pollution prevention 3 3.Compact or other responsibility commitment 19 28. Solid pollution prevention 4 4. C5SR organization or Committee 4 29. Air pollution prevention 3 5. CSR policy and plan 4 30. Noise pollution prevention 3 6. CSR education 5 31. Logistical CO2 emissions reduction 4 7. Promote partners or sub company to take responsibility 5 32. Promoting Efficient Energy Use at Sites and 10 energy saving 8. Ensuring respect for law 2 33. Use of Renewable or new Energy at Sites 4 9. Audit and monitor the progress 2 34. Energy conservation in office or life 10 10. Response to responsibility requirement of shareholder 3 35. Saving resource 3 11 Outer CSR communication 3 36. Recycling 5 12. Adopt product quality management 9 37. Biodiversity 3 13. Ensure the safety of product 4 38. Human right of employee (labor law) 20 14. Technique innovation 1 39. Equal opportunity for all workers 3 15. Satisfied Sale service 4 40. Employee care 11 16. Satisfied after-sale service 4 41.Fairness of evaluation and compensation 4 17. Maintaining and enhancing corporate value 3 42. Work-life balance 5 18. Tax payment 2 43. Communication between employer and employee 4 19.Disclosing information in a timely and appropriate way 2 44. Occupation health 7 20. Anti-corruption 4 45. Safe production 8 21. Fair competition 30 46. Career development 4 22. Promoting social responsibility in the value chain 3 47.Community involvement to be a good citizen of 20 community 23. Plan of environment management 3 48.Solve social problem or support society 30 development 24. Action of environment management 8 49. Raise their awareness of public contribution 3 25. Check of environment management 3 50. Increasing employment 3

5.5 Investigation enterprises how to take CSR both in China and Japan in Manufacturing

5.5.1 Method We investigate the CSR practice from 4 aspects of CSR like CSR management, market responsibility, environmental responsibility and society responsibility. This study classified action of enterprise according to indicator. To analyze emphasis degree of enterprise on every kind of responsibility, we adopt the indicator disclosure ratio (DR) which can be got by the formulas (5-1)

DR＝D÷I×Q (5-1)

D：Amount of action taken by enterprise I：Amount of indicator Q：Amount of sample

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5.5.2 Result and analysis 1) Guideline Through this survey, we can find 14 companies in Japan and 12 companies in China disclosed CSR guidelines, and Sustainability Reporting Guidelines published by the Global Reporting Initiative (GRI) become to be most popular international guideline, 18 companies adopted G1, G2, or G3. On the other hand, Environmental Reporting Guidelines published by Japan’s Ministry of the Environment is also commonly referenced in Japan, while the CASS-CSR is commonly referenced by the Chinese companies. 2) Overall situation of CSR reporting in Japan and in China DR is shown in the Fig 5.5.We can find overall situation of CSR reporting in Japan is better than that in China, but DR of both counties is not more than 50%. Therefore, there is a long way for both countries to achieve a perfect CSR performance. Enterprise in both counties has the equal performance in the market responsibility. CSR management and environment responsibility of Japan are better than those of China. But Chinese enterprises take more action in society responsibility. Because salary of Chinese employee is much lower than Japanese and social security system of China is not as perfect as that of Japan, Chinese enterprises make great effort to provide employee care for employee, such as denote for poverty, care the retired, and support education of poor area, support public construction and so on.

100

80

60 40 DR / DR % China 20 Japan 0 CSR Market Environment Society All management responsibility responsibility responsibility responsibility Aspects of CSR

Fig 5.5 Disclosure ratio of indicator in both counties

On the other hand, it is surprising some companies in China and Japan disclosed little of social responsibility information even though they named the report as the CSR report, as shown in the Fig 5.6 and Fig 5.7. However, to our joy, 7 companies in Japan and 5 Chinese companies seek external assurance or suggestion to show the accuracy and objectivity of data and information in the CSR report and to improve the quality of CSR report. Meanwhile, we can find the companies such as KYODO Printing Group, TOSHIBA, ASAHI Breweries in Japan and LENOVO Group AUO in China with best CSR performance

5-33 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing disclosed more than 60% indexes, it is an outstanding performance.

100

80

60

40 DR / DR % 20 0

Sample company

Fig 5.6 DR of companies in Japan

100

80 60

40 DR / DR % 20 0

Sample company

Fig 5.7 DR of companies in China

Through this survey, we can find Japanese companies emphasized very much on the undertaking of environmental responsibilities, more than 15 companies in Japan disclosed information as following：waste management, environmental education , GHG emission plan and data, nature conservation, environment management system, waste reduction , recycling, promoting efficient energy use at sites and energy saving. The Chinese companies practiced more in career development, maintaining and enhancing corporate value, employee welfare, establishing CSR version or strategy. Because the CASS-CSR guideline points out that the

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CSR report should include developing CSR version or strategy and maintaining and enhancing corporate value, more Chinese companies disclosed information in both above aspects. Moreover, both Chinese company and Japanese company emphasized on the practice of supporting education. What we need to pay attention is that a few of Japanese companies report the compliance with law and basic corporate ethics. For example, only 1-3 companies listed the lawful employee, compliance with the environment law, fair competition and trade in the report. Many Chinese companies disclosed enough information in the law compliance and some basic business ethics. 3) CSR management Perfect CSR management is very important for corporation to sustainably develop.

20

16

12 China 8 Japan

4

Amount of enterprise Unit / enterprise of Amount 0

Fig 5.8 Action in aspects or indicators of CSR management taken by enterprise

Fig 5.8 shows us the amount of enterprise take action in every aspect of CSR management. We can find the Japanese companies emphasized very much on risk management, however, only 5 Chinese companies described their rick management in CSR report. Chinese companies should strengthen rick management. And we can find Japanese enterprise take more action in the CSR audit and CSR communication. On the other hand, 5 Japanese companies drew up the CSR plans and carried out the CSR education, and 3 Chinese companies drew up the CSR plans and carried out the CSR education, both countries have discounted the CSR education and CSR plans. 4) Market responsibility

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Both country have emphasized and disclosed their market responsibility. As shown in the Fig 5.9, Japanese enterprises made great effort to improve product quality and ensure products safety. So the Japanese products is famous for their perfect quality ＆ safety and humanized design in the world. However, Chinese enterprise should make more effort in product quality and safety. Therefore Chinese companies can learn much from Japanese company in these aspects. On the other hand, about half of Japanese companies took action to protect the custom information, while only 2 Chinese companies disclosed their practice of protecting the customer information. Moreover, Chinese enterprises take more action than Japanese enterprise in managing CSR in supply chain and technology innovation. Much more Chinese companies disclosed information than Japanese companies in Maintaining and enhancing corporate value, fair marketing and fair competition and trade. That to say, Japanese enterprise did not mention foundational operation rules in report.

20

16 12 8 china Japan 4

0 Amount of enterprise Unit / enterprise of Amount

Indicator or action t of market responsibility

Fig 5.9 Action in relevant aspect of market responsibility taken by enteprise

5) Environment responsibility The performance of Japanese enterprise is much better than that of China as shown in the Fig 5.5. What action does Japanese enterprise have taken? The Fig 5.10 shows as the actions more than half of enterprise taken in Japan. We can find more than half of enterprises take action in the 12 indicators of environment responsibility with total 27 environment indicators.

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Japanese enterprise emphasize very much on the waste management due to the strict industry waste management law. On the other hand, Japanese companies make great effort in the environment education and GHG emission plan and data. Japanese companies emphasized on the biodiversity, while Chinese companies almost completely discounted the biodiversity, only one company took steps to protect biodiversity.

20

16

12

8

Amount Amount enterpriseof Unit / 4

0

Fig 5.10 Actions or indicator taken by more than half of enterprise in Japan

Compared to the environment responsibility of Japan, the environment responsibility of Chinese enterprise is mainly focusing on the pollution prevention as shown in the Fig 5.11. More than half of enterprise takes action on the water and noise pollution. Because of law promotion of recycling society, Recycling and energy saving was paid enough attention by both counties.

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20

16

12

8

4 Amount Amount enteroriseof Unit /

0 Waste Water Grenn product Promoting Noise Recycling management pollution Efficient prevention Energy Useand energy saving Indicator or action of environment responsibility

Fig 5.11 Actions or indicator taken by more than half of enterprise taken in China

About the environment management, as shown in the Fig 5.12, we can find the environment management level of Japan is much better than that of China. 16 Japanese companies have established the perfect environment management system and most of companies have obtained ISO14000 certification. In China, about half of companies have established the environment management system and have obtained ISO14000 certification. About the application of advanced environment management tool, we can find input-output analysis was widely used in Japan. And almost all of companies carried out the environment education in production. To comparison, only one company applied the input-output analysis in China. On the other hand, 6-7 Japanese companies carried out the environment accounting and environment risk management, while 2 Chinese companies carried out the environment accounting and environment risk management. Japan has issued the environmental accounting guideline in 2005, therefore the Japanese companies got the technical and theory support of environment accounting. Up to now, China has not issued any authoritative guideline; consequently, Chinese government should issue the environment accounting guideline as soon as possible. At last, this study also checked the utilization situation of Material Flow Cost Accounting, we find only one company in Japan and no one in China adopted this environment management tool.

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20

16

12

China 8 Japan

Amount Amount enterpriseof Unit / 4

0

Fig 5.12 Comparison of action of environment management taken by enterprise

In global warming prevention as Fig 5.13, almost all of Japanese company recorded the amount of CO2 emission and made a reduction plan, but in China, few companies calculated and recorded the CO2 emission. To realize the GHG reduction plan, Chinese corporation should firstly know about the calculation method of GHG emission and record GHG emission; it is the foundation of realization of GHG emission reduction plan. On the other hand, we can find about half of Japanese company used green energy in site and tried to reduce the logistical CO2 emission. However, few enterprises in both Chinese and Japanese take action in the energy conservation in office.

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20

16

12

8 China Japan

Amount Amount enterpriseof Unit / 4

0 GHG emission Logistical CO2 Promoting Use of energy plan and data emissions Efficient Renewable or conservation in Energy Use at new Energy at office or life Sites and Sites energy saving

Fig 5.13 Amount of enterprise taking action in global warming prevention

In waste reduction, Japanese companies emphasize very much on the waste reduction, recycling and waste management. More than 15 companies disclosed the information in these aspects. Although both countries have issued the law or regulation about industrial waste disposal, only 3 Chinese companied disclosed their waste disposal information. That is to say the Chinese industry waste need be managed further. On the other hand, this study checked environmentally conscious packaging, and finds only a few companies made effort in environmentally conscious packaging in Japan and China. But more than half of companies recorded and tried to reduction the water consumption in China and Japan. However, Chinese companies did not lag behind in researching environmental technology and providing environment friendly product or service. Moreover, from the CSR report of Chinese companies, we can find the many company are implementing the cleaner production, Chinese government issued cleaner production regulation and standard and required some industries to carry out the cleaner production audit and encouraged some industries to carry out voluntarily cleaner production audit. It promoted greatly the implementation of cleaner production. 6) Society responsibility As shown in the Fig 5.2, the society responsibility of Chinese enterprise is better than that of Japanese enterprise. Because the responsibilities for government like lawful operation and responsible political involvement, paying tax and employment creation, are most fundamental responsibilities, they are few mentioned in the CSR report. But it does not indicate enterprise

5-40 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing did not take these responsibilities. It has been mentioned before, Chinese company take a lot of action on the employee care and welfare as shown in the table 5.14. We count all of action of employee care.

50

45

40

35

30 China Japan 25

20 Amount Amount actin of Unit / 15

10

5

0

Fig 5.14 Action of responsibility for employee and community taken by enterprise

Both Chinese company and Japanese company emphasized very much on the occupation health and safe production. However in both countries, only 9 companies carried out the employee health and safety management, and 4 companies acquired the OHSAS 18001certification, and 2 companies record the morbidity of occupational diseases in detail. Therefore, both countries have a long way to go in the Occupational Safety and Health. On the other hand, we can find the difference between Japanese companies and Chinese

5-41 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing companies in health check, more Japanese companies paid attention to mental health, and many Chinese companies ignored this point. About half of Japanese companies hired the retired and the disabled, a few of Chinese companies hired the retired and the disabled. Moreover, we can find the Chinese companies had better performance in the employee welfare. They emphasized on the communication between manager and employee, and deal with the specific difficulties faced by individual, cared for the retried, held the literature＆art program and sports meeting for employee, provided the accommodation and so on. Japanese companies did not emphasize very much on these activities. The employee welfare is affected by the specific national condition and regional culture to same degree, but Japanese companies can also learn very much from the welfare activities of Chinese companies. On the other hand, Japanese companies focused on how to enhance the work environment, support diverse working styles and achieve work-life balance. Chinese companies should take more action in these aspects. About the social responsibility, this study classified and summarized the social responsibilities fulfilled by company according to the action aims. We can find supporting education got enough attention in both countries. Although the enterprise in both countries are actively resolving social problem, the specific social problem are quite different from county to country, the comparison of amount of action on the resolving social problem are meaningless. Japanese enterprises do contribution on the declining birthrate and aging population. Enterprises of China do contribution mainly on the supporting poverty, public construction and others. In protecting community environment, enterprise of Japan takes more action. It is notable that the most Japanese companies conducted environmental education activities and provided opportunity of visiting study, and most Japanese companies took is planting trees and cleaning-up. Moreover, both countries preferred the different aspects during the fulfilling the social responsibility, Japanese companies preferred to supporting artistic and cultural activities, respecting different customs and cultures, protection of intellectual property, while Chinese companies took more action in blood donation, public construction and disaster relief.

5.6 Conclusion

Through the survey and analysis, we can get the following conclusion. 1) Corporate social responsibility is a corporate strategy, not donation or a series of voluntary activities. CSR has a close relationship with the corporate decision-making, operation and corporate competitiveness and so on. The goal of CSR is sustainable development. 2) There are many CSR standards or compact, principle, but many of standards focus mainly on the human right. Some CSR comprehensive guidelines indicated CSR include management, responsibility for customer, partner, supplier, government, environment

5-42 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing responsibility, community, employee, stockholders and so on. 4) This study established CSR indicator system with 50 indicators. This CSR indicator system is overall and the scope of every indicator is limited so as to the scopes of indicators do not overlap with each other. 5) Overall situation of CSR reporting in Japan is better than that in China, there is a long way for both countries to achieve a perfect CSR performance. Enterprise in both counties has the equal performance in the market responsibility. CSR management and environment responsibility of Japan are better than these of China. But Chinese enterprises take more action in the society responsibility. There are companies in China and Japan whose CSR report disclosed little of social responsibility information even though they named the report as the CSR report 6) Japanese enterprise emphasized more on risk management. 7) Japanese enterprises made great effort to improve product quality and ensure products safety. However, Chinese enterprise should make more effort in product quality and safety. On the other hand, Chinese enterprise should learn from Japanese companies to take action to protect the custom information. However Chinese enterprises would like to mention CSR management in supply chain and technology innovation in CSR report. Much more Chinese companies disclosed information than Japanese companies in Maintaining and enhancing corporate value, fair marketing and fair competition and trade. 8) Japanese companies make great effort in the environment education and GHG emission plan and data. Japanese companies emphasized on the biodiversity, while Chinese companies almost completely discounted the biodiversity. Chinese enterprise is mainly focusing on the pollution prevention. Environment management level of Japan is much better than that of China, most Japanese enterprise adopted environment management system, input-output analysis and environment education. In global warming prevention almost all of Japanese company recorded the amount of CO2 emission and made a reduction plan, but in China, few companies calculated and recorded the CO2 emission. On the other hand, we can find about half of Japanese company used green energy in site and tried to reduce the logistical CO2 emission. However, few enterprises in both Chinese and Japanese take action in the energy conservation in office. 9) Both Chinese company and Japanese company emphasized very much on the occupation health and safe production. However, both countries have a long way to go in the Occupational Safety and Health. More Japanese companies paid attention to mental health, and many Chinese companies ignored this point. About half of Japanese companies hired the retired and the disabled, a few of Chinese companies hired the retired and the disabled. Moreover, Chinese companies had better performance in the employee welfare. They emphasized on the communication between manager and employee, and deal with the specific difficulties faced by individual, cared for the retried, held the literature＆art program and

5-43 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing sports meeting for employee, provided the accommodation and so on. Japanese companies did not emphasize very much on these activities. On the other hand, Japanese companies focused on how to enhance the work environment, support diverse working styles and achieve work-life balance. Chinese companies should take more action in these aspects. 10) About the community responsibility, We can find supporting education got enough attention in both countries. Although the enterprise in both countries are actively resolving social problem, the specific social problem are quite different from county to country, the comparison of amount of action on the resolving social problem are meaningless. Japanese enterprises do contribution on the declining birthrate and aging population. Enterprises of China do contribution mainly on the supporting poverty, public construction and others. In protecting community environment, enterprise of Japan takes more action. It is notable that the most Japanese companies conducted environmental education activities and provided opportunity of visiting study, and most Japanese companies took is planting trees and cleaning-up. Moreover, both countries preferred the different aspects during the fulfilling the social responsibility, Japanese companies preferred to supporting artistic and cultural activities, respecting different customs and cultures, protection of intellectual property, while Chinese companies took more action in blood donation, public construction and disaster relief.

5-44 Chapter 5 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing

Reference

5-1) http://www.iso.org/iso/iso_catalogue/management_and_leadership_standards/social_r esponsibility/sr_discovering_iso26000.htm. 5-2) Global Reporting Initiative, http://en.wikipedia.org/. 5-3) Chinese Textile and Apparel Industry (2009) Social Responsibility Report 2008, 2009. 5-4) Interview with FSC China Programme coordinator Yang Xiangjun, 2009. 5-5) Interview with Lin Feng from Certification and Accreditation Administration of The People’s Republic of China, 2009. 5-6) www.sa-intl.org (March 2009) 5-7) China WTO Tribune internal research data, 2008. 5-8) Interview with Han Bin who comes from Global Compact Promotion Office of China Enterprise Confederation on 17 September 2009. 5-9) 17 September 2009, www.wrapapparel.org/index.php. 5-10) http://www.accountability.org/research/index.html. 5-11) Chen Jiagui, The guideline of Chinese Corporate Social Responsibility (CASS-CSR1.0), Economic and Management, 2010. 5-12) ISO26000, 2011, p38. 5-13) OECD, OECD Guidelines for Multinational Enterprises, 2011 Edition, http://www.oecd.org/dataoecd/43/29/48004323.pdf. 5-14) ZHOU, Zucheng, research report about CSR of top 500 listed company in China, 2012, http://news.dayoo.com/finance/201201/09/54401_105631858.htm. 5-15) China Sustainability Reporting Resource Center, http://www.sustainabilityreport.cn/ReportList.asp, 2012. 5-16) The ISO Survey – 2007, PP 9-10, http://www.iso.org/iso/survey2007.pdf. 5-17) RLCCW, Blue Book of Corporate Social Responsibility of A-share Listed Company, 2009. 5-18) Corporate Social Responsibility Blue Book 2009, Economics Division of China Academy of Social Sciences, 2010, p18. 5-19) Corporate Social Responsibility Blue Book 2009, Economics Division of China Academy of Social Sciences, 2010, p19. 5-20) ISO 26000, 2011, p57. 5-21) ISO 26000.2011, P48. 5-22) ISO26000, 2011, p38. 5-23) Nobuyuki DEMISE, CSR in Japan: A Historical Perspective, 2008, p19.

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Chapter 6

Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing

Content

6.1 Investigation of current status of Socially Responsible Investment Indices ...... 6-1 6.1.1 Definition of socially responsibility investment ...... 6-1 6.1.2 Investing strategy of socially responsibility investment ...... 6-2 6.1.3 Socially responsibility investment index...... 6-3 6.1.4 Introduction of main SRI indices ...... 6-6 6.2 Analysis of sustainability of corporate development ...... 6-7 6.2.1 Exclusion of SRI indices ...... 6-7 6.2.2 Analysis of assessment method of SRI indices ...... 6-8 6.3 Current status of Chinese social responsibility investment ...... 6-15 6.3.1 SR index and fund in China ...... 6-15 6.3.2 Selection method and composition of SSE Social Responsibility ...... 6-15 6.3.3 Disadvantage of SSE-RI selection method ...... 6-16 6.4 Investigation of new CSR assessment base on the analytical hierarchy process ...... 6-18 6.4.1 Constructing the index system based on analytical hierarchy process ...... 6-18 6.4.2 Establishing Hierarchical structure ...... 6-19 6.4.3 Pairwise comparison ...... 6-20 6.4.4 Analysis result about weighting of indictor ...... 6-23 6.4.5 Assessment of CSR Performance ...... 6-23 6.5 Conclusion ...... 6-24 Reference ...... 6-26

Figure Fig 6.1 Number of SRI index in the world ...... 6-5 Fig 6.2 Regional distribution of SRI indices ...... 6-5 Fig 6.3 Rating of FTSE4Good Index ...... 6-10 Fig 6.4 Assessment matrix ...... 6-11 Fig 6.5 Aspects and categories of assessment of oekom Research AG ...... 6-12 Fig 6.6 Cluster analysis method ...... 6-14 Fig 6.7 Research status per period in China ...... 6-15 Fig 6.8 Composition of SSE-RI in the second half year of 2011 ...... 6-16 Fig 6.9 Hierarchical structure of CSR performance ...... 6-19 Fig 6.10 One part of questionnaire ...... 6-21 Fig 6.11 Average rank of indicators of market responsibility ...... 6-21 Fig 6.13 Average rank of indicator of social responsibility ...... 6-22 Fig 6.14 Assessment of CSR performance of 20 companies ...... 6-24

Table

Table 6.1 SRI indices in the world ...... 6-4 Table 6.2 Exclusion of indices ...... 6-8 Table 6.3 main SRI indices in the world ...... 6-17 Table 6.4 The action and practice of market responsibility taken by companies ...... 6-17 Table 6.5 The index system of corporate social responsibility ...... 6-19 Table 6.6 AHP measurement scale ...... 6-20 Table 6.7 Pairwise evaluations of first level criteria (CI＝0.0000） ...... 6-23

Table 6.8 Pairwise evaluations of indicator of market responsibility(CI＝0.0091) ... 6-23

Table 6.9 Weighting of every factor of CSR ...... 6-23

Chapter 6 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing

6.1 Investigation of current status of Socially Responsible Investment Indices

6.1.1 Definition of socially responsibility investment The concept of sustainable development, which appeared in the international scene for the first time in 1987, achieved even more widespread recognition in 1992 at the United Nations Earth Summit in Rio de Janeiro, with the publication of Agenda 21. This agreement, signed by 178 nations, sets guidelines for humanity to adopt in the 21st century in order to maintain social and economic development in a livable environment6-1). For the business enterprise, sustainable development means adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining and enhancing the human and natural resources that will be needed in the future6-2). With the resource exhaustion, bad affections of human activities and the awakening of the human rights, the traditional corporate goal- profit maximization is facing challenge. Corporate governance model becomes popular which is trying to achieve a greater balance of interests between shareholders and other external stakeholders including creditors, employees, community, environment, etc. this kind of corporate governance model are called corporate social responsibility (CSR). The goal of CSR is sustainable development. Under the guide of CSR perspective, the company takes the preserving environment, resource and culture, preserving the human right and future generations, keeping biodiversity, promoting a reduction in social inequalities and others into account, and establishes business goal and makes decision to achieve the company sustainable development compatible with society’s sustainable development. Socially Responsibility Investment (SRI) is an important tool to promote the development of corporate social responsibility. Through knowing about the scope and history of SRI, we can know well about the current status of CSR. Socially Responsible Investment describes an investment strategy of funds owned by individuals or institution, which seeks to maximize both financial return and social good. It is also known as sustainable investment, green investing, responsible investing, ESG (Environment, Social, and Governance) investing, mission-related investing or ethical investing .6-3) When socially responsible investors make investment decisions, they consider environment, social and governance aspects and give preference to the companies that cherish such values as sustainable development, environmental protection, consumer rights protection, human rights or biodiversity. Socially responsible investors encourage corporations indirectly to increase their commitment to such areas as environmental protection, corporate governance, and social good. SRI is a booming market in the US and Europe. In recent year, SRI became more and more accepted by the investor in other regions.

6-1 Chapter 6 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing

Pursuant to the report published by EuroSIF in September 2010, the level of socially responsible investing assets globally is currently at the level of approx. 7 trillion euros, of which almost 5 trillion euros is invested in Europe, more than 2 trillion euros in USA. For the comparison sake, the value of SRI in 2008 was around 5 trillion euros, which implies almost 40 percent increase over 2 years. SRI is carried out by a wide variety of institutional investors, including public pension funds, faith-based investors, and socially responsible mutual funds. Up to now, the number of SRI funds has up to 879 in Europe, while this number is about 420 in Asia Pacific.

6.1.2 Investing strategy of socially responsibility investment The investing strategies of SRI include Shareholder Advocacy, Community Investing and Screening. Shareholder Advocacy efforts attempt to positively influence corporate behavior. These efforts include initiating conversations with corporate management on issues of concern, submitting and voting proxy resolutions. Shareholder resolutions are filed by a wide variety of institutional investors, including public pension funds, faith-based investors, socially responsible mutual funds, and labor unions. These activities affect company action to improve financial performance over time and enhance the wellbeing of stockholders, customers, employees, vendors, and communities. Community Investing, a subset of Socially Responsible Investing, allows for investment directly into community, rather than purchasing stock. Community investing institutions use investor capital to finance or guarantee loans to individuals and organizations that have historically been denied access to capital by traditional financial institutions. These loans are used for housing, small business creation, education or personal development and supporting other important community service. These loans are made available to local financial institutions abroad to finance international community development. The community investing institution typically provides training and other types of support and expertise to ensure the success of the loan and its returns for investors. For example, money invested in a Community Development Financial Institution may be used by that institution to alleviate poverty and inequality, spread access to capital to under-served communities, support economic development or green business, or creates other social good. Negative screening and positive screening constitute screening strategy of SRI. Negative Screening excludes certain securities from investment consideration based on social and environmental criteria. Many socially responsible investors screen out adult entertainment, alcohol, gambling, nuclear power, tobacco, and weapons. positive screening means that an investor prefer to investing in the funds which do positive contribution to the society, for example, fund just purchase the company stock which emphasize on the environment protection, product safety and respect human right.

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6.1.3 Socially responsibility investment index To establish benchmark for the companies involved in the corporate social responsibility activities, and to provide a real reference for SRI investors, research and financial institutes launched many SRI indices such as Dow Jones Sustainability Indexes, Calvert Social Index, FTSE4Good Indices and so on. SRI index is the stock price index of a series companies which meet the requirement of corporate social responsibility, socially responsible investment index provide the benchmark for SRI and contribute to the development of responsible business practice around the world. The first SRI index came to world in USA in 1990 launched by Amy Domini and co-founder of ratings agency KLD, and it was named Domini Social Index (DSI400). It listed 400 large companies selected for their social, environmental and ethical performance in the United States. Later, the pioneer in this field was Dow Jones that started to publish Sustainability Index in September 1999. One year later Calvert fund started to publish CSR index, whereas in July 2001 the first index (FTSE4Good) was published by an English company FTSE. South Africa was the first emerging market to incorporate sustainability into its stock market. The Johannesburg Stock Exchange (JSE) launched its SRI index in 2003. Later, the large financial and research institution and Stock Exchanges of other countries begin to issue the SRI indices. This paper established SRI database which include all SRI indices in the world. The main socially responsible investment indices and index series are shown in the Table 6. 1. Up to Jane, 2011, there are about 125 SRI indices in the world. Moreover, the indices with emphasis on the environment issue are 32. There are several large SRI index series issued by the large Stock Exchanges and financial research institution in the word which provide the sustainable investment indices service for many regions like the Dow Jones Sustainability Index series, FTSE4Good index series, OMX GES Sustainability and ethical Index series, KLD Sustainability Index Series, FTSE KLD Global Sustainability Index, STOXX Sustainability Indices and Global ESG Leaders Indices, MSCI SRI index series and others. These index series include 91indices, taking about 78% of total SRI indices.

6-3 Chapter 6 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing

Table 6.1 SRI indices in the world The SRI index Issue time Aim market Domini 400 Social Index 1990 US Dow Jones Sustainability Index series 1999 Global Calvert Social Index(2000) 2000 US FTSE4Good index series 2001 Global Morningstar Socially Responsible Investment Index 2003 Japan Bovespa Corporate Sustainability Index (ISE) 2005 Brazil Ethibel Sustainability Index (ESI) series 2002 Global Global Challenges Index 2007 Germany Johannesburg Stock Exchange in Africa( JSE) 2004 South Africa RESPECT Index 2009 Polish Shanghai Stock Exchange (SSE) Social Responsibility 2009 China index KLD Sustainability Index Series (GSI) 2007 Global VBV-Österreichischer Nachhaltigkeitsindex 2005 Austria (VÖNIX) CEE Responsible Investment Universe 2009 Europe Maala SRI (Socially Responsible Investing) Index 2006 Israel S&P ESG India Index 2007 India DAXglobal® Sarasin Sustainability Germany Index 2007 Germany DAXglobal® Sarasin Sustainability Switzerland Index 2007 Switzerland SRI-KEHATI Index 2009 Indonesia Korean SRI Index 2009 Korea Responsible Investment Universe Index 2009 Vienna Hang Seng Corporate Sustainability Index 2010 Hong Kong Hang Seng (China A) Corporate Sustainability 2010 China Hang Seng (Mainland and ＨK) Corporate 2010 China Sustainability Index Istanbul Stock Exchange Sustainability Index 2010 Turkey OMX GES Sustainability Index series 2010 Europe OMX GES ethical Index series 2008 Europe STOXX Global ESG Leaders Indices 2011 Global STOXX Sustainability Indices 2011 Europe Advanced Sustainability Performance Eurozone Index 2002 Europe FTSE KLD Sustainability Index indices 2008 Global MSCI ESG Best-of-Class Indices 2010 Global MSCI Values-based Indices 2010 Global MSCI KLD 400 Social Index 2010 Global MSCI Global ex Controversial Weapons Indices 2011 Global MSCI Global Socially Responsible Indices 2011 Global Note：This table does not include the subset SRI indices like the Dow Jones Sustainability World Index ex Alcohol which just exclude some industries based on the Dow Jones Sustainability World Index and environment investment indices like the NASDAQ OMX® Clean Edge® Global Wind Energy Index, FTSE4Good Environmental Leaders Europe 40 Index.

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Figure 6.1 show us the development situation of SRI index in the world, we can find he SRI index becomes booming since 2008, and keep in a high development speed.

150

120

90

60

30 Amount of SRI Uint / SRI of Amount index

0

Fig 6.1 Number of SRI index in the world

About target market of SRI, 61 SRI indices selected stock from the North America, Europe, Asia Pacific, Global and Emerging Market. As shown in the Figure 6.2, SRI index for the Europe or Eurozone market is most; with the number of 27, it take 44% of all regional SRI indices. We can conclude that SRI and SRI technique in European are most booming and advanced. And the target market of 33% SRI indices is global market. The percentage of indices for the North American market and Asia pacific market is the same, about 10%. Moreover, there are one SRI index specifically assess socially responsibility for companies in emerging market. Emerging market Asia pacific 2% 11% Global 33%

Europe＆ North America Eurozone 10% 44%

Fig 6.2 Regional distribution of SRI indices

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On the other hand, 55 SRI indices focus on stock market limited in one county. Because of advanced and vigorous stock market, the SRI indices for USA market is most, with number 16. To comparison, 17 countries just have one SRI index; they are Australia, Spain, Brazil, South Africa, Polish, Austria, Israel, India, Switzerland, Indonesia, Vienna, Turkey, Denmark, Norway, Canada, Australia, and Spain. On the other hand, the following countries have a little more SRI index, Sweden, Japan and China have respectively 4 SRI indices, countries like Korea, Germany, Finland, Italia and UK have respectively 2 SRI index. And Malaysia expects to launch a sustainability index in 2012. This illustrate that SRI is getting more and more attention in many counties.

6.1.4 Introduction of main SRI indices Several main SRI index series providing by large financial and research institution contain most of SRI indices. This paper will give a brief introduction of them. 1) Dow Jones Sustainability Indexes Launched in 1999, the Dow Jones Sustainability Indexes are also considered as the first global SRI Price indexes evaluating companies from the perspective of sustainability in the three areas of economics, environment and society. Based on the cooperation of Dow Jones Indexes (United States) and SAM (Sustainable Asset Management, Switzerland), they provide asset managers with reliable and objective benchmarks to manage sustainability portfolios. The identification of sustainability leaders for the Dow Jones Sustainability Indexes is based on the Corporate Sustainability Assessment of SAM Research. The Dow Jones Sustainability Indexes consist of DJSI world family and European STOXX series. 2) FTSE4Good Index Series Launched in 2001, The FTSE4Good Index Series has been designed to objectively measure the performance of companies that meet globally recognized corporate responsibility standards, is provided by the FTSE (Financial Times Stock Exchange), a company owned jointly by Financial Times and London Stock Exchange. It covers 23 markets of the Global and European regions, US, Japan and the UK and over 2,000 potential constituents. In UK, the universe of eligible constituents is drawn from the FTSE All-Share Index. The FTSE4Good Index Series is a series of benchmark and tradable indices for responsible investors 3) MSCI ESG Indices series MSCI Inc. (Morgan Stanley Capital International), is headquartered in New York, with research and commercial offices around the world, is a leading provider of investment decision support tools worldwide, including indices, portfolio risk and performance analytics and corporate governance services. MSCI ESG Indices were launched in September 2010, it screen the companies have better performance in the environment, social and governance. Up to June 2011, it has launched 25 new MSCI ESG Indices covering North America and Europe market. 4) OMX GES Sustainability and Ethical index series

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GES Investment Services and NASDAQ OMX – the world’s largest exchange company – successively calculate an index family of sustainability and ethical indices on the Nordic markets. These indices provide investors with the opportunity of comparing their yield on responsible investment against a regulated benchmark. The first indexes were created in 2004, up to 2011, the OMX GES Sustainability and Ethical index series have up to 10 indices focusing mainly on the Nordic market like Finland, Sweden, Denmark, Norway market. This index series are based on the analysis model GES Risk Rating which rates companies on their preparedness on environmental, social and governance (ESG) issues. 5) STOXX Sustainability Indices and STOXX Global ESG Leaders Indices The components included in the STOXX Sustainability indices are selected according to a comprehensive analysis provided by Bank Sarasi which is asset manager specialized in the investment advice, asset management and mutual fund. Since the late of 1980s, it has been integrating the environmental and social aspects into investment. Only those companies which are considered sustainable companies based on this model are eligible for inclusion in the indices. The STOXX Global ESG Leaders indices are a new group of four sustainability indices that are based on a fully transparent and rule-based selection process. Based on 128 relevant key performance indicators (KPIs) provided by the index partner Sustainalytics, a relative rating is constructed using a fully transparent weighting model that discloses the weight of each KPI in the overall rating. The rating model has been mapped to the KPIs for ESG 3.0 Standard by DVFA, the Society of Investment Professionals in Germany, and EFFAS, the European Federation of Financial Analysts Societies, which also act as index partners. The ratings are calculated for three sub-areas: environmental (E), social (S) and governance (G). They relate to all companies in the base universe STOXX Global 1800. 6) The Ethibel Sustainability indexes The Ethibel Sustainability indexes were first published on June 27, 2002 by the ETHIBEL and Vigeo (Franc) in Belgium, and contain the best-in-class companies with respect to sustainability across sectors and regions in Europe, the Americas and Asia Pacific. The Ethibel Sustainability Index (ESI) groups includes two global indices: ESI Pioneer Global, ESI Excellence Global and two regional indices: ESI Pioneer Europe and ESI Excellence Europe. 6.2 Analysis of sustainability of corporate development

6.2.1 Exclusion of SRI indices Some industries are excluded in the SRI indices because they do not comply with the social and environmental sustainable development. From the Table 6.2, we can find the different SRI indices applied the different exclusions. Alcohol, tobacco, ambling and armaments are universally excluded. While, items like Human rights issues, nuclear, violations of animal

6-7 Chapter 6 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing welfare, genetically modified organisms (GMO), pesticides, abortion and others are also excluded. Oekom research AG adopts most serious exclusion. However, according to the statistics of exclusion of indices, we can find most SRI indices have no exclusion like Hang Seng Corporate Sustainability Index series, Shanghai Stock Exchange Responsibility Index (SSE-RI), OMX GES Sustainability Indices, Bovespa Corporate Sustainability Index (ISE), Morningstar Socially Responsible Investment Index of Japan, Korean SRI Index, Johannesburg Stock Exchange in Africa and Istanbul Stock Exchange Sustainability Index.

Table 6.2 Exclusion of indices SRI Index DJSI CSI FTSE4 Oekom ESI Sarasin MSCI KLD Clvert Alcohol ● ● ● ● ● ● Tobacco ● ● ● ● ● ● ● ● ● Gambling ● ● ● ● ● Armaments ● ● ● ● ● ● ● ● Adult entertainment ● ● ● ● ● Nuclear ● ● ● ● ● Human rights issues ● ● ● Abortion ● Biocides ● Chlororganic mass products ● Embryonic research ● Genetically modified organisms ● ● ● Controversial environmental ● practices Violations of animal welfare ● ● ● Business malpractice ● ● Child labor ●

6.2.2 Analysis of assessment method of SRI indices SRI indices apply different method to assess sustainability or CSR performance. This paper analyzed and summarized these methods and divided these methods into five categories. 1) Scoring method This method represented by the DJSI. Through the assessment of economic, environmental and social driving forces and trends, corporate sustainability criteria are identified.6-4) The DJSI criteria consist of both general criteria applicable to all industries and specific criteria applicable to companies in a certain sector. Based on the identification of major global sustainability challenges, general sustainability criteria are defined for each dimension. They include standard management practices and performance measures applicable to all industries,

6-8 Chapter 6 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing such as corporate governance, human capital development, risk and crisis management, talent retention and labor practices. The general criteria account for approximately forty percent of the assessment.6-4) Industry specific criteria take into account the challenges and trends affecting specific industries.6-4) The assessment is divided into three distinct sections, covering the economic, environmental and social dimensions and including answers from the questionnaire as well as the results from a Media and Stakeholder Analysis. 6-4) The specific criteria have a weight of approximately sixty percent of assessment. The criteria are built into Corporate Sustainability Assessment, which quantifies the sustainability performance of a company by assigning a corporate sustainability score. The sustainability score is used to identify the leading sustainability companies in each sector. A company's total corporate sustainability score is calculated in SAM's Sustainability Information Management System (SIMS) based on a pre-defined scoring and weighting structure. SAM gathers the information from questionnaires. Each question has a predetermined score for the answer, a weight for the question, and a weight for the criteria. The total score for the question is the combination of these weights. A company’s total corporate sustainability score at the highest aggregated level is calculated according to the following formula:

TS = ∑ CRW × ∑ QUW × ANS (6-1)

TS：Total Score

CRW ：Criteria weighting of criteria n

QUW ：Weight of question e in the criteria f

ANS ：Score of answer e in the criteria f The DJSI track the best performance of companies to a top certain percentage in the Dow Jones Global Total Stock Market Index6-4). The similar assessment and selection method is also used in the KLD Sustainability Index Series (GSI) based on the key ESG performance indicators in each of ten economic sectors. Advantage and disadvantage：This method is easy to understand and use. 2) Risk ＆ performance method The risk and performance method is represented by FTSE4Good indices and Johannesburg Stock Exchange Socially Responsible Index (JSE SRI). This method assesses environmental pillar risk, social pillar risk and corporate governance pillar risk. FTSE4Good indices set criteria for every pillar as shown in Fig 6.3. Firstly it classifies sectors as high, medium or low impact based on different standard as shown in Fig6.3. For example, sectors are classified high, medium or low risk according to the environmental footprint of their activities. The higher the environmental impact of sectors, the higher environment management risk. All

6-9 Chapter 6 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing sectors are associated criteria requirements according to risk level. The higher the environmental impact of the company, the more stringent the criteria requirement. The process used to identify companies as high risk has different filters. For example, about risk of human right, company need be filtered by location of operation. Companies with significant involvement in countries with the greatest human rights concern have been identified as potentially having a medium. The company in China was identified with risk level 2 on human right. The process used to identify companies as high risk in countering bribe has three filters: sector, county and public contracts.

Fig 6.3 Rating of FTSE4Good Index

The FTSE4Good Index scored for company according to amount of requirement items meet by company. The FTSE4Good Index identified requirement of good practice and best practice. In order to gain inclusion into the FTSE4Good Index, companies must meet good practice (achieve a score of 3) level for all relevant criteria. The FTSE4Good Index identified requirement of good practice level and best practice level for all criteria. The company meeting less than all requirements of good practice will be scores less than 3. According to the performance of company, companies are scored from 0 to 5 for every criteria. The calculation method is shown as following 6-5). Pillar level risk is calculated by formulas (6-2) :

∑ = (6-2)

Rp：Risk of pillar

：Risk of criteria n：number of criteria

Pillar level score is calculated by formulas (6-3) :

∑ 𝑆 𝑆푃 = (6-3) ∑

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Sp：Score of pillar

Sc：Score of criteria

The company overall rating is calculated by formulas (6-4) :

∑ S = ＝ (6-4) ∑ ＝

S：Score of this company

Advantage and disadvantage：This kind of assessment method takes risk into account. The risk is defined by sector and location. Only this method takes location factor into account. In addition, according to different risk level, the performance requirement is different and listed clearly, making sure the fairness of assessment. This method is easy to understand and apply. However, the amount of indicator is better not too many when use this method. 3) Matrix ranking method The matrix ranking method is represented by the Global Challenges Index launched in 2007 which is provided by oekom Research AG, oekom Research AG is a world’s leading rating agency and was established in 1993. oekom research AG based in Munich, established an Environmental-Rating, which has since been continuously improved. 6-6) later oekom research AG used this method to assess CSR and provide service of responsible investment advisory, provide responsible investment screening services and issued oekom Responsibility Reports. Since the impact of social responsibility varies from industry to industry, it is necessary to classify the different industries consistent with their society impact. In consultation with independent experts, the industries are divided into five categories as shown in Fig 6.4. X axis and Y axis represent the aspects of social responsibility.

Fig 6.4 Assessment matrix

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oekom Research AG assess social responsibility from social and environmental aspects as shown in Fig 6.56-7). After identifying weighting of aspects of social responsibility and industry classification, oekom Research AG set a layer tree with 5 layers as shown in Fig 6.5. Five layers are layer of aspect, layer of category, layer of sub category, layer of subject and layer of indicator. oekom Research AG identified weighting of component of every layer. For different industry, components of every layer are same but weightings of component are different. Take layer of aspect as example, some industry is with the same weighting in both aspects like Issuance. For Automobile, it should focus more on one aspect of social responsibility. Therefore, oekom Research AG identified weighting of environmental aspects with 60% weighting and social aspects with 40% weighting. Each rating area is given a grade on a scale from A+ to D– based on the social responsibility within the area: A+： The company’s social responsibility is especially progressive within the industry. D–： The company focuses on complying with regulation but shows little or no further social commitment.

Fig 6.5 Aspects and categories of assessment of oekom Research AG

oekom Research AG gave grade according to criteria of indicator. After applying the criteria to the industry in question, gathering information is carried out by means of a comprehensive questionnaire and personal interviews, both within the company and with external stakeholders. The grade of company can be calculated by the following fomulas6-7). Grade of company in subject layer：

i Gs = ∑i WiGi (6-5)

Grade of company in sub-category layer：

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G푠 = ∑푠 W푠G푠 (6-6)

Grade of company in category layer：

G = ∑ W G (6-7)

Grade of company in aspect layer：

G푎 = ∑푎 W푎G푎 (6-8)

W：Weighting G：Grade i：Indicator s：Subject sc：sub-category c：Category a：Aspect A company is being classified as "best in class" if it ranks among the world best companies within the same industry and fulfills the sector-specific minimum requirements defined by oekom research. Advantage and disadvantage：This method thinks social impacts vary from sectors to sectors, and make industry classification of importance of SR. Assessment matrix makes clear the weighting of every aspect and SR importance of sector at a glance. However, assessment matrix just set both dimensions and can assess both aspect of social responsibility. If CSR is divided into environmental, social and market aspects, assessment matrix may not be applied. On the other hand, the weightings needed be identified are too much, it is a little complex. 4) Cluster analysis method This kind of method thinks that the stock in the SRI indices should perform better in all fields of corporate social responsibility. The Bovespa Corporate Sustainability Index (Índice de Sustentabilidade Empresarial – ISE) in Brazil and the Ethibel Sustainability Indices are the respective indices of this kind of theory. Next, we will take the ISE as an example. The institution expert – the Center for Sustainability Studies of the Business Administration School of São Paulo (CES-FGV) designed a questionnaire to verify the performance of the companies. There are different indicator systems per group of economic sectors, in order to consider the particularities of each sector regarding its impact. Meanwhile the weightings of dimension vary according to the impact. The weightings increase with the impact increasing. This method thinks simple adding of assessment scores of such distinct dimensions as the environment and corporate governance must generate deviations. Therefore, this methodology introduces cluster analysis as a statistical tool in the final classification process as shown in Fig 6.6. Cluster analysis identifies groups of businesses that exhibit similar performance in

6-13 Chapter 6 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing each dimension.6-8) The SRI indice will be made up of the cluster of businesses that demonstrates the best practices in all dimensions. This methodology was inspired by the solutions offered by the FTSE4Good and the JSE.

Fig 6.6 Cluster analysis method

Advantage and disadvantage：This methodology introduces cluster analysis as a statistical tool in the final classification process, avoiding deviations generated by a simple adding of assessment scores of such distinct dimensions as the environment, corporate governance and so on. This method establishes different indicator system for different sectors; it gives enough emphasis on particularities of each sector. 5) Financial data method This method is represented by the Shanghai Stock Exchange Social Responsibility Index (SSE-RI). It firstly introduced the concept of the social contribution value per share. Shanghai Stock Exchange (SSE) and China Securities Index Company Limited launched the SSE Social Responsibility index on August, 2009. The definition of the social contribution value per shares firstly brought up in the "Notice of Improving Listed Companies' Assumption of Social Responsibilities" published by the SSE in May 2008. On the basis of earnings per share created for shareholders, the added value created for the society is calculated by adding tax revenues created for the State, salary paid to employees, loan interest paid to creditors including banks, donations and other value for stakeholders, and deducting social costs from environmental pollution or other factors. 6-9) This value helps the public get a full knowledge of the real value created by the company for its shareholders, employees, customers, creditors, communities and the whole society. SSE selects the top 100 stock in the ranking list in terms of the social contribution value per share as the constituents of the SSE Social Responsibility Index. This method is most easily to use and be accepted by investor, but not enough specific.

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Advantage and disadvantage：This method used the financial data to reflect the corporate social responsibility and achieve the combination of financial data and social responsibility. it is easy to apply. But the financial data can just illustrate one part of every criterion and cannot find opportunity and avoid the risk. And it does not take CSR practice in to account, it is not so good for promote CSR practice of enterprise. For enterprise with poor CSR performance, it cannot promote enterprise change vision to take more CSR activities. So this kind of social responsibility assessment is not precise enough. 6.3 Current status of Chinese social responsibility investment

6.3.1 SR index and fund in China Social responsibility investment was introduced into China in about 2005, up to now, Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) issued the SRI indexes. Xingye Global Fund Co Ltd. issued Xingye SRI Fund6-10), and CCB Principal Asset Management Co. Ltd issued the Social Responsibility index ETF fund6-11). This study searched papers about SRI in CNKI, and found research of SRI began booming since 2006 as shown in Fig 6.7.

150

120 90 60 30

0

assessment / amount amount / assessment Published paper CSR paper about Published

Fig 6.7 Research status per period in China

6.3.2 Selection method and composition of SSE Social Responsibility The SSE selects the stock according to the society contribution value per share (V) which can get by the formulas (6-9)

N＋T＋ ＋L＋D＋O −E−O2 V = (6-9) 𝑆퐻

V: Social contribution value per shares

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N: Net earning T: Tax revenues S: Salary L: Loan interest and value for stakeholders D: Donations E: Social Cost from environmental pollution O1: Other value for stakeholders O2: Other social cost SH: Share

The SSE Social Responsibility index is composed of top 98 companies with highest social contribution value per share in second half year of 2011. Fig 6.8 shows us the composition of SSE-RI. We can find the stocks of SSE-RI mainly come from Pharmaceutical industry, Contribution industry, Electrical machinery and electronic components sector, Mining industry. the Contribution, Finances and Retailing, Transportation and Logistics industry are also the main sectors of SSE-RI. Although during the total number 98 of SSE-RI index, 52 companies came from the Manufacturing, but more companies from the Pharmaceutical industry, Electrical machinery and electronic, Metal manufacturing, Transportation equipment manufacturing contributed the SEE-RI indexes. Qingdao beer and Qianfeng Wine are also

chose as stock of SSE-RI. Youngor Fashion Ltd, Co. is stock of fashion industry in SSE-RI.

16

12

8

4

0 Amount Amount listed of company unit /

Industy

Fig 6.8 Composition of SSE-RI in the second half year of 2011

6.3.3 Disadvantage of SSE-RI selection method Compared to main selection method in world as shown in Table 6.3, we can find SSE-RI did not exclude any industry. On the other hand, the importance of CSR indicators is different. For example, for food sectors, responsibility for customer is more importance than responsibility for employee, since food safety may harm direct human health. But for smelting and pressing of metal, environment responsibility is important then market responsibility, since product difference of metal is not so much but environment load is heavy.

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Therefore a good assessment of CSR should take sector feature of responsibility into account. From Table 6.3, we can find main SRI indices identified weighting of indicator for different sectors.

Table 6.3 Main SRI indices in the world Bovespa Corporate SRI index DJSI FTSE4Good Oekom SSE-RI Sustainability Index Year of issue 1999 2001 2005 2007 2009 Method of stock Scoring Matrix ranking Cluster analysis risk and performance Financial selection method method method method method Identify respectively different weighting of Yes Yes Yes Yes No indicators for different sectors Identify different weighting of indicator No Yes No No No by location CSR of sectors are No No No Yes No different Exclusion of industry Yes Yes Yes Yes No

Financial method of SSE-RI is easy to use, and can promote enterprise to take social responsibility to some degree, and guide sustainability investment. But it is lack of professional analysis of every aspect of corporate social responsibility. Therefore this paper will analyze deeply the industry characteristics and try to establish a more specific and professional assessment system for manufacturing. On the other hand, the selection method of SSE-RI just is based on the financial data, it did not take the action of CSR into account, it is not helpful for to guide enterprise to take critical responsibility. We investigated CSR action of Youngor Fashion Ltd, Co. and Shanshan Fashion Ltd, Co. and Dajin Fashion Ltd, Co. as shown in Table 6.4. Youngor Fashion Ltd, Co. was listed in the SSE-RI share, but we can find the action of Youngor Fashion Ltd, Co. is fewer than other both company. Therefor the selection method of SSR-RI may lead error to some degree.

Table 6.4 Action and practice of market responsibility taken by companies Company Youngor Shanshan Dajin Action 13 24 27

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6.4 Investigation of new CSR assessment base on the analytical hierarchy process

To promote the Chinese CSR, this paper will use the Analytic Hierarchy Process to investigate a tool easy to apply. The analytical hierarchy process (AHP) was first introduced by Professor T • L • Saaty in 1971. Since its introduction, the AHP has become one of the most widely used in multiple-criteria decision making (MCDM) problems6-12). AHP presents a complex problem as an orderly class structure, and then experts get judgment matrix by comparing the importance of the elements in the structure and obtain an order from the best to the worst after the final judgment matrix calculation. 6-13) Jouni Korhonen was the first person to assess and measure the corporate social responsibility from the aspects of economics, society and environment 6-14). Michael Hopkins defined the meaning of corporate social responsibility, built a hierarchical structure of corporate social responsibility and conducted the evaluation research6-15). Katarína DRIENIKOVÁ and other authors used the analytic hierarchy process method in the formulating the stakeholders´ strategic goals within the CSR and simultaneously its utilization in minimization environmental risks 6-16). ZHU Lilong and YOU Jianxin construct and evaluate the indicators system of corporate social responsibility, and found that Economic responsibility and legal liability are the most important to the enterprises. Shouming Chen, and Jiasi Fan also proposesed a systematic approach to measure CSR using fuzzy analytical hierarchy process (FAHP). 6-17)

6.4.1 Constructing the index system based on analytical hierarchy process According to the content of Chapter 5, the contents of CSR include the responsibility management, market responsibility, environment responsibility and society responsibility. Because the responsibility management is not independent aspect of corporate social responsibility, it is one part of market responsibility, social responsibility and environment responsibility. So the criteria system just includes the market responsibility, social responsibility and environment responsibility, as shown in Table 6.5. The index system is constituted by 20 indicators.

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Table 6.5 Index system of corporate social responsibility Target layer Subject layer Indicator layer C11-information disclosure C12-making profit C13- qualified products C1-Market responsibility C14- satisfied services C15-fair competition and trade C16-lawful operation C17-tax payment C21-compliance with environmental law C22-environment management Best take corporate social C2-Environment C23-pollution prevention responsibility responsibility C24-climate change mitigation C25-protect biodiversity and habitats C26-waste reduction C31-employment and employment relationship C32-career development C33-communication of employee and employer C3-Social responsibility C34- health and safety at work C35- condition of work C36- community development C37- community involvement

6.4.2 Establishing Hierarchical structure Fig 6.9 illustrates the hierarchical structure; the goal of decision is finding better performance of CSR. The subjects of first layer are the market responsibility, environmental responsibility and Social responsibility. The middle layer is indicators of every subject as shown in Table 6.5. The last layer of the hierarchy represents the alternative companies. Because the aim of this paper is to find a good model of CSR assessment, not assess CSR performance of specific companies. Therefore, we omit the alternative companies in the hierarchical structure as shown in Fig 6.9.

Fig 6.9 Hierarchical structure of CSR performance 6-19 Chapter 6 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing

6.4.3 Pairwise comparison Next, we compared indicators by pairwise comparison to identify the importance of various indicators. This step is very important; it will affect directly the weighting of various criteria. Table 6.6 gives AHP measurement scale

Table 6.6 AHP measurement scale Intensity of importance Meaning (A compared to B) 1 A is equally important to B 3 A is moderately more important than B 5 A is strongly more important than B 7 A is very strongly more important than B 9 A is extremely more important than B 2,4,6,8 The middle situation

The weighting of indicators for different industries is quite different, for example, the labor-intensive manufacturing like fashion industry, the responsibility for employee is every important then sector with fewer employee and good work environment. Therefore, importance of environment responsibility, market responsibility and social responsibility should be identified firstly by Delphi method, and then the importance for every indicator should be identified. 1) Importance of criteria We seek for opinion of 10 doctors from Waseda University. At last all doctors reached consensus that the importance of market responsibility, social responsibility and environment responsibility should be the same since CSR performance of China is poor. SRI should focus on promotion of CSR in every aspect. 2) Importance of indicator To reflect the local requirement of people for every industry, we asked people to answer the questionnaire and rank the importance of indicators. One part of questionnaire is shown in the Fig 6.10. This questionnaire asks people to rank the importance of every indicator. We collected 30 questionnaires filled by employee of professor and students. And then we calculated average rank of indicators to decide the weighting of every indicator. Fig 6.11-Fig6.13 show the average rank of indicators. We can find qualified products, satisfied service, climate change mitigation, pollution prevention, employee and employment relationship, communication between employee and employer are considered as very important social responsibility.

6-20 Chapter 6 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing

Fig 6.10 One part of questionnaire

7

6

5

4

3 Average rank Average 2

1

0

Fig 6.11 Average rank of indicators of market responsibility

6-21 Chapter 6 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing

7 6

5 4 3

Average rank Average 2 1 0

Fig 6.12 Average rank of indicator of environment responsibility

7

6

5 4 3 2

Average rank Average 1 0

Fig 6.13 Average rank of indicator of social responsibility

Pairwise evaluations of criteria layer and indicator layer are shown in the Table 6.7. We can identify the Pairwise evaluations of indicator layer as example shown in Table 6.8, CI is smaller than 0.0091, so it is rational the identification of importance of every indicator of market responsibility.

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Table 6.7 Pairwise evaluations of first level criteria (CI＝0.0000） Market Environment Social Items responsibility responsibility responsibility Market responsibility 1 1 Environment responsibility 1 Social responsibility

Table 6.8 Pairwise evaluations of indicator of market responsibility(CI＝0.0091) Qualified Satisfied Making Information Lawful Fair Taxes Items product services profit disclosure operation competition payment and trade Qualified 3 5 9 3 7 8 product Satisfied 3 7 1 5 6 services Making profit 5 1/3 1/3 3 Information 1/7 1/3 1/3 disclosure Lawful operation 6 1 Fair competition 1 and trade Taxes payment

6.4.4 Analysis result about weighting of indictor The tests of consistency and calculation of weighting can be done both manually and by using the software tool for solving AHP method---yaahp v0.50. Because of the limited size of this article it is not possible to describe the whole process in detail; we used the software and got the weighting of indicator as shown in the Table 6.9.

Table 6.9 Weighting of every factor of CSR Indicator Weighting Indicator Weighting Qualified products 0.0946 Condition of work 0.0448 Communication of employee and Pollution prevention 0.0943 0.0411 employer Compliance with environment law 0.0929 Make profit 0.0369 Health and safety at work 0.0816 Fair competition and trade 0.031 Employment and employment relationship 0.0816 Waste reduction 0.0288 Satisfied service 0.0634 Paying taxes 0.0254 Compliance with law 0.0634 Information disclosure 0.0186 Environment management 0.0555 Community involvement 0.0185 Climate change mitigation 0.0481 Community development 0.0185 Career development 0.0474 Protect biodiversity and habitats 0.0137

6.4.5 Assessment of CSR Performance 1) Assessment formulas We have got the weighting of every indicator; the comprehensive score of enterprise is equal to the weighting multiplied by the score of action as shown in the formulas (6-10). The score of actions is the sum of actions specified in the Chapter 5.

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TS = ∑푖 푊푖 퐴푖 (6-10)

TS：Total score of enterprise

푊푖：Weighting of indicator 풊

퐴푖：Amount of actions of indicator 풊 taken by enterprise 풊 ： Indicators of CSR (n=20) Company with higher score can be selected as the SR index. 2) Assessment of CSR performance This study assessed CSR performance of 20 companies as shown in Fig 6.14. Youngor, Haire and Changhong are stocks of SSR-RI, but total score of them is not highest. For the enterprise which has taken more action of SR but did not cause change in financial data, SSE-RI cannot irritate the enthusiasm of enforcing CSR management, taking action of CSR, changing operation version.

5

4

3

2

1 Total score CSR of score Total 0

Fig 6.14 Assessment of CSR performance of 20 companies

6.5 Conclusion

This chapter developed a new SR selection method based on the assessment of CSR performance. Through survey, we get the following conclusions. 1) Some SRI indices disclose the methodology and criteria of index selection. But some did not disclose them. After survey of main SRI indices, this paper found no all SRI indices have the exclusion. The industries which are excluded by most SRI indices are alcohol, tobacco, gambling, armaments, adult entertainment and nuclear. On the other hand, in the future, the following industries are possible excluded by SRI index, they are the abortion, Biocides,

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Chlororganic products, embryonic research, Genetically Modified Organisms, violations of animal welfare and so on. 2) The inclusion criteria are different with each SRI index, but all are about Corporate Governance, environment responsibility and social responsibility. This paper analyze and summarize these methods, the main methods are summarized as the weighting method, risk ＆performance method, matrix ranking method, cluster analysis method and financial data method. The weighting of indicator is determined by the potential impact according to industry feature and location of operation. These assessment methods have both advantage and disadvantage. the risk ＆performance method is easy to understand and apply at the standpoint of avoiding risk, the matrix ranking method makes corporate state clear at a glance in different assessment dimensions. The cluster analysis can avoid deviations generated by a simple adding of assessment scores of such distinct dimensions. The financial data method is most easy assessment method even though the assessment process is not precise enough. But it also can promote enterprise to take social responsibility to some degree. 3) Considering the disadvantage of financial method used by the Chinese CSR assessment organization, we need a method which takes the risk, social effect and cost into account. The assessment method based on the analytical hierarchy process just can deal with this problem. The analytical hierarchy process is a timely and dynamic method of identifying weighting of multiple indicators. This paper builds a comprehensive corporate social responsibility indicators system according to the guideline of Chinese CSR report CASS-CSR1.0. Through the survey of questionnaire, we can find the product quality & safety, compliance with environment law, safe production, lawful employment, environment protection, customer satisfaction are top six important factor for the fashion industry. And the paying taxes, green purchase, information disclosure, voluntary activity, donation, biodiversity are six least important factors. Through testing of 20 Chinese companies, we can find this method is effective. It will promote the fairness of corporate social responsibility assessment and make sure the sustainable development both corporation and society.

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Reference

6-1) ADEME-ORSE-EPE. A Guide to Sustainability Analysis Organisition. ADEME Editions, 2001, p9. 6-2) Business strategies for sustainable development. http://www.iisd.org/business/pdf/business_strategy.pdf. 6-3) Bloomberg, Calvert, Sentinel Investments, TIAA-CREF (2009). Investment consultants and responsible investing, Proceedings of an social investment forum foundation. p1. 6-4) Dow Jones Sustainability World Index Guide Book Version 11.5, January 2011.pp9-13. 6-5) Ground Rules for the Management of the FTSE4Good ESG Ratings pp7-11. 6-6) Robert Haßler and Dirk Reinhard, Environmental-Rating: An Indicator of Corporate Environmental Performance, 200, p19. 6-7) Oikocredit, Brussels (2008). The Responsibility Research of Oekom research AG. 6-8) Bovespa Corporate Sustainability Index. http://www.ifc.org/ifcext/home.nsf/AttachmentsByTitle/Brazil_Corp_Sus_Index/$FIL E/Brazil_Corp_Sus_Index.pd 6-9) SRI index of SSE, http://www.sse.com.cn/sseportal/cs/zhs/xxfw/flgz/temp/Index%20Methodology_CN_ Responsibility%20index.pdf 6-10) Xingye SRI Fund, http://jingzhi.funds.hexun.com/340007.shtml 6-11) Social Responsibility index ETF fund, http://fund.sohu.com/s2010/jjjxszshzr/ 6-12) T.L Saaty, The Analytic Hierarchy Process. New York: McGraw-Hill, 1981. 6-13) Yingchen WANG.et al. Research of AHP Model on Combination between the Social Responsibility and the Economic Benefits in Corporation, 2008 International Seminar on Business and Information Management, 2008. 6-14) Jouni Korhonen. Should we measure corporate social responsibility, Corporate social responsibility and environmental management, No.10, 2003, pp.25-39. 6-15) Michael Hopkins. Measurement of corporate social responsibility, International Journal of Management and Decision Making, Vol.6, No.3/4, 2005, pp.213-231. 6-16) Katarína DRIENIKOVÁ, et al, Case Studies Of Using The Analytic Hierarchy Process Method In Corporate Social Responsibility And Environmental Risk Management 6-17) Shouming Chen, Jiasi Fan, Measuring Corporate Social Responsibility Based on a Fuzzy Analytical Hierarchy Process, I.J. Computer Network and Information Security, August 2011 in MECS, http://www.mecs-press.org/ijcnis/ijcnis-v3-n5/IJCNIS-V3-N5-2.pdf 6-18) German Federal Environment Ministry, SD-KPI StanDarD 2010 – 2014, 2010. 6-19) FTSE, FTSE4Good ESG Ratings Thematic Criteria and Scoring Framework, p4.

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Chapter 7

Conclusion and Future Prospect

Content

7.1 Conclusion of this study ...... 7-1 7.1.1 Development of environment management strategy in Chinese manufacturing 7-1 7.1.2 Analysis of environmental legislation risk and construction of global eco-design standards database for Chinese manufacturing ...... 7-1 7.1.3 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report ...... 7-2 7.1.4 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing ...... 7-2 7.1.5 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing ...... 7-5 7.2 Future prospect of the study ...... 7-6 7.2.1 Future prospect 1: Enlarge content of database of environment standards and database of CSR practice ...... 7-6 7.2.2 Future prospect 2：Combination of MFCA and ELP ...... 7-6

7.2.3 Future prospect 3：Check effectiveness of SRI method in Chapter 6 ...... 7-8

Figure

Fig 7.1 Enlarge content of database of environment standards and database of CSR practice ...... 7-6 Fig 7.2 Cost of negative product in reaction and packaging ...... 7-7 Fig 7.3 ELP of negative product in reaction and packaging ...... 7-7 Fig 7.4 Combination of MFCA and ELP ...... 7-8 Fig 7.5 Check effectiveness of SRI method in Chapter 6 ...... 7-8

Chapter 7 Conclusion and Future Prospect

7.1 Conclusion of this study

Chinese society is facing the changes from focusing on economic development to establishment of sustainable society. Manufacturing as the main part of people life and economics, is also facing the challenge of environment conscious operation. This study developed a comprehensive environmental management system from the external regulation risk coming from domestic and oversea, internal environmental management strategy and financing for manufacturing. All conclusions are summarized as following.

7.1.1 Development of environment management strategy in Chinese manufacturing Through survey and analysis above, it is found that Chinese enterprise is eager to carry out environment management system and produce environment conscious product, and Chinese government provided policy, regulation, financial support. Therefore, it is feasible to implement environment management strategy in China. However, China is still facing some problems. China still is lack of support of Eco design from policy and technology. The content of environment report is fewer and lack of quantity description. Green-credit developed slowly, and lack of unified assessment standards. The performance of CSR is still very low, and most manufacturing has not pay attention to take social responsibility. To promote the development of EMS in China, we will establish eco design database, promote environment accounting in China, introduce activities of CSR to enterprise and investigate the assessment method of CSR to promote the green-credit or green investment.

7.1.2 Analysis of environmental legislation risk and construction of global eco-design standards database for Chinese manufacturing The speed of environment legislation of China is high in recent years. Through the comparison with the Japanese law and the survey of environment pollution situation of China, we find many shortage and disadvantage of Chinese environment regulation and management as following：In the regulation of air and noise pollution control, Chinese have enacted almost as many regulations as Japanese. However, the regulation of China is not enough specific. With the increasing of motor vehicle being used, the air pollution due to motor vehicle will became more severe, China need enact the bill about the air pollution control of motor vehicle. In the regulation of water and soil, Chinese need issue the act on soil contamination countermeasures to facilitate the implementation of counter-measures against soil contamination by formulating measures to apprehend situations of soil contamination by Designated Hazardous Substances and measures for the prevention of harmful effects on human health by such contamination, and thereby to protect the health of the citizens. On the other hand, the regulation of underground water is also blank in China. In the law and regulation about waste and recycling, the waste management is weak. In the disposal of earthquake waste, China focused on the safe disposal in

7-1 Chapter 7 Conclusion and Future Prospect the bills. In the future, the recycling should be added into the bills. To be help for the recycling, Chinese acts all need to list the industries required to recycle in acts. To establish the recycling society, China need promote the use of recycling products. On the other hand, China need enforce the recycle of end-of-life motor vehicle, food and package by legislation. In the law and regulation about health and chemicals, Chinese need enact health damage compensation law as soon as possible. In the nature and resource, the regulations on the use of living modified organism are called for by people. The production and use of modified organism are still out of any regulation in China. Government should enact regulations to require the producer and use of living modified organism to apply for the authorization, to disclose the relative information to shareholders. Government should establish the competent minister to stipulate and publicly announce the matters concerning the implementation of measures designed to prevent adverse effects that are caused by the use of living modified organisms and pose unacceptable risks that impair biological diversity, and the matter that have to be taken into account by a person who makes use of living modified organisms in order to undertake such acts correctly. Meanwhile, the government should ensure that the use of living modified organisms is undertaken correctly. Contamination control of Soil, MP 2.5 and underground water, food and packaging recycling may take highest risk for manufacturing. The regulation on emission of non-road special motor vehicles, PRTR and living modified organism will not affect most operation of companies in the short run. The regulation on the recycling of construction waste, pollution-related health damage compensation, odor, dioxins and vibration will affect manufacturing in middle degree. High risk sectors include Manufacture of Metal Product, Agricultural product, Manufacture of Paper and Paper Products, Manufacture of Textile, Processing of Petroleum and Coking, Manufacture of Raw Chemical Materials and Chemical Products, Smelting and Pressing of Ferrous Metals, Manufacture of Non-metallic Mineral Products, Manufacture of special purpose Medicines. Database of eco design collected global environment standards, classified content of global environment standards into category of restricted substance, energy saving and product waste disposal. Once enterprise insert key word, database can draw automatically requirement report of eco design.

7.1.3 Proposal of Modified Material Flow Cost Accounting and its integration in Financial Report Modified MFCA divides negative products into defective products and waste. To make cost allocation is more rationale and accurate, modified MFCA treats differently energy and system cost for production and for waste disposal, Energy and system expense for production should be allocated according to the defective ratio. Energy and system expense for the waste disposal should be allocated to the waste cost. For the process or company with low ratio of material cost, the allocation of energy and system cost is very critical.

7-2 Chapter 7 Conclusion and Future Prospect

So during applying to the improve MFCA, enterprise need identify the following points.  Prepare bill of material, and identify the direct material composing products and indirect material no composing product. The indirect material cost will be allocated directly to waste cost.  Collect data of input. For the material which does not change to be another material after the process, according to the product standard, get the material waste by the input minus the material contained in the positive product. For waste which has changed physical form, enterprise measure and record name and amount of waste.  Divide energy and system expense into energy and system cost for production and waste disposal.  Record information of waste disposal in detail.  Calculate cost of positive product, defective product and waste This study integrated MFCA and ERP, It make calculation of MFCA can finished automatically by software. It will promote the application of MFCA in China. This study improved Income Statement based on information provided by MFCA. Improved Income Statement will list the defective product cost and waste cost in report. If this kind of Income Statement can be applied in future, it will promote greatly enterprise to reduce waste and environment load under public scrutiny. Under integrate of MFCA and ERP, cost of defective product and waste in ERP can import to Income Statement automatically. At last, this study applied MFCA to a Chinese small company. Through case study, we can find MFCA is a good tool for Chinese enterprise to find main reason of waste.

7.1.4 Development of CSR Assessment with Indicator System and Construction of CSR Database for Chinese Manufacturing Corporate social responsibility is a corporate strategy, not donation or a series of voluntary activities. CSR has a close relationship with the corporate decision-making, operation and corporate competitiveness and so on. The goal of CSR is sustainable development. There are many CSR standards or compact, principle, but many of standards focus mainly on the human right. Some CSR comprehensive guidelines indicated CSR include management, responsibility for customer, partner, supplier, government, environment responsibility, community, employee, stockholders and so on. This study established CSR indicator system with 50 indicators. This CSR indicator system is overall and the scope of every indicator is limited so as to the scopes of indicators do not overlap with each other. Overall situation of CSR reporting in Japan is better than that in China, there is a long way for both countries to achieve a perfect CSR performance. Enterprise in both counties has the equal performance in the market responsibility. CSR management and environment responsibility of Japan are better than these of China. But Chinese enterprises take more action in the society responsibility. There are companies in China and Japan whose CSR

7-3 Chapter 7 Conclusion and Future Prospect report disclosed little of social responsibility information even though they named the report as the CSR report. Japanese enterprise emphasized more on risk management. Japanese enterprises made great effort to improve product quality and ensure products safety. However, Chinese enterprise should make more effort in product quality and safety. On the other hand, Chinese enterprise should learn from Japanese companies to take action to protect the custom information. However Chinese enterprises would like to mention CSR management in supply chain and technology innovation in CSR report. Much more Chinese companies disclosed information than Japanese companies in Maintaining and enhancing corporate value, fair marketing and fair competition and trade. Japanese companies make great effort in the environment education and GHG emission plan and data. Japanese companies emphasized on the biodiversity, while Chinese companies almost completely discounted the biodiversity. Chinese enterprise is mainly focusing on the pollution prevention. Environment management level of Japan is much better than that of China, most Japanese enterprise adopted environment management system, input-output analysis and environment education. In global warming prevention almost all of Japanese company recorded the amount of CO2 emission and made a reduction plan, but in China, few companies calculated and recorded the CO2 emission. On the other hand, we can find about half of Japanese company used green energy in site and tried to reduce the logistical CO2 emission. However, few enterprises in both Chinese and Japanese take action in the energy conservation in office. Both Chinese company and Japanese company emphasized very much on the occupation health and safe production. However, both countries have a long way to go in the Occupational Safety and Health. More Japanese companies paid attention to mental health, and many Chinese companies ignored this point. About half of Japanese companies hired the retired and the disabled, a few of Chinese companies hired the retired and the disabled. Moreover, Chinese companies had better performance in the employee welfare. They emphasized on the communication between manager and employee, and deal with the specific difficulties faced by individual, cared for the retried, held the literature＆art program and sports meeting for employee, provided the accommodation and so on. Japanese companies did not emphasize very much on these activities. On the other hand, Japanese companies focused on how to enhance the work environment, support diverse working styles and achieve work-life balance. Chinese companies should take more action in these aspects. About the community responsibility, we can find supporting education got enough attention in both countries. Although the enterprise in both countries are actively resolving social problem, the specific social problem are quite different from county to country, the comparison of amount of action on the resolving social problem are meaningless. Japanese enterprises do contribution on the declining birthrate and aging population. Enterprises of China do contribution mainly on the supporting poverty, public construction and others. In

7-4 Chapter 7 Conclusion and Future Prospect protecting community environment, enterprise of Japan takes more action. It is notable that the most Japanese companies conducted environmental education activities and provided opportunity of visiting study, and most Japanese companies took is planting trees and cleaning-up. Moreover, both countries preferred the different aspects during the fulfilling the social responsibility, Japanese companies preferred to supporting artistic and cultural activities, respecting different customs and cultures, protection of intellectual property, while Chinese companies took more action in blood donation, public construction and disaster relief.

7.1.5 Proposal of Corporate Sustainable Development Assessment Based on CSR for Chinese Manufacturing Some SRI indices disclose the methodology and criteria of index selection. But some did not disclose them. After collecting data, this paper found no all the SRI indices have the exclusion. The industries which are excluded by most SRI indices are alcohol, tobacco, gambling, armaments, adult entertainment and nuclear. On the other hand, in the future, the following industries are possible no being accepted by the SRI index, they are the abortion, Biocides, Chlororganic products, embryonic research, Genetically Modified Organisms, violations of animal welfare and so on. The inclusion criteria are different with each SRI index, but all are about Corporate Governance, environment responsibility and social responsibility. This paper analyze and summarize these methods, the main methods are summarized as the weighting method, risk ＆performance method, matrix ranking method, cluster analysis method and financial data method. The weighting of indicator is determined by the potential impact according to industry feature and location of operation. These assessment methods have both advantage and disadvantage. the risk ＆performance method is easy to understand and apply at the standpoint of avoiding risk, the matrix ranking method makes corporate state clear at a glance in different assessment dimensions. The cluster analysis can avoid deviations generated by a simple adding of assessment scores of such distinct dimensions. The financial data method is most easy assessment method even though the assessment process is not precise enough. But it also can promote enterprise to take social responsibility to some degree. Considering the disadvantage of financial method used by the Chinese CSR assessment organization, we need a method which takes the risk, social effect and cost into account. The assessment method based on the analytical hierarchy process just can deal with this problem. The analytical hierarchy process is a timely and dynamic method of identifying weighting of multiple factor. By this way, we can identify the specific weighting of factor for the different industries. This paper builds a comprehensive corporate social responsibility indicators system according to the guideline of Chinese CSR report CASS-CSR1.0. through the result, we can find the product quality & safety, compliance with environment law, safe production, lawful employment, environment protection, customer satisfaction are top six

7-5 Chapter 7 Conclusion and Future Prospect important factor for the fashion industry. And the paying taxes, green purchase, information disclosure, voluntary activity, donation, biodiversity are six least important factors. Through testing of 20 Chinese companies, we can find this method is effective. It will promote the fairness of corporate social responsibility assessment and make sure the sustainable development both corporation and society. 7.2 Future prospect of the study

7.2.1 Future prospect 1: Enlarge content of database of environment standards and database of CSR practice In the further research, content of database of eco design and CSR practice will be enlarged. Requirement of product safety will also be added in the database of eco design so as to make sure safety and environment-friendly of product at the same time. With development of manufacturing, more and more enterprises open new batch office oversea, enterprise should know well feature of local CSR. Therefore further research will collect more CSR practice of different countries. And then construct web database. Through web database, enterprise can draw bill of product design requirement and bill of CSR action of different sector according to their requirement.

Fig 7.1 Enlarge content of database of environment standards and database of CSR practice

7.2.2 Future prospect 2：Combination of MFCA and ELP At current, the aim of MFCA is to reduce waste. However, the environment pollution is not reduce definitely even through the waste are reduced. Therefore in the future, we must combine the environment impact data into account when we give proposal according to the MFCA analysis. The environment impact comes from many aspects such as resource consumption, energy consumption, biodiversity, and pollution to the air, water, soil and so on. When enterprise gives proposal based on analysis of MFCA, we need take not only cost but also environment load into account, take Chinese case study as example. Waste of reaction

7-6 Chapter 7 Conclusion and Future Prospect process is water and energy. Waste of packaging process is paper. The negative cost of both process are shown in Fig 7.2 2000

1500

1000

per month per 500 Negative cost / yuan / yuan cost Negative 0 Reaction Packaging Fig 7.2 Cost of negative product in reaction and packaging

Environmental Load Point method (ELP) is based on an evaluation of nine impact categories and originally invented by Nagata Laboratory at Waseda University. ELP has over 185 of input/output items such as crude oil, coal, iron ore, CO2, landfill and others. These items are classified into nine impact categories：Energy drain, global warming, Ozon depletion, acid precipitate, resource consumption, ocean and water pollution, waste disposal and ecosystem effect. In ELP, questionnaire such as Analytic Hierarchy Process (AHP) is utilized primarily to specify category importance for a specific group. Then, consumption or emission from each item should be investigated from statistics since target product is produced domestically. Annual load is led from multiplication of weight coefficient and consumption or emission; it is quite simple mathematical formula. In order to calculate ELP, Environmental Load Factor (ELF) which is emission factor of ELP must be formulated in advance. Here, we use ELF of water and paper in doctor thesis of SHIMIZU, Hirokazu to calculate the ELP of process of reaction and packaging. The result is shown in Fig 7.3. By MFCA, We may find negative cost of reaction is much more than packaging, so we focus on the reduction of negative cost in reaction. But if we consider the comprehensive environmental load by ELP, we can find ELP of packaging is much more than reaction, so company should try to reduce waste of package material or try to recycle paper of packaging.

5.50E+04 4.40E+04

3.30E+04 paper

ELP 2.20E+04 water 1.10E+04 Energy 0.00E+00 Reaction Packaging

Fig 7.3 ELP of negative product in reaction and packaging

7-7 Chapter 7 Conclusion and Future Prospect

In further research, this study will try to integrate ELP and MFCA, calculated ELP of old process and new process so as to check whether proposal based on MFCA can reduce comprehensive environment load, as shown in Fig 7.4.

Fig 7.4 Combination of MFCA and ELP

7.2.3 Future prospect 3：Check effectiveness of SRI method in Chapter 6 This paper have developed the indicators of CSR performance, and developed method of identifying weighting of every indicator of CSR. In the future, we need to check the investment return of this method shown in the Fig 7.5. We will select stock of better CSR performance by this method, and track enterprise value

Fig 7.5 Check effectiveness of SRI method in Chapter 6

7-8 Acknowledgement

Acknowledgement

I wish to express my sincere gratitude to my academic supervisor, Professor Katsuya Nagata at Waseda University Graduate School of Environment and Energy Engineering for helpful suggestions and valuable advices during my study at doctoral program. I also would like to thank Professor Hiroshi Onoda, Assistant Professor Tokuya Kirikawa, and Assistant Professor Hao Hu at Waseda University Graduate School of Environment and Energy Engineering for valuable comments and criticisms to finalize the study. Additionally, I would like to thank LAIPOSE Fashion Company Ltd providing survey data. I gratefully acknowledge helpful discussion with members of Nagata Laboratory at Waseda University Graduate School of Environment and Energy Engineering on several points in the study. I also thank my family for consistent support during past a couple of years. At last, I must thank Chinese government for providing scholarship.

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Appendix

Appendix A－B

Appendix A Total risk score-Chapter 3 Table 1 and Table 2 show us assessment of impact of regulation on sector in Chapter 3. According to statistics data of National Bureau of Statistics of China, data of Ministry of Environment of Japan, and data of some papers, and making use of scoring method identified in Chapter 3, this table listed all score of regulation impact on sector, and calculated total risk score for every sector.

Table 1 Total risk score of sectors

Container Heavey Offensive Construction Food Use of "Pollution-related Heavey and metal Odor Material Waste Living Health Damage Evaluation basisi metal PM2.5 Packaging PRTR Total in Control Recycling Recycling Modified Compensation in soil Recycling score water Law Law Law Organisms Law Law Weighting 1 1 1 0.7 0.7 1 0.7 0.3 0.7 0.3 Processing of Food from 2 2 3 2 0 3 0 3 3 3 13.9 Agricultural Products Manufacture of 0 0 3 3 0 3 0 3 3 3 9.9 Foods Manufacture of 0 0 3 0 0 0 0 3 3 3 6.9 Beverages Manufacture of 0 0 2 0 0 0 0 0 1 3 3.6 Tobacco Manufacture of 3 3 3 1 0 0 0 0 3 3 12 Textile Manufacture of Textile Wearing Apparel, 2 2 2 0 0 0 0 0 2 3 8.3 Footware, and Caps Manufacture of Leather, Fur, 3 3 2 0 0 0 0 0 3 3 11 Feather and Related Products Processing of Timber, Manufacture of Wood, 1 1 3 0 0 0 0 0 3 3 8 Bamboo,Rattan, Palm, and Straw Products Manufacture of 0 0 2 0 0 0 0 0 3 3 5 Furniture Manufacture of Paper and Paper 2 2 3 3 0 0 3 0 3 3 13 Products Printing, Reproduction of 1 1 2 2 0 0 0 0 3 3 7 Recording Media Manufacture of Articles for Culture, 2 2 1 0 0 0 0 0 2 3 7.3 Education andSport Activity Processing of Petroleum, Coking, 3 3 3 3 0 0 0 0 3 3 12 Processing of nuclear fuel Manufacture of Raw Chemical 3 3 3 3 0 0 0 0 3 3 12 Materials and Chemical product

APP-1 Appendix A－B

Table 2 Total risk score of sectors (cont’d)

Container Heavey Offensive Construction Food Use of "Pollution-related Heavey and metal Odor Material Waste Living Health Damage Total Evaluation basisi metal PM2.5 Packaging PRTR in Control Recycling Recycling Modified Compensation in soil Recycling score water Law Law Law Organisms Law Law Weighting 1 1 1 0.7 0.7 1 0.7 0.3 0.7 0.3 Manufacture of 2 2 3 3 0 0 0 0 3 3 10 Medicines Manufacture of 0 0 3 1 0 0 0 0 3 3 6 Chemical Fibers Manufacture of 0 0 3 1 0 0 0 0 2 3 5.3 Rubber Manufacture of 1 1 3 2 0 0 3 0 1 3 9.6 Plastics Manufacture of Non-metallic 3 3 2 3 0 0 0 0 3 3 11 Mineral Products Smelting and Pressing of 3 3 3 1 0 0 0 0 3 3 12 Ferrous Metals Smelting and Pressing of 3 3 3 1 0 0 0 0 3 3 12 Non-ferrous Metals Manufacture of 3 3 3 0 0 0 3 0 2 3 14.3 Metal Products Manufacture of General Purpose 3 3 3 0 0 0 0 0 2 3 11.3 Machinery Manufacture of Special Purpose 3 3 3 0 0 0 0 0 3 3 12 Machinery Manufacture of Transport 3 3 3 1 0 0 0 0 1 3 11.5 Equipment Manufacture of Electrical 3 3 3 0 0 0 0 0 1 3 10.6 Machinery and Equipment Manufacture of Communication Equipment, 3 3 3 0 0 0 0 0 1 3 10.6 Computers and Other Electronic Equipment Manufacture of Measuring Instruments and 2 2 2 0 0 0 0 0 1 3 7.6 Machinery for Cultural Activity and Office Work Manufacture of Artwork and 2 2 2 0 0 0 0 0 1 3 7.6 Other Manufacturing Recycling and 1 1 1 3 -3 0 -3 0 1 3 -0.5 Disposal of Waste

APP-2 Appendix A－B

Appendix B Questionnaire of importance of CSR indicator- Chapter 6

This questionnaire is used to survey the importance of indicators of CSR in Chapter 6. The questionnaire includes indicators of market responsibility, environment responsibility and social responsibility. 社会责任考核指标权重调查问卷

现代企业管理认为,单纯追求企业利润最大化并不能使企业获得长足发展, 企业要实现可持续发展必 须承担方方面面的社会责任.企业在产品安全, 环境保护, 员工权益,公司治理,社区环境等等任何一 个方面出现问题,都会危及到企业的生存。但是各个责任对企业可持续发展的重要性是不一样的,您认 为您所在的行业, 各种社会责任的重要性排名是怎样的呢? 企业应该首先承担什么样的社会责任呢? 请分别把他们的名次填在责任名称后面的空格里。 行业： 性别： 职业： 以下三方面的责任具体包括不同的内容, 请依次为他们排名 1. 市场责任 (最重要的责任为 I,最不重要的责任为 7) 2. 消费者满意( )指产品人性化设计,售后服务等提高消费者满意的活动 3. 产品质量和安全( ) 4. 实现公司赢利( ) 5. 对外及时准确公布信息( ) 6. 公平竞争( ) 指对供应商和竞争者的公平公正 7. 合法经营( )指符合国家相关规定 8. 纳税( ) 9. 环境责任(最重要的责任为 I,最不重要的责任为 7) 10. 环境守法( ) 11. 环境管理( )指获得 ISO1400 等认证体系治理,开展环境教育,采取环境会计,生命周期法等先 进环境管理工具 12. 污染防治( ) 指减少有害物质的排出, 防止污染空气,土壤, 水.以及减少噪音污染 13. 温室气体减排( ) 14. 废弃物减少( ) 15. 生物多样性 ( ) 指保护物种和生态环境 16. 社会责任(最重要的责任为 I,最不重要的责任为 7) 17. 雇佣关系( ) 指不雇佣童工, 不歧视, 维护人权,安规签合同 18. 员工关怀( ) 指为员工提供住行等方便, 改善工作环境, 给予人性化的休假制度等 19. 安全生产和职业健康( ) 指安全生产管理, 减少事故发生, 女性员工安全生产管理定期进 行心理生理体检,建立健康档案和职业健康管理等 20. 员工和雇佣者交流( ) 和公司领导者之间的交流

APP-3 Appendix A－B

21. 员工培训和发展 ( ) 指对员工进行培训,并指定公平的考核制度和薪金给付制度 22. 社区发展( ) 指以货币或物品等形式的无偿赠与, 支持教育,福利等社会建设 23. 社区活动参与( )指各种各样非赠与方式的为他人提供帮助和方便的活动,包括清扫, 志愿 社会公益宣传, 参加社会运动会,支持文化事业,支教, 帮助孤寡弱残等

谢谢您对本研究的协助! 年 月

APP-4

Research Achievements

Document Title Journal/Conference Year Authors Paper Innovation of Financial Energy, Utility & Jan, Mei Sun, Reports Based on the Environment Conference 2012 Katuya Nagata, Sustainability 2012 Hiroshi Onoda development Comparison of Eco Design 2011 Dec. Mei Sun, Corporate Social 2011 Katuya Nagata, Responsibility both in Hiroshi Onoda China and Japan Investigation of the Journal of Economics Nov. Mei Sun, Current Status of and International Finance 2011 Katuya Nagata, Socially Responsible Hiroshi Onoda Investment Indices Corporate Sustainable World Academy of Nov. Mei Sun, Development Science, Engineering and 2011 Katuya Nagata, Assessment Based on Technology Hiroshi Onoda the Corporate Social Responsibility Development of MFCA Finance and Accounting Nov. Mei Sun, and Introduction to Chin Monthly (Chinese) 2011 Katuya Nagata, Hiroshi Onoda Establishment of International Journal of Oct. Mei Sun, Environment Civil & Environmental 2011 Katsuya Performance Engineering Nagata, Hiroshi Assessment System for Onoda and Chinese Enterprise e Takuya Kirikawa The Current Status and 2010 International Dec. Mei Sun, the Promotion of Conference on Biology, 2010 Katsuya Chinese Corporate Environment and Nagata, Hiroshi Social Responsibility Chemistry Onoda and Takuya Kirikawa The Improvement of Eco balance 2010 Oct. Mei Sun, Current Material Flow 2010 Katsuya Cost Accounting Nagata, Hiroshi Onoda and Takuya Kirikawa Oral Analysis and Japan society of Oct. Mei Sun, presentatio Improvement of China mechanical engineers 2010 Katuya Nagata, ns Environmental Repor Hiroshi Onoda

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