reform and regulation: china’s environmental policy

1Chair of Production and Logistics

Göttingen University

Platz der Göttinger Sieben 3

37073 Göttingen, Germany

2School of Economics

Fudan University

600 Guoquan Road

Shanghai 200433, P.R. China

Reform and Regulation: China’s Environmental Policy

Seminararbeiten zum deutsch-chinesischen Masterseminar

2016

Herausgeber: Dr. Lars-Peter Lauven1

Christina Scharpenberg1 Prof. Dr. Zhiqing Li2

Prof. Dr. Jutta Geldermann1

Reform and Regulation: China’s Environmental Policy

Dr. Lars-Peter Lauven1 Christina Scharpenberg1 Prof. Dr. Zhiqing Li2 Prof. Dr. Jutta Geldermann1 1Chair of Production and Logistics

Göttingen University 2School of Economics Fudan University

I

Table of Content Foreword ............................................................................................................................................ VIII

A. Comparison of ThyssenKrupp and Baosteel ...................................................................................... 9

1 Introduction ..................................................................................................................................... 9

2 Germany vs. China: ecological factors in a political environment ................................................ 11

2.1 Current status of the environment ......................................................................................... 11

2.2 Political system and environmental politics .......................................................................... 13

2.2.1 German Environmental Policies .................................................................................... 13

2.2.2 Chinese Environmental Policies .................................................................................... 16

2.3 The Emission Trading System............................................................................................... 19

3 Steel Industry: a historical approach ............................................................................................. 21

3.1 Steel Industry in Germany ..................................................................................................... 22

3.1.1 German Historical Development ................................................................................... 22

3.1.2 ThyssenKrupp ............................................................................................................... 25

3.2 Steel Industry in China .......................................................................................................... 28

3.2.1 Historical Development of the Chinese Iron and Steel industry ................................... 28

3.2.2 Baosteel Group Corporation .......................................................................................... 32

4 Environmental Performance Comparison: ThyssenKrupp vs. Baosteel Group ............................ 34

4.1 Certification of Environmental Protection ............................................................................ 34

4.2 Environmental Key Performance Indicators ......................................................................... 35

4.2.1 Calculation of indicators ................................................................................................ 35

4.2.2 Company indicator comparison ..................................................................................... 37

5 Discussion and Conclusion............................................................................................................ 40

Appendix ............................................................................................................................................... 57

References ............................................................................................................................................. 45

B. Environmental Reporting in Germany and China: An analysis based on the energy sector ............ 59

1 Introduction ................................................................................................................................... 59

2 Comparison of the economic and political systems ...................................................................... 61

II

2.1 Historical development and recent situation throughout China and especially in Shanghai . 61

2.2 Major differences compared with Germany and Goettingen ................................................ 63

3 Comparison of the energy sector in Germany and China .............................................................. 65

3.1 Development and recent structure ......................................................................................... 65

3.2 Environmental reporting in the energy sector ....................................................................... 68

4 Introduction to the case companies ............................................................................................... 72

4.1 Shanghai Shenergy and sustainability reporting ................................................................... 72

4.2 Stadtwerke Goettingen and sustainability reporting .............................................................. 75

4.3 Comparison of Stadtwerke Goettingen and Shenergy based on environmental reporting .... 77

5 Greenhouse gas emissions of Stadtwerke Goettingen and Shenergy ............................................ 81

5.1 Study on the greenhouse gas emissions of Stadtwerke Goettingen ....................................... 81

5.2 Estimation of greenhouse gas emissions of Shenergy ........................................................... 83

5.3 Results and implications ........................................................................................................ 85

6 Discussion ..................................................................................................................................... 88

7 Conclusion ..................................................................................................................................... 90

References ............................................................................................................................................. 92

C. Development of Environmental Reporting: Comparison of China and Germany in Chemical

Industry .................................................................................................................................................. 96

1 Introduction ................................................................................................................................... 96

2 Background ................................................................................................................................... 97

2.1 Literature Review on Environmental Reporting ................................................................... 97

2.2 Comparison of the Historical Development of China´s and Germany´s Chemical Industry 99

2.3 Companies’ Information ...................................................................................................... 101

2.3.1 Company Sizes ............................................................................................................ 101

2.3.2 Products Structures ...................................................................................................... 102

2.3.3 Annual Profits .............................................................................................................. 103

2.3.4 Energy Consumptions ................................................................................................. 104

2.3.5 Sustainability Strategies .............................................................................................. 104

3 Environmental Reporting-Related Issues .................................................................................... 106

III

3.1 Basics and Development of Sustainability Reporting ......................................................... 106

3.1.1 Basics and Development of Environmental Certification ........................................... 109

3.2 The Environmental Performance Index ............................................................................... 111

3.3 Rules for Disclosure of Environmental Performance .......................................................... 113

3.4 Emission Trading Schemes ................................................................................................. 117

3.5 Interdependence of Regulation and Company Form ........................................................... 119

4 Discussion ................................................................................................................................... 121

5 Conclusion ................................................................................................................................... 125

References ........................................................................................................................................... 126

IV

List of Figures A. Comparison of ThyssenKrupp and Baosteel A. Figure 2-1: CO2 emissions per capita .............................................................................................. 12

A. Figure 3-1: World Steel Production 1950 to 2015............................................................................ 21

A. Figure 3-2: Energy consumption and proportion of China's I&S sector .......................................... 30

A. Figure 3-3: China's local air pollution on September, 25th 2016 (11:00 UTC) ............................... 31

A. Figure 3-4: Locations of China's I&S industry ................................................................................. 31

A. Figure 4-1: Calculation of Baosteel's freshwater consumption ........................................................ 36

C. Development of Environmental Reporting: Comparison between China and Germany in Chemical Industry C. Figure 2-1: The proportion of total sales of BASF Group in 2015 ................................................. 103

V

List of Tables A. Comparison of ThyssenKrupp and Baosteel A. Table 4-1: NOx and SOx emissions of ThyssenKrupp and Baosteel ............................................... 38

A. Table 4-2: Solid Waste Pollution of ThyssenKrupp and Baosteel ................................................... 39

B. Environmental Reporting in Germany and China: An analysis based on the energy sector B. Table 3-1: Total production of electricity and its composition ......................................................... 65

B. Table 3-2: Total consumption of electricity and its composition ..................................................... 66

B. Table 5-1: Emissions by sector ......................................................................................................... 82

B. Table 5-2: Emissions by Scope ......................................................................................................... 83

B. Table 5-3: Data published by Shenergy ............................................................................................ 84

B. Table 5-4: Basic data for electricity production facilities of Shenergy ............................................ 85

B. Table 5-5: Basic data for natural gas distribution of Shenergy......................................................... 85

B. Table 5-6: Output and emissions of Shenergy's electricity production facilities in 2015 ................. 86

B. Table 5-7: Emissions of Shenergy's natural gas distribution ............................................................ 86

C. Development of Environmental Reporting: Comparison between China and Germany in Chemical Industry C. Table 2-1: General differences ....................................................................................................... 101

C. Table 2-2: Main business by product of Shanghai Chlor-Alkali Chemical Co., Ltd ...................... 102

VI

List of Abbreviations BASF Badische Anilin-und-Soda-Fabrik

BGR Bundesanstalt für Geowissenschaften und Rohstoffe

BMJV Bundesministerium der Justiz und für Verbraucherschutz

BMU Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit (German Ministry for the Environment, Nature Conservation and Nuclear Safety)

BMUB German Ministry for the Environment Conservation, Building and Nuclear Safety

BMWi Bundesministerium für Wirtschaft und Energie

CAGR Compound Annual Growth Rate

CDM Clean Development Mechanism

CDP Carbon Diclosure Project

CO2 Carbon dioxide

CO2e Carbon dioxide equivalent

COD Chemical oxygen demand

COD Cyclooctadiene

CSR Corporate Social Responsibility

EBIT Earnings before interests and taxes

EBT Earnings before taxes

ECSC European Coal and Steel Community

ED Environmental disclosure

EEA European Economic Area

EMAS Eco-Management and Audit Scheme

EPB Environmental Protection Bureau

EPI Environmental Performance Index

ERC Environment and Resource Committee

ESI Environmental Sustainability Index ETS Emission trading scheme

EU European Union

FY Fiscal year

FYP Five-Year Plan

VII

GDP Gross domestic product

GHG Greenhouse gas

GRI Global Reporting Initiative

I&S Iron and steel

i.a.o. In the amount of

IASB International Accounting Standards Board

ISO International Organization for Standardization

kgce Kilogram of coal equivalent

m Million

MEP Ministry of Environmental Protection

Mtoe Millions tonnes of oil equivalent

NDRC National Development and Reform Commission

NEPA National Environmental Protection Agency

NOx Nitrogen oxide

N2O Nitrous oxide

OECD Organisation for Economic Co-operation and Development

PFCs Perfluorinated compounds

PRC People’s Republic of China

SCE standard coal equivalent

SEPA State Environmental Protection Agency

SO2 Sulphur dioxide

SOE State-Owned Enterprise

SOx Sulphur oxide

SSE Shanghai Stock Exchange

t-s Tonne of steel

VOC Volatile organic compound

WSA World Steel Association

WW World War

VIII

During the summer term 2016 and in the context of a unique seminar labelled „Reform and Regulation: China’s Environmental Protection“, three comparative analyses of environmental performance and disclosure in industries in China and Germany were conducted. The seminar at the University of Goettingen began with introductory courses taught by guest professor Zhiqing Li from the School of Economics of Fudan University. In these courses, the students were briefed on “Environment and Economy in China”, “Centralization and Decentralization” as well as “Decentralization and recentralization”. With these additional insights, they were tasked to compare the environmental performance of a German and a Chinese enterprise in the energy, steel and chemicals sectors. The investigated pairs of enterprises were Baosteel and thyssenkrupp for steel, BASF and Shanghai Chlor-Alkali Chemical Co for chemicals and Shenergy and Stadtwerke Göttingen for the energy sector. The choice of comparisons immediately clarifies the challenges that the student teams were asked to take on: Even if environmental performance indicators had been disclosed for all enterprises to a comparable extend, the significant differences in product portfolio and size mean that a meaningful comparison requires careful analysis. In reality, the student teams dealt with language barriers, heterogeneous environmental reports and differences in the reports’ scope. The students had to deal with these and other difficulties, such as limited data availability and considerable differences in the investigated companies, in a very limited time frame of roughly three months. The absolute values reported in the seminar papers should therefore be treated with caution. However, with the support of professor Li, the students were able to analyze important data from Chinese environmental and management reports, which are not offered in English language. The seminar demonstrates the importance of cooperation between Universities of different countries and the contribution to comprehensive scientific work. In addition to the interesting findings of the student groups in the three sectors, we hope that this publication can serve as a reminder of the state of environmental disclosure of enterprises in China and Germany in 2016. Keywords: Sustainablity, Reporting, Steel, Energy, Chemistry, Industry, Germany, China

Foreword

A. Comparison of ThyssenKrupp and Baosteel

9

Authors: Lena Friedrichsen, Marius André Gonschorrek

“Human life is only made by a complex balance of processes: atmospheric, hydrological and biological. (…) Until relatively recently, it was generally assumed that human activity would

have little effect on natural processes (…) It is now widely accepted that the evidence of not only large-scale, but potentially irreversible damage to the natural environment by human

activity is accumulating day by day.” - Dicken, 2014, p. 457f.

As the quotation claims, it is not only important to increase economic success but also environmental performance to realize sustainable development. Since most of the nations in the world understand that human activity has an effect on natural processes, environmental protection becomes an important issue in the political field. With global agreements like the Kyoto-Protocol and the Paris Agreement, it appears that environmental protection could be achieved by close collaboration all over the world. In particular, national policies and regulations are critical factors in order to prevent natural hazards and ecological disasters, because they have an influence on the environmental management of operating industries.

The steel industry is on the one hand a major polluter and emitter of ecologically critical substances and on the other hand an important driver of the industrialisation progress of a country. In recent years, China became the world’s largest consumer and producer of steel due to its ongoing industrialisation. With the resulting economic boom, China became the world’s largest greenhouse gas (GHG) emitting nation in 2009, with emissions even higher than those of industrialised countries that are typically characterized by having a greater environmental impact than most emerging and developing countries.

In contrast, considering that Germany has the reputation of being a pioneer in climate change policies in the OECD countries, the paper presents the environmental status and policies of Germany and China in chapter 2. In the third chapter, the historical development of the country’s steel industry is presented as well as the timeline of the biggest steel producing company of each country. In the following, the reporting standard of those two companies, ThyssenKrupp and Baosteel, are demonstrated. In order to compare them on an


1 Introduction


10

ecological indicator level, the annual sustainability reports are analysed and the reported values are adapted or projected if necessary. In the final discussion, the ecological status of China and Germany, their historical development of environmental policies and the chronic of their steel industry are brought together to identify parallels between China and Germany. Furthermore, it is analysed whether the countries’ differences are reflected by the reported and calculated ecological performance of the considered companies.


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The focus of this chapter will be the introduction of the two considered countries, Germany and China. In order to find similarities or differences, it is important to create an overview of the individual environmental status and political systems. First, the current state of the environment will be discussed with the help of the environmental performance index (EPI) as well as the countries’ carbon dioxide (CO2) emissions. Second, the following chapter focuses on Germany’s and China’s political system as well as their environmental politics and its historical development. Due to the fact that the emission trading system (ETS) is a relatively new and effective market system to promote environmental protection, the paper will look at the maturity of this concept in both countries.

2.1 Current status of the environment In order to compare the current status of the environment of Germany and China the Environmental Protection Index can be used. The EPI is one of the newest and one of the most wide-ranging environmental measurements, which was developed by Yale University and was published in 2002 the first time. It helps to compare the environmental standard and investments of countries as well as their environmental development during the past years. Twenty indicators that describe national environmental data are used for the measurement of the EPI. These indicators are categorized into nine groups which either belong to the area Environmental Health (health impacts, air quality, water & sanitation) or to the area Ecosystem Vitality (climate & energy, biodiversity & habitat, fisheries, forests, agriculture, water resources) (EPI, 2016).

The EPI uses publicly available official statistics which are published by the governments of 180 countries. It is measured how close or how far one country’s performance is to an identified policy target. The so called “proximity-to-target” method allocates a score from 0 to 100 points depending on the degree to which the policy target is achieved (EPI, 2016, p.28). Operating this measure, the EPI of 2016 shows that Finland has the highest environmental performance index with a score of 90.68 and Somalia has the lowest rank with 27.66 points.

Comparing China’s and Germany’s current environmental status with the help of the EPI it can be noticed that in the report of 2016, China’s rank is 109. The country receives a low score of 65.10 but can record a positive ten-year change of 12.73 %. In contrast, Germany is ranked on spot number 30 with a score of 84.26 and a ten-year change of 8.43 % (EPI, 2016, p. 112f.).

2 Germany vs. China: ecological factors in a political environment


12

The EPI consists of several indicators that can balance each other. That means if a country becomes wealthier, usually it invests in sanitation and infrastructure so that for example more people get access to safe water. This development would improve the EPI of that country but in other environmental areas such as air pollution environmental hazards can increase as well. By comparing rankings of particular indicators it is possible to find measures in which Germany and China are on the same level. For example, in the exposure of nitrogen dioxide (NO2), China is ranked number 176 with a score of 15.29 and Germany follows on rank 177 with a score of 12.27 (EPI, 2016a, 2016b). This should give a hint that it is possible to compare Germany and China by using different indicators, but in this paper, the overall ranking is considered.

A. Figure 2-1: CO2 emissions per capita

Source: own illustration based on World Bank (c2016c, c2016d)

Another method to compare the environmental status of the two countries is the CO2-emissions per capita. Looking at Figure 1 it can be seen that Germany’s CO2 emissions with 9.221 t per capita are higher than the Chinese CO2 emissions with 7.551 t per capita (World Bank, c2016c, c2016d). However, it becomes apparent as well, that Germany is reducing its emission while China’s emissions increase. Taking the total amount of CO2 emissions of each country into consideration, it can be seen that China emits 10,249m t CO2 in 2013, while Germany emits 757m t CO2 (World Bank, c2016b, c2016a). Furthermore, it is estimated that the CO2 emissions of China will increase until the emissions will reach a peak in about 10 to 15 years, because then China is expected to step into a high income group and therefore energy demand will begin to saturate (Yuan et al., 2014). This is in line with China’s new climate target to increase CO2 emissions at most until 2030 (Bojanowski, 2015). Further explanations about the environmental politics and the specific political systems of the two compared countries will follow in the next chapter.

0,002

0,008

0,012 0,009

02468

101214

CO2 emissions (metric tonnes per capita)

China Germany


13

2.2 Political system and environmental politics The importance of environmental politics on a global and regional level has increased since the first United Nations Conference on the Human Environment in 1972 in which the states agreed to work together in order to protect the environment. One milestone is the Kyoto-Protocol which comprised mechanisms and targets in order to reduce CO2-emissions. Germany and China ratified this protocol as well as the Paris Agreement, which is supposed become effective in November 2016. More than 55 countries that are responsible for more than 55 % of the global emissions already ratified the agreement. The aim of this agreement is to limit the global warming by less than two degrees Celsius. Even though this agreement is not legally binding, it shows that environmental protection can only be achieved with global consensus (BMUB, c2015b; Europäische Kommission, c2016a). Global agreements have to be implemented in political systems on the national level. For that reason, the paper introduces the individual political and environmental system of the two compared countries, Germany and China.

2.2.1 German Environmental Policies Germany is a highly industrialised, federal republic which is based on a constitution referred to as the basic law (Grundgesetz) which was promulgated in 1949. The German policy system comprises three principles: democracy, federalism and a social welfare state. Due to federalism, legislative power is shared between the federation and the federal states. There are two legislative chambers, on the one hand there is the Bundestag, which is directly elected by the German people, on the other hand the Bundesrat, representing the governments of the federal states (Neumann, 1996, p. 70). Due to the democracy principle, Germany’s political system consists of several parties and since 1983, a green party is represented in the Bundestag. In addition, Germany’s governmental system allows all ministries to work in their fields quite autonomously, due to the departmental principle (Böcher & Töller, 2012, pp. 106). Germany is part of the European Union (EU) and in some areas, the EU has the exclusive competence but the principle of subsidiarity says that the EU is only allowed to become active if a member state alone cannot reach the political target. In environmental issues, the EU and Germany have shared responsibilities (Bundesregierung, c2016b). Furthermore, Germany has a strong environmental movement beyond its policy system through green non-governmental organisation, environmental organisations and green industrial organisations (Jänicke, 2011, p. 131)

Even though there were some statutory rules relating to air and water pollution already in the 19th century, the beginning of Germany’s environmental policy system can be stated with a speech of Willy Brandt in 1961 (Federal Environment Agency, 2011). After World War II (WWII) there was a boom of the German economy, especially in pollution-intensive industries like energy, steel, vehicles, chemistry and the construction industry. The so-called “Wirtschaftswunder” led to high GDP growth rates and growing material prosperity for the German society but also to industrial emissions and environmental pollution. Willy Brandt


14

was one of the first politicians who recognised the environmental issue in the industry-intensive Ruhr region and claimed that “the sky over the Ruhr region must be blue again” (Federal Environment Agency, 2011). When Willy Brand became chancellor in 1969, he introduced the new political area of environmental politics and only one year later the government presented a schedule for environmental policy implementation. This environmental programme improved the ecological awareness of the German’s society (Böcher & Töller, 2012, p. 27; Hünemörder, 2004, p. 95 ff.).

In 1974, the Federal Environmental Agency was founded in Berlin. It has advised all Ministries in scientific environmental issues, especially before the foundation of the later environmental ministry (Böcher & Töller, 2012, p.112). In 1986, the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) was established. With the extended duties of urban development, housing, rural infrastructure, public building law and the building industry in 2013, the ministry is now called Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) (BMUB, c2015a). The tasks of the Ministry are to prepare regulatory legislation in environmental-related fields e.g. climate policy, resource efficiency, water management, waste management, nature conservation or safety of nuclear installations. Due to the fact that Germany is a member state of the EU, the Ministry transposes EU directives into national law as well (BMUB, 2016). The Ministry has the duty of legislation but due to the federal system in Germany, the federal states are responsible for the enforcement of laws from both state and national level (Böcher & Töller, 2012, p. 107).

The environmental system of Germany is based on three principles: precautionary principle, polluter-pays principle and cooperation principle. The precautionary principle intends to avoid environmental damages before it arises. The polluter-pays principle implies that the polluter is responsible for the emerging costs and the target of the cooperation principle is acceptance through collaboration (Böcher & Töller, 2012, p. 27).

Germany has the reputation of being a pioneer in the legislation of environmental policy. It has several laws concerning resources and environment, but in the following only some important laws are presented. The Federal Immission Control Act was implemented in 1974. It contains guidelines to avoid dangerous environmental impacts, especially air and noise pollution. This law is the central piece of legislation due to technical environmental protection and technical safety of installations. Concerning water protection, the Federal Water Act builds the framework of the water protection law and regulates water quality for a sustainable water resource management. In 2000, the European water framework directive was implemented and the amended version is effective since 2010 (BMUB, c2011). The new Closed Substance Cycle and Waste Management Act transforms an EU directive into national law and aims a sustainable improvement of a closed substance cycle. Waste prevention and recycling is supposed to be invigorated (BMUB, c2012). Furthermore, the guidelines for the area of energy-saving are contained in the Energy Saving Act which was


15

supplemented by the Renewable Energies Act in 2000 which stimulates the renewable energies to increase their share in the total energy consumption. The Renewable Energies Act is since its implementation in constant transformation. From 2017, the amended version will become effective. Under this law, the level of compensation for electricity from renewable energies is not given by the state anymore, but determined by public tenders (BMWi, c2016). Summing up a broad range of policy instruments, it can be noted that three economic instruments play an important role of the German success in climate change policy: the already mentioned feed-in tariffs for green electricity, the ecological tax reform which contains CO2 reductions from road traffic and the EU ETS which will be further explained in chapter 2.3 (Jänicke, 2011, p. 136).

In 2011, Germany started an energy transition to stop nuclear power by 2022 and accelerated the transformation towards a more sustainable energy supply. The first decision to start the nuclear phase-out was taken in 2002 but in 2010 the cabinet extended the retention time for some nuclear power plants (Müller-Brandes, c2010). The same cabinet changed its mind after the nuclear accident in Fukushima (Böcher & Töller, 2012, p. 34; Rupp, 2009, p. 403; Würz, 2014). In order to replace the nuclear power and to reduce the GHG emissions, the German government implemented mechanisms for the promotion of renewable energies in the environmental policy system. The proclamied target is to produce 40 to 45 % of the German electricity generation with renewable energies in 2025; by 2035 it is supposed to be 55 to 60 %. In 2015, the renewable energies were already the second most important producer of electricity. About 196 billion kWh electricity were produced by the renewables in 2015, which equals a percentage of almost 33 % of the German electricity consumption (Bundesregierung, c2016a). Furthermore, the target of Germany’s environmental protection system is the reduction of CO2 emissions by 40 % in 2020 compared to the base year 1990. Until 2050, Germany strives to reduce CO2 emission by 80 %. At the end of 2014 Germany had already achieved a reduction of 27 %, which implies the need for further action. Energy efficiency is an important topic if Germany wants to reach its environmental targets. This is why the country aims to reduce its primary energy consumption by 20 % in 2020 compared to the consumption of 2008. Until 2050 the reduction should be 50 %. In order to fulfil this target, the total energy productivity needs to improve yearly by 2.1%. In addition, the electric power consumption should be reduced from 2008 until 2020 by 10 %. These climate targets can be seen as a chance for Germany’s economy, in 2013 the climate policy system had a positive effect on the employment rate and the government thinks of further improvement because the climate policy can create 200.000 new jobs until 2020 (BMUB, c2014; Jänicke, 2011, p. 137).

In contrast to the achievements of Germany’s climate change policies, there were contractions within the historical development as well for example during the oil crises in 1973/1974, when environmental policy was seen as an obstacle for economic growth. The voice against environmental policy became louder as well as in the time after 1994, when Germany had to face economic problems resulting from the reunification (Böcher & Töller,


16

2012, p. 28). These examples show that Germany‘s society and especially industry are only willing to accept legislation from environmental policy when the country does not have to deal with more important problems.

2.2.2 Chinese Environmental Policies The People’s Republic of China (PRC) was founded in 1949 and is, by self-definition since the era of Mao Zedong, a socialist country. China states its political system as socialism with Chinese characteristics since Deng Xiaoping started to open up the PRC towards a socialist market economy (He, et al., 2012, p. 29). In China’s political system, the National People’s Congress is the highest body of the Communist Party of China. Amongst others, the main functions of the National Congress are to formulate laws and regulations as well as the election of the president and the Central Committee. The National Congress congregates every five years and at the last 18th National Congress in 2012 the current president of the PRC Xi Jinping was elected. The Central Committee consists of 205 full members and 171 alternate members and forms the highest organ of authority, when the National People’s Congress is not in session. Normally the Central Committee meets once a year and is in turn in charge of the election of the Politburo as well as the Standing Committee, which is responsible for daily governmental tasks. The Constitution is the fundamental law of China and sets through article 26 the framework of China’s environmental legislation. The article contains the state’s function of protecting and preventing the environment from pollution and sets the legal basis for implementing legislation on the national level (Chang & Wang, 2010).

The beginning of modern China’s environmental protection can be identified with China’s attending the United Nations Conference on the Human Environment in 1972, followed by the first National Environmental Protection conference in China in which the National Environmental Protection Agency (NEPA) was established. In 1998, NEPA was turned into the State Environmental Protection Agency (SEPA) to extend the power and responsibility (He et al., 2012). This is the precursor of the todays Ministry of Environmental Protection (MEP) which was established in 2008. The MEP is a cabinet level Ministry which is responsible for the implementation and the management of environmental policies. The foundation of the MEP represents a significant progress in empowering environmental governance in China’s governmental system (Chunmei & Zhaolan, 2010, p. 1702; Deng et al., 2015, p. 285f.; Qiu & Li, 2008, p. 5). In order to implement the regulations, the MEP is assisted by 2000 Environmental Protection Bureaus (EPB), which operate on the sub-national level. The EPBs monitor the industry’s action and have the power to assess fees for the discharge of pollution. In addition to the MEP and the EPB, the National People’s Congress and the Local People’s Congress both have committees that are associated with issues of the environment and resources, these Committees are called Environment and Resource Committees (ERC). The ERCs make the laws while MEP executes the laws with the help of the EPBs, because the EPBs fulfil the task of enforcement and implementation. Moreover, there exist almost in every level of China’s government so called Environmental


17

Protection Committees that work together with the EPBs in order to coordinate the governance of environmental issues (Chang & Wang, 2010, p. 3359).

In order to plan social and economic development as well as determining the governments working focus, the Chinese government announces every five years China’s Five-Year-Plan (FYP) since 1976. The FYP is not a law, but it can initiate a step towards a new policy or law (Feng & Liao, 2016, p. 1554; Lin & Elder, 2014, p. 13). In the beginning, the FYP focused on economic growth but environmental targets and measures are considered in recent FYP as well. In the 11th FYP from 2005 to 2010 the expression of economic development “faster and better” is reshaped to “better and fast”, which appears to involve the change to a more sustainable thinking of China’s government. Furthermore, the Chinese government heads towards an environment-friendly society with the 12th FYP from 2011 to 2015 (Feng & Liao, 2016, p. 1554). The achievements at the end of the era of the 12th FYP are outperforming the targets which were set in the FYP (Xu, 2016). This goes along with the announcement of the former president Hu Jintao at the 18th National Congress in 2012. He appealed in his report to “build beautiful China” and advocates ecological progress to a more prominent topic of Chinese government (Xinhua, 2012). From the targets of the 12th FYP, it can be derived that the Chinese government raised their political awareness of environmental protection. Through the Energy Saving and Emissions Reduction Comprehensive Plan, China wants to reduce its energy consumption by 16 % per 10.000 Yuan GDP between 2010 and 2015. Other targets between the 12th FYP period based on absolute amounts can be stated as the saving of 670m t of coal equivalent, as well as the reduction of chemical oxygen demand (COD) from 25.517k t in 2010 to 23.476k t in 2015. In addition sulphur dioxide SO2 emissions are supposed to decrease by 8 % and nitrogen oxides (NOx) emissions by 10 % (Statista, c2016a; Y. Wang & Shen, 2016, p. 759). China’s environmental planning sets focus on targets to reduce SO2. This can be explained due to the fact that China’s energy structure is based on coal, which contains a lot of sulphur (Chang & Wang, 2010b, p.3357). In March 2016, the 13th FYP was released with even stronger commitments to environmental protection and harder penalties for polluters (Meidan, 2016, p. 3). The 13th FYP will not be further analysed because the later analysis of indicators will focus on the years 2013 and 2014 (see chapter 4). Due to the fact that China could meet its 12th FYP targets and in addition is on track to meet the Copenhagen climate commitment of 2009, in which China committed to reduce carbon intensity by 40 to 45 % in 2020 compared to 2005, it can be noted that China comes closer to its target to “build beautiful China” (EPI, 2016a; Hsu, Peng, & Xu, 2015).

China’s environmental system consists of several national laws from which only the relevant laws are presented. One of the oldest laws is the Environmental Protection Law, which is effective since 1979, and regulates the supervision and improvement of the environment. In the revision of 2014, it says that industrial polluters and other institutions that emit pollutants needs to take measures to avoid pollutions. The Air Pollution and Prevention Control Law is a specific law for the prevention and control of air pollution in China, which is an important


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topic due to severe air quality problems in the country. This law regulates, amongst others, emissions by motor vehicles and pollution from waste gas, odorous substances and dust. The Cleaner Production Promotion Law exists since 2003 and the revision of 2012 sets incentives for the implementation of cleaner production. It is supposed to transform China’s environmental management from end-of-pipe control to pollution prevention. In addition to that law, the global market puts more and more pressure on green products which led Chinese enterprises to more awareness of clean production and eco-labelling systems that can be seen in rising implementation of ISO 14000 certification. In 2009, more than 50.000 Chinese companies got the ISO 14001 certificate. (He et al., 2012, pp.32). The Environmental Impact Assessment Law exists for the evaluation of environmental effects through environmental impact assessment of plans and construction projects. The Energy Conservation Law should promote the Technological Progress of Energy Conservation (Feng & Liao, 2016, p. 1551). China invested a lot in renewable energy in the last decade, which led the energy supply from wind, solar and biomass to triple in the last 10 years. The country sets high targets in this area and introduced so-called feed-in tariffs for wind electricity (He et al., 2012, p. 34; Qi, Zhang, & Karplus, 2014, p. 61).

China has improved its environmental system significantly in recent years. Even though it is still an emerging country, the Chinese government starts to understand that environmental pollution can harm the economy. Nevertheless, the fast growing economy with an annual GDP growth rate of up to 10 % still has environmentally damaging consequences. A growing industrial economy increases the demand for resources and energy, which can harm the environment, especially in China, where in 2014 more than 60 % of the energy consumption depended on coal (China Statistical Yearbook, 2015). The world bank estimated in 2007 that China has to face a yearly economic damage of about 1.2 % of its GDP due to air pollution (World Bank, 2007, p. 13; Zheng et al., 2015, p. 386). According to the MEP, in 2010 more than half of China’s cities have problems with air pollution and about 40 % of the major rivers are polluted (He et al., 2012, p. 28).

Even though China spend a lot of money and efforts to change the environmental situation through developing an environmental policy system, the country still faces severe environmental problems. One of the main contradictions to environmental sustainability is the huge economic development with high GDP growth-rate. In the last decade, China became the “manufacturing center of the world”. This growth is still dependent on labour-intensive and resource-intensive manufacturing processes. The process helped millions of people out of poverty and increased their level of living-standard (Chunmei & Zhaolan, 2010, pp. 1702-1705). Higher living standard and China’s trend of urbanisation lead to a growing domestic demand, which in turn leads to more production in the factories, more vehicles on the street as well as a more demand for steel. The rising economy and therefore improving standards for some parts of the society lead also to a new middle class in China which is more interested in sustainable living (Ming, 2015, p. 33). But due to the fact that China is still an emerging country, the growing economy is the most important factor for many institutions.


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Therefore, the economic policy institutions like the National Development and Reform Commission (NDRC) or other sector line ministries are more dominant and have more power, resources and influence than the environmental institutions such as the MEP. For this reason, Chinese environmental policy system is weak and some researchers say that the complex system can hinder environmental implementation. One big challenge for the system is that responsibilities between the committees and bureaus are not always clear (Feng & Liao, 2016; Zhang & Wen, 2008, p.1251). Another problem is the current structure of the hierarchy under which the EBPs is located. Usually the EBPs are institutionally and financially dependent on local governments which not only pursue environmental targets but primarily economic targets. This is the reason why EPBs are facing conflicts between environmental targets of the central government and the economic targets of local governments (Chang & Wang, 2010, p.3359). In terms of environmental management, China’s government uses the “top-down” approach. Ambitions to environmental improvements come from the central government and are supposed to be transferred to other administrative institutions, but decentralization of the last two decades made local governments more autonomous (Chunmei & Zhaolan, 2010, p. 1701). Furthermore, China has, compared to other industrialised countries, many state-owned enterprises (SOE). These companies belong to the government, which means they have a close connection to economic ministries. This close connection can protect the major and polluting SOEs when confronted to emission reduction policies. In addition, so far, penalties for companies which pollute more emissions than allowed are relatively low. Current penalties can be less than half of the costs which are needed to reduce or prevent these emissions. This is supposed to change with the 13th FYP but it shows that legislation is only effective when it can be enforced (Zhang et al., 2008, p. 1041). Implementation of environmental policies could be further strengthened if the civil society put more pressure on that theme to government (He et al., 2012, p.35). Nonetheless, China faces the problem of uneven regional development. Chinese provinces far from the coast cover about 70 % of the country’s landmass and still have to struggle with poverty, which can be another reason why China has focused so far on economic success instead of environmental sustainability (Zhang & Wen, 2008, p.1255).

2.3 The Emission Trading System The ETS is a market instrument in order to set emission reduction targets. The system is supposed to internalize environmental costs and should therefore realize a more efficient allocation of resources through the “cap and trade” principle (Yang, Li, & Zhang, 2016, p. 254). In an ETS, the amount of allowed GHG emissions, the so-called cap, is determined. The emission certificates can be either distributed or sold to the participating companies. One certificate allows its owner the discharge of one tonne CO2-equivalent. A company must surrender enough allowances to cover its yearly total amount of emissions; otherwise heavy fines will be imposed. If a company has more certificates than it needs to cover its emission, it is possible to trade the remaining certificates with a company which has more emissions


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than allowances. This implies an incentive to reduce GHG emissions to gain further value by selling surplus allowances (Perdan & Azapagic, 2011, p. 6043).

Germany: Germany participates in the European ETS, which became operational in 2005 and is at the moment the biggest and most ambitious carbon trading system. The European ETS has so far been divided into three periods to lower the GHG emission in the EU in order to implement the Kyoto-Protocol targets. The first emission trading period was between 2005 and 2007, which was followed by the second period from 2008 until 2012. At the moment, the EU ETS is in the third period, which started in 2013 and will last until 2020. While in the first two phases there was a free allocation of 95 % in the first period and of 90 % in the second, the default method of allocation of allowances is the auction in the third period (Egenhofer, 2007, p. 454; European Commission, c2016)

The target of the ETS is the yearly reduction of 1.74 % of the approved emissions. At the moment the German ETS consists out of around 1,800 participants, which cover all large combustion plants and large installations of energy-intensive industries including the steel industry (BMUB, c2016a). Nonetheless, this system only operates as intended if the amount of certificates reflects the discharge situation within the countries. On the one hand, too many certificates on the market lead to low prices which makes it easier to buy certificates instead of reducing the emission by inserting environmental laws. On the other hand, high prices of emission certificates can bring industries to a loss of competitiveness because they cannot effort an emission discharge anymore.

China: China as the world’s largest emitter of GHG will launch a national carbon market in 2017. The cap size is expected to be at least 4 billion tonnes, which would make China’s ETS twice the size of the EU ETS and enlarged the globally traded GHG emissions up to 16% (Swartz, 2016, p. 7f.). The country already gained experience concerning ETS through the participation of the Clean Development Mechanism (CDM)1 and its seven pilot carbon markets (Swartz, 2016, p. 12).

1 CDM is a Kyoto-Protocol mechanism and global carbon market in which an industrialised country can conduct an emission reduction project in a developing country and take the credit fort he saved units (BMUB, c2010)


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The world’s steel market experienced a high growth in the last 65 years, as shown in Figure 3.1, and is closely related to the world’s economic up- and downturns.

A. Figure 3-1: World Steel Production 1950 to 2015

Source: WSA (2016, p. 7)

Since the turn of the millennium, the market was significantly shaped by China’s economic expansion. The establishment of China’s steel industry as the leading steel producing country in the world created difficulties especially for the US, German and Japanese steel companies due to increased prices for raw materials that has been intensified by the concentrated power of the iron ore suppliers and steel consumer and a price drop (ThyssenKrupp Steel, 2005, pp. 28–30). Additionally, the worldwide recession in 2008 put heavy pressure on the industry because the demand dropped sharply and steel prices fell around 40 %. In year 2015, crude steel market actors produced more than 1.6b t of steel and had to struggle with overcapacity problems (Szewczyk, 2015, p. 4ff.). Despite this, PwC estimates that the world’s crude steel demand will rise on average by 2.9 % till 2025 but the number is 0.9 % lower than to the estimation of 2014 due to the slowdown of the Chinese economy, which is the world’s biggest consumer and exporter of steel products (PwC, 2014,

3 Steel Industry: a historical approach


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p. 5, 2016, p. 6). Germany, with a comparably high steel use per capita, produced only around 42.7m t (WSA, 2016, pp. 7–27).

Even though steel is 100 % recyclable and has a potentially endless life cycle without loss of quality, the iron and steel (I&S) industry is an enormous consumer of energy and water. Thus, a huge quantity of greenhouse gases is being emitted. (Dai & Song, 2016, p. 162; Kim & Worrell, 2002, p. 827; Mathiesen & Mœstad, 2004, p. 91; WSA, c2016c; Wu et al., 2015, p. 1422; Xu & Cang, 2010, p. 1). This results in a responsibility towards society and environment. Therefore, due to an efficient use and reuse of natural resources and by-products it is aimed at creating more value with less natural input factors (WSA, c2016c). In that respect, analysts assume a change of the steel market due to the need of new innovations to meet the rising social and legal pressure that for example arises from the implementation and tightening of ETS. This change can be seen in a rising number patent registrations, whereof a third is from German companies, in relation to innovations in resource and energy efficiency (OECD, 2015, pp. 1–3; strategie&, 2015, p. 8).

3.1 Steel Industry in Germany Following, a more detailed overview about the development of the German steel market will

be presented. The case of ThyssenKrupp will particularly be taken into account.

3.1.1 German Historical Development The German steel industry was mainly located in the Ruhr region in West Germany. It became significant because Western Europe’s main hard coal deposits were located in this region and in a symbiotic relationship, steel was produced at the same site where coal was mined (Gaigalat & Schaier, 1997, p. 133; ThyssenKrupp, c2016a). Caused by huge investments in the German coal and steel industry, the coal flow rate was raised by thirty times and the steel output by nearly 300 times between 1850 and 1900 (Schlieper, 1986, p. 81). In the beginning, nearly 43 % of the pig iron’s, 55 % crude steel’s and 60 % coal’s output of Germany were produced in the Ruhr region while waste and emissions significantly damaged the environment and burdened the society (Uekötter, 2003, p. 432; Weber, 1990, p. 203). First claims of the society about air quality were dismissed by the power of the steel barons and big industries who paid indemnities in isolated cases rather than investing in environmental protection (Eicke, 1912, p. 166; Uekötter, 2003, pp. 433–442). In August 1914, when Germany entered into the World War I (WWI), an significant expansion of the armament and steel sector occurred and the industry in the Ruhr region changed from peace to war production (Gaigalat & Schaier, 1997, p. 118; von Kornatzki, 1961).

After WWI in 1918, the Treaty of Versailles put high pressure on the German heavy industry because Germany lost part of its natural assets in the territories that were transferred to neighbouring countries. Also, the dismantling and demilitarisation process mandated in the peace treaty was meant to prohibit a renewed militarization of the nation. Despite high


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reparations and political instability, the German economic policy was successfully focused on the reconstruction of the Ruhr region and its coal and steel industry (Schlieper, 1986, p. 116ff.). The “Black Friday” and the following global economic crisis brought a sudden end of the economic growth between 1924 and 1928 and destabilized Germany again that resulted in seizure of power by the Nazis and the World War II (Bundeszentrale für politische Bildung, 2009). The following rearmament as a result of Hitler’s 4-years plan that should prepare the German military forces and economy to a war, boosted steel sales, supported the founding of new and often state-owned armaments manufacturers and led to a capacity utilization of the heavy industries sector but also to inefficiencies caused by policies to use domestic material resources (Deist, et al., 1979, p. 243ff.; Regionalverband Ruhr, c2016a; Uebbing, 1991, p. 42f.).

After WWII, crude steel production was around 300,000 t because nearly all production sites of the German coal and steel industry were damaged through bombing. The “Potsdam Agreement” arranged the demilitarisation and dismantling of the remaining war industries, that included the steel and coal plants, as well as the separation of Germany in four allied occupation zones, where the Ruhr region was located in the British zone (Goosmann, 2001, p. 52f.). But after a short time the plan to dismantle all heavy industries had to be proved as unsuitable because the uncertainty about the dismantling delayed the reconstruction of the German economy. Additionally, the moderate recovery of the whole European economy and the financial problems of the British and French government, gave the Americans the impression that the overall economic structure was destabilized by the war and they introduced a recovery program, called the “Marshall Plan”, as an economic assistance in 1947/482. It should alleviate the economic crisis, introduce price stability and a balanced foreign trade. By contrast, the Soviet Union removed numerous assets from their zone (Bunzenthal, 1997; Metzler, 2013). The Marshall Plan could later be considered a success, because between the years 1948 to 1952 the total industrial production in Western Europe increased by 35 % and played an important role in the European integration and liberalisation process (Grogin, 2001, p. 118f.). Together with the “Petersberg Agreement” that stopped the dismantling of West Germany and the “Ruhrstatut” that put the German coal and steel industry under a multinational control, the Marshall plan prepared the ground for the fast resumption of the modernized German steel industry. Additionally, it was supported by a rising demand for steel as a result of the beginning of the cold war (Regionalverband Ruhr, c2016b). The pacification policy process reached its peak in 1952, where the European Coal and Steel Community (ECSC) was founded as a supranational organisation to unify the national coal and steel sectors of the participating European countries. The aim was "make war not merely unthinkable but materially impossible" (Schuman, 1950) by creating a common market for coal and steel in which the control over natural resources was equally shared. This smoothed the way to the founding of the EU and the European Single Market (European Union, 2016). 2 The Organisation for European Economic Cooperation (OEEC), that later became the OECD, was created to coordinate the Marshall Plan.


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As mentioned before, the steel companies in whole Europe were beneficiaries of the Korea Crisis and the subsequent Cold War and supported by the post-war economic miracle of the German economy. With the strengthening economy the environmental problems and health damaging concentrations of pollutants recur and came at the latest into the focus of politicians and the society after the suffocation of nearly 150 people in December 1962 (Asendorpf, 2013; Brüggemeier & Rommelspacher, 1992, pp. 62–72). In 1960, the German steel industry emitted around 2.4 t CO2 per ton of steel (t/t-s) and spread the pollutants by the use of “tall chimneys” but the ongoing accentuation of the environmental legislation led to an elimination of the highly polluting Thomas steel processing and to a reduction of the dust emissions of all heavy industries by over 50 % between 1968-84 (Brüggemeier & Rommelspacher, 1992, p. 67; Ghenda, 2015, p. 1; Müller, 1995, p. 224ff.; Uekötter, 2003, pp. 214–224). By contrast, the German steel production reached its peak with 53m t in 1974 and the capabilities only in 1978, while the upswing of the steel industry ended with the world’s economic slowdown caused by the oil crisis. The German “coal crisis,” hit the integrative steel companies in Germany, as the growing international competition in the ordinary steel market since the mid-1960s and rising wage levels led to a steel crisis. This crisis resulted in a concentration process of the industry and in insolvencies of German steel companies (see also chapter 3.1.2). Even market interventions, quota regulations and subventions of the ECSC couldn’t stop the European downturn of the steel market and the several plants were closed or on sale since the early 80s; the shutdown of whole production sites or massive workforce reductions followed in the late 80s and early 90s (Harenberg & Busch, 1987, pp. 599–631; Rhodes & Wright, 1988, p. 171–177; 194f.; Schlieper, 1986, p. 180; Uebbing, 1991a, p. 11; 84; 122-128). So it happened that the number of employees that worked in the German steel industry was reduced from 288k in 1980 to 86k in 2015 while the productivity raised by 226 %, mainly caused by efficiency programs and the aforementioned consolidation processes (see Appendix 2 and Wirtschaftsverbund Stahl, c2016).

The beginning of the 21st century was characterized by the rising dominance of the Chinese steel industry in the world’s market as well as up and downs for the European steel industry and some German disused plants were dismantled and sold to Chinese steel producers (Asendorpf, 2013). But especially the uncertain economic situation after the financial crisis in 2008 led to a decline of orders in the steel industry and to short-time work while the effective capacity utilisation dropped below 84 % (Welt, 2013). In 2014, there were 127 industrial plants of the I&S industry in Germany that emit altogether 37.1m t of CO2 (Wilke, 2014). With that, Germany was in 2015 on the 7th place in the crude steel production ranking using 70.4 % oxygen process steelmaking and 29.6 % electric processes. The country used 483.8kg per capita of steel products3 and had an relatively balanced net-import-export-ratio (WSA, 2016, p. 9f.; 16f.; 26f.). In comparison to other EU members, Germany was the most important steel producer in Europe with a share of 25.3 % in 2012 (Ghenda, 2015, p. 1). PwC (2016, p. 8f.) forecasts the German steel market as relatively stable due to the close

3 In comparison: EU average is at 303.5 kg per capita and the world’s average is at 208.2 kg.


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relation important industries (e.g. car industry) and its long-lasting integration in the world’s steel network. But life-threatening problems arise that are caused by the rising competition from China and Eastern Europe and by the EU’s plans to reduce CO2 allowances that the German steel federation rejects, as the German steel industry already produces steel at the physical minimum of approx. 1.35 t of CO2 per ton of steel (Ghenda, 2015, p. 1; Wirtschaftsvereinigung Stahl, 2015, pp. 10–17).

3.1.2 ThyssenKrupp In the following section the German merged company ThyssenKrupp is introduced. Initially it will be shown a brief historic overview of the older part of the company Krupp, followed by the newer part Thyssen and is finished by the merged company. The historical presentation on the webpage of ThyssenKrupp is the main source of information (see ThyssenKrupp, c2016a) and is not specifically mentioned.

Krupp: In November 1811, Friedrich Krupp originally established a factory for the making of cast steel in the same quality as the English competitors (James, 2011, pp. 19–25). After it came close to failing, the son Alfred positioned the company in the following decades in the European steel industry as a high quality steel producer for crude steel, railroad equipment and weapons. A decisive factor was the vertical integration of the company by buying iron ore deposits, iron & steel mills and coal mines. In the following 15 years from 1893 on the heir of the family business started to horizontally diversify the Krupp concern through acquisitions in the Ruhr and Lorraine region (coal and iron mines, collieries, mills and the Germania shipyard). After the sudden death of Friedrich Alfred Krupp, the company was converted into the stock corporation “Fried. Krupp AG” that was later controlled by Gustav Krupp von Bohlen und Halbach until 1943. Before the WWI the company underwent strong expansion especially through the invention of electrical, stainless and acid-resistant steels. During WWI the Krupp AG increased to more than five-fold of its pre-war level output but had to downsize and adapt their production facilities to peace-time production after the war. As a result of the Treaty of Versailles and inflation, the company became nearly bankrupted. By focussing on the production of stainless steel, as well as an ongoing vertical and horizontal diversification, the company could stabilize itself. After 1933, Krupp was closely integrated in the national socialists’ economic policy and interventions in the companies’ production plan were taken through the state authorities’ 4-Years-Plan which was focussed on the expansion of the production of armaments, ships and vehicles. At the end of the war, nearly one third of the production plants were completely destroyed. As a result of dismantling, Krupp lost among other facilities the biggest steel plant and shipyard as well as its raw materials and steel base. The remaining manufacturing and production sites were managed as independent companies by the military government of the Allies. In year 1953 the heir of the residual company transferred the control over the remaining coal and steel operations to Berthold Beitz. Later in 1965, the Krupp Group established a new public-traded corporation after the merger with “Bochumer Verein für Gussstahlfabrikation AG” which owned big parts of the collieries. With this merger the new company “Fried. Krupp


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Hüttenwerke AG” under the leadership of Beitz began to re-establish a broad steel base. The 1980s and 1990s were characterized by efforts to strengthen and expand the holding’s position in the market. A horizontal diversification of the operations by acquiring mechanical engineering companies and manufacturers for special machinery, a coke oven plant and a drop forging company were part of an ongoing concentration process of the industry. To secure the leading role in the steel industry, the “Fried. Krupp Hüttenwerke AG” merged with the Stahlwerke Südwestfalen AG in 1984 and renamed the company into “Krupp Stahl AG”. Managed as an independent company, “Krupp Stahl AG” build up a joint venture to expand its forging activities with the Klöckner-Werke AG in 1983 and in 1990 with the steel manufacturer Mannesmannröhren-Werke AG. Following the leadership of Gerhard Cromme, Krupp expanded its stainless steel range and acquired VDM Nickeltechnologie AG in 1989. In an ever more rapidly changing market and rising international pressure Cromme initiated a rationalisation programme combined with further M&A activities to realize synergies and economies of scale (Wermelskirchen, 2010). Following this, the parent holding of Krupp undertook a hostile leveraged buyout of its German competitor “Hoesch AG” in 1993 that led to an amalgamation of Krupp’s and Hoesch’s steel activities and targeted its biggest German competitor Thyssen additionally (Tagesspiegel, 1997).

Thyssen: In April 1871, August Thyssen starts operating the company Thyssen & Co. (Uebbing, 1991b, p. 10). After significant investments, Thyssen put large efforts in the vertical integration of the company by buying the coal mine “Gewerkschaft Deutscher Kaiser” near Duisburg, where the Thyssen Krupp Stahl AG is still located, that laid the cornerstone for the Thyssen Group (Uebbing, 1991b, p. 8). Subsequently, Thyssen finished their first integrated I&S mill in 1895 and the innovative firm established itself in the European steel market (Uebbing, 1991b, p. 14). In 1902, the vertical integration process was prolonged by the foundation of the stock corporation for I&S production to cover the need of pig-iron for Thyssens’s steel mills and later the company also expanded their ore and coal mines in the North of France. A major step forward in the internationalization of the Thyssen Group was the development of an in-house trading and shipping network from 1903 onward. This resulted, amongst others, in lower operation costs and built up the base for international company-owned branches. In the beginning of WWI, around 27.000 workers were part of the Thyssen Group who produced 1.6m t of steel products that had been raised during the war production. The dismantling process after the WWI broke up Thyssen in independent companies and the company lost most of his foreign subsidiaries. After the death of the company founder in 1926, major parts of Thyssen were transferred into the new group “Vereinigte Stahlwerke AG” bringing together nearly all coal and steel companies4 in the Ruhr region that became together one of the world’s leading companies with a production capacity of 7m t. The aim of this coalition was to stay competitive during a demand decline and to face the extending need for capital and the excess of capacities on the German steel market to realize synergy effects and economies of scale (Uebbing, 1991a, p. 32ff.). In

4 Except of Krupp, Klöckner, Hoesch, Mannesmann and Gutehoffnungshütte.


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1933/34, Vereinigte Stahlwerke AG converted to a decentralized company with several operating companies - one of them was “August Thyssen-Hütte AG” that owned the I&S production. Later, the company was confiscated by the Nazis and completely integrated in the rearmament policy as Fritz Thyssen publicly stood against the invasions. During WWII, parts of the company were completely bombed by the Allied and later dismantled to reduce Germany’s industrial potential. The deconcentration process of the western German coal and steel industries that was commanded by the Allied Powers peaked for the former Thyssen group in the liquidation order of the “Vereinigte Stahlwerke AG” but the associated split off of the Thyssenhütte mill from Vereinigte Stahlwerke AG and the entry in the European Coal and Steel Treaty also laid the cornerstone for the reestablishment of the August Thyssen-Hütte AG with an output of 378k t in the fiscal year (FY) 52/53 (Uebbing, 1991a, p. 54ff.). The rise of the company from being nearly ruined to becoming Europe`s biggest steel producer in the mid-1960s with an output of 8.6m t in the FY 64/65 was the result of a number of significant diversifying acquisitions and mergers that secured the raw material base, widened the product range from semis and flat steel to the production of an entire (stainless) steel product portfolio and is an example for the beginning consolidation process of the European steel industry (Uebbing, 1991a, p. 60).5 The diversification and specialization process achieved its climax 1969 in the cooperation with the Mannesmann AG that led to a monopolistic deal in which they divided the market to realize synergy effects. Caused by the fear of the emerging steel crisis, Thyssen combined the corresponding businesses with the Rheinstahl AG, a steel concern specialized on manufacturing, in 1973 that broadened the business and capital goods base of Thyssen. It was an important development that strengthened the production and processing capacities for I&S that gave the capabilities to realize the historical production peak of 16.9m t in 1973 (Uebbing, 1991a, p. 112). But the steel crisis led to a continuous reduction of the profits from steel and made it necessary to change the strategic orientation of the company, solidified in the change of the name to Thyssen AG (Thyssen AG, 1992, pp. 43–49). The company started focussing on the development of technology innovative and high-quality steel combined with comprehensive services and prepared the company for a diversification process in the following years (Thyssen AG, 1991, p. 12ff.).

thyssenkrupp AG: After failed negotiations of a merger of the Krupp Group and Thyssen Group in 1983, the discussions about a joint venture resumed again in the 1990s. It came to its end after the Krupp Group disclosed the intention to buy a majority stake of the Thyssen AG and started with the conglomeration of the steel activities of Krupp and Thyssen in the ThyssenKrupp Stahl AG that becomes one of the world’s biggest flat steel producers. The merger ended on the March 17th, 1999 where the thyssenkrupp AG was officially registered and started operating in five major business segments: Steel, Automotive, Industries, Engineering and Materials & Services (ThyssenKrupp, 1999, p. 16ff.).

5 1956 Niederrheinische Hütte AG (wire rod and bar); 1957 Deutsche Edelstahlwerke AG (stainless and quality steel); 1965 Phoenix-Rheinrohr AG Vereinigte Hütten- und Röhrenwerke (steel pipes); 1968 Hüttenwerk Oberhausen AG (raw materials); 1969 Handelsunion AG (trading and service activities)


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Since 2005 ThyssenKrupp is a founding member of ULCOS (Ultra Low CO2 Steelmaking) - a European program to reduce the CO2 emissions of today's most efficient routes by at least 50 % (ULCOS, c2016). In 2005, ThyssenKrupp Stahl AG set up an integrated I&S mill in Brazil that promised regional cost advantages and the proximity to ore reserves as well as gaining access to the North American Free Trade Agreement’s region. The expanding was mainly a result of the global rise in the demand for steel, exploding commodity prices and increasingly global competition between the steel producers (ThyssenKrupp Steel, c2016a).

While the world steel industry peaked in 2007, ThyssenKrupp invested in two modern mills, Alabama and Brazil, that was later titled as “one of the biggest German misinvestments ever” and destroyed large shares of the capital base of the company (Frese, 2013; ThyssenKrupp, 2011, p. 56f., 2012, p. 14ff.). A determining factor for this development was among others the worldwide recession that led to the loss of millions from 2009 till 2013. It took ThyssenKrupp to the point that a radical savings program amounting to 10b € of revenue whereof the biggest part was the rejection of the unprofitable stainless steel division to the Finnish company Outokumpu in 2012. Finally, ThyssenKrupp also sold its new plant in Alabama to the competitive joint venture between ArcelorMittal and Nippon Steel-Sumitomo Metal Industries (ArcelorMittal, 2013; Frese, 2013) and decided to stay in Brasil (Handelsblatt, 2016).

In the FY 2014/2015, the ThyssenKrupp AG was on the 16th place in the crude steel producer ranking as an employer for 154,906 employees and with a turnover of 42.8m € (ThyssenKrupp, 2015, p. U2; WSA, 2016). The company operates with six business units (Components Technology, Elevator Technology, Industrial Solutions, Material Services, Steel Europe and Steel Americas) in 77 countries and owns 497 subsidiaries as well as 23 company investments (ThyssenKrupp, c2016c). Steel Europe and Steel Americas combine around 31,326 employees and realized a turnover of 10.470m € (ThyssenKrupp Steel, c2016b).

3.2 Steel Industry in China To subsequently compare the sustainability performance of Germany´s with China´s steel

industry, the historical development of the Chinese iron and steel industry is presented.

Further, a closer look on the SOE Baosteel Group Corporation will be taken.

3.2.1 Historical Development of the Chinese Iron and Steel industry Prior to the early 1950s, China's I&S industry remained mainly undeveloped and had no significance in the international steel market as the steel output of 158.000 t, which corresponded to 0.2 % of the world`s total steel production in 1949, shows (Song & Liu, 2012, p. 2; Stanway, 2016). After WWI, the Japanese had built a modern steel mill in Anshan that produced most of the country`s steel but it was mostly destroyed during WWII and the Chinese civil war (Song & Liu, 2012, p. 2; Stanway, 2016; Taube, 2014, p. 648). With the creation of the PRC, the central government forced the development of the heavy industry


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sector based on the Soviet model because China had large deposits of iron ore and coal. To a large extend, new established backyard steel furnaces led to a massive increase of the steel output rates up to 5.35m t in 1957 as well as to massive interventions in the surrounding forests (Cook & Murray, 2001, p. 53ff.; Copper, 1980, p. 70ff.; Dikötter, 2010, p. 3; He, et al., 2012, p. 29; Song & Liu, 2012, p. 2; Stanway, 2016; Taube, 2014, p. 649). An ongoing increase of the industrial and steel sector should be guaranteed by the “Great Leap Forward”, a strategy introduced by Mao in 1958, but the whole Chinese industrial sector collapsed and nearly all backyard steel furnaces were closed in the early 1960s as a result of a mismanagement in the agricultural sector and the resulting famine (Li & Yang, 2005, p. 840; Stanway, 2016; Taube, 2014, p. 653). The steel industry recovered in the following years supported by the centralized focus of the government to modernize its industrial sector and also by the “Third-Front-Strategy” that led on the one hand to a steel-consuming militarisation but also to a suboptimal allocation of resources. During the critical stage of the Cultural Revolution, the steel output dropped to 9m t in 1968 caused by political troubles and civil war-like conditions in the country but the steel industry recovered and increased its capacities with the return of the political stability up to a steel output of 23.7m t in 1977 (Song & Liu, 2012, p. 2f.; Stanway, 2016; Taube, 2014, p. 656). During that time, the per capita production of the steel plants was very low due to obsolete technology and the energy consumption per tonne of steel was around 2.52 t of standard coal (Song & Liu, 2012, p. 2f.). To contain the adverse effects of the Great Leap Forward, the Chinese government introduced the opening of the economy toward a market economy in 1978 (see chapter 2.2). Since then China`s steel production plants had been modernized and the capacity as well as sales have expanded rapidly from 4.4 % of the world’s total steel production in 1978 to 45 % in 2010 with a value of 630m tonnes (Song & Liu, 2012, pp. 4–7). Song and Liu (2012, p. 3ff.) subdivide this opening progress in three stages: 1978 to 1992 reform stage, 1993-2000 establishing of a socialist market economy and 2001 till today fast economic growth period. The first reform stage led to a significant increase of the steel output and the efficiency of production. For example, the energy consumption per tonne of steel in this stage sloped down to 1.6 t of standard coal which is a 38 % decrease (Song & Liu, 2012, p. 4). The transformation process was characterized by an economic policy change: it started with a highly centralized economy with planned output, fixed prices and centralized purchase and turned into a socialist market economy that allowed to purchase raw materials in the market and to independently sell overproduction at market prices (Song & Liu, 2012, p. 3f.; Taube, 2014, p. 665f.). To close the efficiency and technology gap, the Chinese government invested in the industry by restructuring old plants (eg. China Steel Corporation Group, c2016, p. 3) and launching SOEs, e.g. Baoshan Iron and Steel Corporation in 1978. The second stage from 1993 till 2000 was characterized by the shift that Chinese companies could react solely to steel market demands and became responsible for their own prices, profit-and-loss-statements and production plans. Further, the expansion of the Chinese steel


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business was supported by the opening for foreign trade, the possibility to be financed by public equity as well as by supporting policies of the Chinese government. But the industry also started to suffer from production imbalances. A lack of high-grade steel to satisfy the domestic demand was accompanied by a surplus of low-grade steel. All in all, the rising autonomy of the firms and the supporting policies led to the breakthrough and China became the world’s largest steel producer in 1996. Despite the Asian financial crisis in 1997, the Chinese steel enterprises could raise their output to 128m t of steel in 2000 with an energy consumption per tonne of steel of 885 kg standard coal (OECD, 2000, p. 44; Song & Liu, 2012, p. 4). (Berkeley Earth, c2016) The third stage was introduced with China’s entry into the World Trade Organization (WTO) in 2001 that led to an increasing integration of China in the international markets and to a 79 % increase of the Chinese steel production between 2000 and 2005 (Wang & Hao, 2012, p. 3).

A. Figure 3-2: Energy consumption and proportion of China's I&S sector

Source: Lin & Wang 2015, p. 747

But it also led to an increased international competition and the establishment of private domestic and foreign companies in the Chinese market that put pressure on the industry, especially on SOEs that “are overmanned and less efficient than private companies” (Ling, 2016), to improve the efficiency and production skills. The integration made it possible for Chinese firms to satisfy their iron and coal demand by the utilization of overseas resources6 and led to positive and rising net exports of the steel industry since 2005. In addition to the liberalization of the market, the increasing demand of the domestic market as a result of urbanization and the fast growing Chinese economy was an essential component for the growth of the Chinese steel industry that is still dominated by SOEs (Song & Liu, 2012, pp.

6 „The share of China’s consumption of iron ore in world total iron ore consumption increased from 20 per cent in 2000 to 56 per cent in 2009.“ (Song & Liu, 2012, p. 6).


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5–8). Not only the output of steel but also the emissions, mainly driven by the use of coke and coal energy resources, were rising between 2000-2012, as shown in figure 3.

The Chinese government tried to address the problem by tightening the policies, by increasing the industrial concentration of firms and by renewing the existing technology (Dai & Song, 2016, p. 163)

A. Figure 3-3: China's local air pollution on September, 25th 2016 (11:00 UTC)

Source: Berkeley Earth (c2016)

A. Figure 3-4: Locations of China's I&S industry

Source: Wu et al. (2015, p. 1423)

China produced 803.8m t crude steel in 2015 which is about 50 % of the world’s crude steel production using 93.9 % oxygen and 6.1 % electric steelmaking. By contrast, the nation used 44.8 % of the world’s steel products that gives a hint that China is also the biggest net exporter of steel (WSA, 2016, p. 14f.; 26f.). Within China, the firms are in a highly competitive


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and fragmented environment but mainly located in the east of China and seem to be in the same places like air pollution (see figure 3.3 and 3.4 as well as and Wang & Hao 2012, p. 4).

The top five steel companies control only about a quarter of the market but the Chinese government crates conditions that allow a consolidation of the companies as it happened in Europe, Japan and US to become more efficient (Song & Liu, 2012, pp. 9, 168; ThyssenKrupp Steel, 2005, p. 29). Additionally, China’s steel industry faces several other problems: On the one hand, increasing prices of energy, water and iron ore and increasing labour costs in China lead to higher production costs. On the other hand, China’s economic slowdown has an negative impact on China’s steel demand. Due to the resulting structural overcapacities, which are estimated by the Federation of the German Steel Industry (2015, p. 17) to be 380m t annually, the Chinese way to circumvent the overcapacity problem has been to supply the market with excess steel that resulted in a massive price drop. To overcome the capacity and inefficiency problems, productivity improvements of the Chinese steel producers will become much more essential to retain its global leading role and competitiveness (Al Jazeera English, 2016; Ling, 2016; PwC, 2016, p. 7). But actually, it is estimated that 90 % of the Chinese steel producers make losses and despite these circumstances, the provincial governments do not close plants due to the fear of uprisings caused by massive job losses (Dierig, 2015). In contrast, the Chinese steel industry started to further consolidate in the last year, mainly to realize further economies of scale (Kodaka, 2016).

3.2.2 Baosteel Group Corporation The establishment of SOE Baosteel Group Corporation, former known as Shanghai Baoshan Iron & Steel, was an immediate result of China's efforts to modernize its steel industry following the plans of the 11th Central Committee in 1978. The main facility, which was built in close collaboration with the Japanese steel company Nippon Steel and located in the Baoshan District near the port of Shanghai, began its work in 1985 (Baosteel Group, c2014; Nippon Steel Corporation, 2003; Song & Liu, 2012, p. 4). In 1993, Shanghai Baoshan Iron & Steel changed its name to Baoshan Iron & Steel (Group) Corporation that raised its eco-nomic performance in the following years. As a result of restructuring activities of the Chinese government in 1998, Baoshan Iron & Steel was merged with the two other large, but relative to the Chinese market low-performing steel producers, Shanghai Metallurgical Holding and Shanghai Meishan, to a new steel giant with a production capacity of over 10m t, called Shanghai Baosteel Group Corporation. To strengthen the competitive and financial position of the group, the Chinese authorities permitted the listing on the domestic Shanghai Stock Exchange in 2000 (Baosteel Group, c2014; MarketLine, 2016, p. 7f.; OECD, 2000, p. 44f.).

In the following years, Baosteel began to strengthen its position through a number of strategic alliances, e.g. Shougang Group and Wuhan Iron and Steel Group Corporation as well as with ThyssenKrupp in 2001, when they launched a joint venture stainless steel


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production site (ThyssenKrupp, 2001b). In 2003, Baosteel acquired the Lubao Steel Pipe Corporation and Baogang Yichang Steel Sheets Corporation. Additionally, Baosteel and Shanghai Automotive Industry Group developed their partnership, which had existed since 1989 and led to integration of the country's steel and automotive industries (Baosteel Group, 2013c; MarketLine, 2016, p. 7; W. Zhang & Alon, 2010, p. 27). In 2005, Baosteel was again renamend in Baosteel Group Corporation after a reorganisation into a standard solely state-owned enterprise. Baosteel expanded its production capabilities in 2007 by founding a new corporation in Handan and a merger with Xinjiang Bayi Iron and Steel Group Limited Liability Company (today: Bayi Iron & Steel). The following takeover of Ningbo Iron & Steel Co. in 2009 was an agreement with Hangzhou Iron & Steel Co. to elevate the general competitiveness of Chinese steelmakers which was in line with Government policy for industry consolidation (Industrial Heating, 2009). In 2012, the Chinese authorities gave the final approval to the Baosteel Group to invest in a 10 million tonnes per annum steel project at Zhanjiang port in Guangdong province that started working in 2015 and should be completed in 2016 (Baosteel Group, c2014, 2013b; Bloomberg News, 2015; Stanway, 2012). Additionally, Baosteel and the Fortescue Metals Group signed an agreement over mining leases for Australian lower-grade iron ores in 2012 and in 2015, Baosteel took control about the Australian firm Aquila Resources that should secure raw materials supply for Baosteel and is in line with Baosteel’s strategy of building a global resource network (Aquila Resources, c2015; Baosteel Company, Ltd., 2007; Baosteel Group, 2014b; Latimer, 2012; Shanghai Daily, 2012). Furthermore, Baosteel signed a coal supply agreement in 2013 with the Russian company Mechel PAO of 960k t per year that has already been prolonged (Mechel PAO, 2016; Reuters, 2013).

In 2015, the Baosteel Group was 5th biggest crude steel producer in the world with 34.9m t made by approx. 38k employees, which is a year-on-year decline of 20 % compared to 2014 with 43.3m t of steel (WSA, 2016, p. 9). In 2014, nearly 90 % were designated for the domestic Chinese market and 10 % for abroad (Baosteel Co. Ltd., 2015). But recently, Baosteel and Wuhan Iron and Steel started negotiations to merge their businesses, which some see as the government’s kick-off of the consolidation of the Chinese steel industry with the aim to further increase the efficiency (Kodaka, 2016).


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In this chapter the environmental performance of ThyssenKrupp and Baosteel are compared. First, we consider environmental reporting standards of China and Germany for both countries. Second, environmental key performance indicators for a quantitative assessment are examined.

4.1 Certification of Environmental Protection Environmental concerns play an important role in management decisions of steel producing firms that include, besides taking responsible decisions, finding innovative ways “that help to mitigate negative impacts and enhance positive impacts on the environment” (WSA, c2016b). The rising external pressures on enterprises, like green consumerism or governmental policies, to become more sustainable and socially responsible lead to the implementation of environmental management systems (EMS). They show the firm’s commitment to environmental legitimacy and help to improve their environmental image by providing information (Bansal & Hunter, 2003, p. 291; Jiang & Bansal, 2003, p. 1063ff.; Morrow & Rondinelli, 2002, p. 162; Takahashi & Nakamura, 2010, p. 215f.). Since 1996, ISO 14001 is an internationally recognized but voluntary process based on EMS. It provides a set of guidelines to develop an environmental policy, to identify its environmental interaction, to measure its environmental impact and to control the progress of a single plant or the whole organization (Bansal & Hunter, 2003, p. 290; ISO, 2015; Morrow & Rondinelli, 2002, p. 161; Takahashi & Nakamura, 2010, p. 216). Critics say that ISO 14001 is not a warranty for the environmental friendliness of the companies’ output but others say that the standard should not focus on radical changes but on pollution prevention and continuous improvement of management tools (Bansal & Hunter, 2003, p. 290ff.; ISO, 2015; Morrow & Rondinelli, 2002, p. 160ff.; Takahashi & Nakamura, 2010, p. 216).

Both firms, ThyssenKrupp and Baosteel, are certified by ISO 14001. ThyssenKrupp reports that 69 % respectively 77 % of its relevant BUs for the FY2014 and 2015 are certified by the EMS. It covers around 60 % of ThyssenKrupp’s employees and the firm’s objective is the group-wide implementation of ISO 14001 till 2020 (ThyssenKrupp, 2015, p. 43). The biggest subsidiary Baosteel Co, Ltd. of the Baosteel Group was “the first enterprise qualified for ISO 14001 in the metallurgical industry of China” (Baosteel Group, 2015, p. 32) in 1998, two years after the introduction of the standard. Except for one plant, the major I&S production units of the Baosteel Group, have passed the certification between 2002 and 2014 and 85 % of all industrial enterprises in the diversified industries in 2012 have been certified as well (Baosteel Group, 2013a, p. 40). The certification of the suppliers lay between 10 to 46 % but increased constantly in recent years (Baosteel Group, 2012, p. 70, 2015).

4 Environmental Performance Comparison: ThyssenKrupp vs. Baosteel Group


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The firms that are compared in this paper not only save resources and try to prevent emissions but they also report about their efforts. Both use the guideline of the Global Reporting Initiative (GRI) which is the most common standard for reporting (Baosteel Group, 2015, Overview; GRI, 2013, p. 2; King & Bartels, 2015, p. 42; ThyssenKrupp, c2016b) and “an international independent organization that helps (…) [to] understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption and many others“ (GRI, c2016). An environmental standard disclosure following the GRI guidelines considers different indicators defined in G4-DMA and G4-EN1 till G4-EN34 (GRI, 2013, p. 22). ThyssenKrupp does an integrated GRI reporting and reports its efforts in four main sources: the business websites, the annual report, the corporate blog and other formats e.g. the Carbon Disclosure Project (CDP) answer (ThyssenKrupp, c2016b). The company gives also an overview about the objectives’ achievement of the GRI indicators on its website (ThyssenKrupp, c2016b). In comparison, Baosteel publishes an annual CSR report that includes financial ratios and information about Baosteel’s environmental impact and protection as well as information about staffs’ structure and anti-corruption efforts.

4.2 Environmental Key Performance Indicators In the following section, several key performance indicators are presented to compare ThyssenKrupp and Baosteel concerning their environmental performance. These are mainly derived from the annual and CSR reports, the published fact books as well as a paper by Long et al. (2016), as shown in Table 5 (Baosteel Co. Ltd., 2005 - 2015, Baosteel Group, 2004 -2015, ThyssenKrupp, 1999 - 2015; see also Appendix 3).

4.2.1 Calculation of indicators The comparison of the two firms takes place on the whole business level and not only for the crude steel units. Especially the provided data from ThyssenKrupp take the entire firm into account. Furthermore, a detailed view and direct comparison is made for the years 2013 and 2014 due to a lack of data for the other years whereby there is also a structural inaccuracy caused by the FY of ThyssenKrupp. The FY ends at September 30th each year while Baosteel’s reporting follows the calendric period. Both reports show that the numbers are adjusted by changes in the company structure or in the reporting. In order to prevent this problem, the newest and mostly adopted data of the companies is used in the following. The annual production output of Baosteel differs with the given numbers of the WSA as well as with the aggregate number of the steel subsidiaries, probably caused by insufficient consolidated reporting. Furthermore, it is assumed that Baosteel’s crude steel output is directly used for their production of steel products and not only for direct sales. To be consistent with the production volume data of ThyssenKrupp numbers provided by WSA are used to calculate all per-ton-of-steel-values (WSA, 2016).


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The WSA follows ISO 14404:2013 in their calculation methodology for the CO2 footprint of steel plants that includes Scope 1-3 GHG emissions7 as ThyssenKrupp report them as well (CDP, 2015; ISO, 2013; WSA, c2016d, 2015b, p. 7). Due to the fact that Baosteel do not report any CO2 emissions, the CO2 emissions are estimated by using the world’s averaged GHG emissions per ton of steel multiplied with the crude steel output provided by WSA (WSA, 2015c, p. 4, 2016). This estimation is chosen because the WSA sees Baosteel as a technologically innovative company and so it is assumed that the firm’s average emission value is lower than the Chinese average of 2.27 t CO2 per ton of steel between 2001-2010 (Tian, Zhu, & Geng, 2013, p. 358; WSA, c2016a). However, it is important to note that it is unclear whether, in the steel plant’s averaged GHG emissions, just the emission for the production of crude steel is included or whether the downstream processes, like hot-rolling, are also included. It remains significant because secondary steel processing is relatively energy- and resource-intensive.

While ThyssenKrupp reports all emitted sulphur oxides (SOx), Baosteel only reports SO2. Even though SO2 is the major share of the SOx’ emissions, up to 4 % of SO3 occur as well and that is why Baosteel’s sulphur oxide emissions is adjusted by this share (Ilsen, 2014, p. 166). But it has to be said that there is no general assumption possible about the sulphur content of coal because the value varies over the different coal and fuel deposits (Baruya et al., 2003, pp. 90–93; Minerals Council of Australia, n.d.). For nitrogen oxides (NOx) all numbers are directly provided by the compared firms.

The volatile organic compound (VOC) value is based on the total VOC value of the Chinese I&S industry of 2012 provided by Wu et al. (2015, p. 1424). For subsequent years, VOC values of 2011 were continued at an annual growth rate of 5.2 % that is equal to the CAGR of the Chinese steel industry between 2011 and 2014. The VOC is additionally multiplied with the share of Baosteel’s steel production of the total Chinese steel industry. Furthermore, the value is adapted by the employee rate due to the same reason as it is presented in the following dust and freshwater calculation.

A. Figure 4-1: Calculation of Baosteel's freshwater consumption, Source: own illustration

7 For a definition of Scope 1-3 emissions please consult Yian et al. (2013, p. 354 (Table 1)).


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Furthermore, the estimates of dust emissions and freshwater consumption of Baosteel are estimated by multiplication of the per-ton-of-steel-data which are based on relative values to the years 2008-2012, from steel producing subsidiaries of Baosteel that represent around 70 % of Baosteel’s employees, with the crude steel production volume of them. Baosteel provides this data in relative values to different base years. In a second step the accumulation is projected to the full employee base of Baosteel (see Figure 4.1). Note that this estimation is insufficient because most of the employees that are not in the steel sector work in low-polluting services sectors but due to the fact that Baosteel’s highly polluting coal chemical industry and secondary steel processing is not included in the data of the steel producing subsidiaries it can be used as a rough estimator. ThyssenKrupp’s dust emission is reported in absolute value for the whole firm and their freshwater consumption as well.

For the value of solid waste, it is assumed that Baosteel’s solid waste is on the same level as ThyssenKrupp’s amount of waste that is for disposal and not for recycling. ThyssenKrupp reports all absolute values. For Baosteel, it is assumed that the value “Industrialization Rate of Solid Waste Resources” can be equally used as the percentage of recovery. Together with the absolute amount of recovered resources from solid waste, the share and the absolute value of solid waste is calculated.

The total energy consumption of the energy-intensive steel companies is for ThyssenKrupp reported in tWh while Baosteel only reports a per-tonne-of-steel-value for 2012, 2014 and 2015 in kgce (kilogram of coal equivalent) whereof 1 kgce is equivalent to 0.123 kWh (IER, c2016). Baosteel’s energy consumption is further estimated in tWh by the multiplication of the kgce-value with the annual steel production. The missing value for 2013 is calculated by using the arithmetic average of the years 2012 and 2014, which is in line with the declining trend.

4.2.2 Company indicator comparison The investments in new environmental projects are important measurements of the company’s willingness to propel the sustainability of its businesses. Both companies invest less than 1 % of its annual revenue of 2013 and 2014 in new environmental protection projects but compared to its gross profits, for ThyssenKrupp it is highly volatile, while Baosteel remains approximately constant. Additionally, it can be noticed that Baosteel’s new investments in environmental projects per employee are significantly higher than ThyssenKrupp’s.

The greenhouse effect is a natural process that warms the Earth’s surface. When the solar radiation hits the surface, some of it is absorbed and re-radiated by greenhouse gases. Since the age of industrialisation the emissions of GHG sharply increased and the mean surface air temperature raises. The major GHG is CO2 which is produced by fossil fuel burning, e.g. coal, and plays a vital role in regulating the Earth’s surface temperature. The world’s I&S industry as a major emitter of CO2 and energy consumer tries to reduce these


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emissions to mitigate climate change. Focussing on the CO2 emissions of ThyssenKrupp and Baosteel, it can be noted that ThyssenKrupp emitted with 2.11 t/t-s in 2013 and 2.27 t/t-s in 2014. Baosteel’s data should be interpreted more carefully as the world’s annual averages with 1.8 t/t-s in 2013 and 1.9 t/t-s in 2014 are used to estimate the values. But if we take a look on the CO2 emission per employee, it can be seen that Baosteel with around 600 t lagged behind ThyssenKrupp with around 225 t.

While CO2 is the major climate-gas, there are gases that arise from burning fossil fuels and are much more harmful as nitrogen and sulphur oxides because they are up to 300 times more harmful to the climate than CO2 (Long et al., 2016, p. 136; UBA, 2013). These two are major sources of acid rain. They also contribute to rising fine dust pollution as well as, together with VOCs, the ozone depletion (US EPA, c2016, 1999, pp. 1–6). Against this background, ThyssenKrupp and Baosteel report NOX and SOX values:

A. Table 4-1: NOx and SOx emissions of ThyssenKrupp and Baosteel

Emission Unit 2013 2014

ThyssenKrupp Baosteel ThyssenKrupp Baosteel NOx

Absolute Value in '000 t 14.1 63.0 17.20 51.81 Per t of steel in kg 0.90 1.44 1.00 1.20 Per employee in t 0.09 0.48 0.11 0.40

SOx Absolute Value in '000t 30.5 29.5 33.40 25.41 Per t of steel in kg 1.94 0.67 1.94 0.59 Per employee in t 0.19 0.23 0.21 0.19

Source: own illustraion

In Table 4.1, it can be seen that Baosteel’s NOx-emissions per ton of steel and employee are higher than ThyssenKrupp’s for 2013 as well as for 2014. For SOx, it is the other way around. However, the restriction has to be made that Baosteel’s SOx values are our own estimate, while for ThyssenKrupp, the reported values are shown. Additionally to these two indicators the companies report general dust emissions, which also lead with higher concentration of dust to an increase of the greenhouse effect. ThyssenKrupp emitted 540 g/t-s and 640 g/t-s in the years 2013 and 2014, less than Baosteel which emits 530 g/t-s and 510 g/t-s. These values seem to be very close and show that both firms made significant investments in dust collecting technology as reported (Baosteel Group, 2014a, p. 34, 2015, ThyssenKrupp, 2013, p. 95, 2014, p. 88, 2015, p. 90). VOCs “(…) are released from chemicals, solvents or fuels (as well as natural sources) as they evaporate or sublimate into the surrounding air; they are associated with a range of negative health effects.” (IEA, 2016, p. 21). While the VOC emissions per ton of steel for ThyssenKrupp are diverge between 1.64 kg/t-s for 2013 and 0.1 kg/t-s 2014, the value for Baosteel remains constant around 0.44 kg/t-s which is caused by the estimation.


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Fresh water resources are at risk due to growing demand from the increasing population and its increased industrial activity. That is why fresh water availability is a major concern in large parts of the world and is the “most important sustainability challenge after climate change” (WSA, 2015a, p. 1). The steel industry uses water in cooling operations and production purposes (Jasch, 2000). Assuming that 1m3 is equal to 1t of water, Baosteel’s fresh water consumption is clearly lower than ThyssenKrupp’s water consumption per ton of steel. It is approximately nine times higher than Baosteels. If the amount of stream cooling is subtracted from ThyssenKrupp’s total water consumption, the values come into a more reasonable range of 5.0 m3/t-s in 2013 and 10.8 m3/t-s in 2014, that is also closer to the German steel industry average (see Wirtschaftsvereinigung Stahl, c2016), compared to 4.8 m3/t-s and 4.5 m3/t-s for Baosteel in the same years. Even if Baosteel’s water consumption is only an estimator, it can be verified by Long et al. (2016, p. 138) who calculate for 2012 a lower value but still in the same range.

The chemical oxygen demand is a test to measure the quality of water. A higher COD level means that there are more organic compounds, e.g. pollution, in water. China’s target to reduce the organic compounds in water (Statista, c2016b) is the reason why Baosteel reports COD while ThyssenKrupp does not. Due to missing data for Germany the Baosteel’s value has to be stand alone with 1.5k t and 1.3k t for 2013 and 2014 that was 6.4 % and 5.5 % of China’s total COD emissions (Statista, c2016c).

Sustainability for the resource-intensive steel industry means using resources efficiently and using materials effectively. This includes both the prevention of waste and using byproducts and inescapable waste materials as raw materials, e.g. are slags used as raw materials in the cement industry and road construction. The overall solid waste recovery rate is around 60 % for Baosteel and ThyssenKrupp, whereby Baosteel is slightly more efficient. But if the solid waste is analysed on the per-employee’s level, it can be shown that ThyssenKrupp emits only a tenth compared to Baosteel (see Table 4.2).

A. Table 4-2: Solid Waste Pollution of ThyssenKrupp and Baosteel

Solid Waste Unit 2013 2014

ThyssenKrupp Baosteel ThyssenKrupp Baosteel Absolute Value in m t 0.7 5.4 0.80 5.45 Per t of steel in t 0.04 0.18 0.08 0.19 Per employee in '000 t 4.46 40.95 4.93 41.65 Recovery Rate from Solid Waste Resources

in % 61.11% 59.70% 63.64% 60.20%

Source: own illustration

If the valued of the total energy consumption are compared, it can be noticed that ThyssenKrupp’s need for energy is around 5,500.00 kWh/t-s while Baosteel’s need for energy is only calculated at around 5.00 kWh/t-s.


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The present paper presents the historical and political background of the environmental status quo of the industrialised country Germany and the emerging country China. As the I&S industry is a significant emittet of GHGs and uses large amounts of natural ressources, the paper takes a deeper look on the historical development of the steel industry with the objective to identify parallel developments. Furthermore the biggest steel companies of both countries, ThyssenKrupp and Baosteel, are compared on an ecologicial indicator level to clarify if the drawn conclusion on environmental status can be verified.

The countries China and Germany are located on a different level of ecological policy and are ranked on the 109th and 30th places of the EPI which compares 180 of the world’s countries (see chapter 2.1). This finding allows the conclusion that Germany’s environmental status seems to be better placed than the Chinese, although both countries have their own environmental policies and laws. While Germany took a leading role in the fulfillment of the Kyoto-protocol, the Chinese government is still in an early stage, according to the fact that only since the 11th FYP of 2005 climate protection got a more important role beside GDP growth. For a long time, GDP played the dominant role to improve the welfare of the Chinese people. The argument that the Chinese environmental policies are still subordinated can be derived, amongst others, in the projection that China’s CO2 emissions will rise till 2030. On the contrary, the German aim is on the level to reduce 40 % of its CO2 emissions till 2020. But it has to be further noticed that China’s rethink that environmental issues also have an impact on the welfare of the people can also be seen in the implementation of the MEP in 2008 that brought the environmental discussion on a ministry level. In contrast, Germany establishes a ministry, the later called BMUB, over 20 years earlier in 1986 (see chapter 2.2).

As the “driver of industrialization” (Song & Liu, 2012, p. 1) the growth of the I&S industry was essentially associated with the economic booms of Germany and China (see chapter 2.1 and 3). At the beginning of the industrialisation, the big German steel firms were founded, started with the foundation of Krupp in 1811. The German steel industry reached their all-time highs with the boom of the “Wirtschaftswunder” after WWII. Together with the strong upswing environmental problems arose (see chapter 3.1.1) and the rising interest of the society led to action of the government through the introduction of ministries and policies, e.g. at first with the “blue sky initiative” (see chapter 2.2). With the rising attention paid to global warming and with the ratification of the Kyoto-protocol, Germany took a leading role.

A comparable but postponed development could be seen in China as well: The planned opening of the economy in 1978 with the aim to boost the economy was supported by the foundation of a broad steel industry base, introduced by the foundation of Baosteel in the same year. For a few decades the environmental growth covered the rising Chinese ecological problems but it can be said that a change of mind has begun at least by the

5 Discussion and Conclusion


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introduction of the 11th FYP and the announcement of the guiding principle to “build beautiful China” as an answer to the rising people’s pressure for ecological sustainability and mitigating smog (see chapter 2.2). Furthermore, the 12th and the 13th FYP also include specific ecological targets. Additionally, it can be noticed that China’s environmental pollution today can be located in the area where China’s I&S industry is placed that has been similar observed in the German Ruhr region after WWII (see chapter 3.1.1. and 3.2.1) and gives an additional hint that the steel industry is a significant polluter. To deal with the problem, China started to consolidate the industry to achieve both market power but also efficiency gains that result in less pollution (see chapter 3.2.1). Same development that a consolidation process led to efficiency gains could be seen in the European respectively, German steel industry since the steel crisis in the 80s and 90s (see chapter 3.1.2 and Appendix 2).

Following the conclusion – drawn from the EPI – that China’s environmental status is lower than the German level and adding that the steel industry is an significant polluter, the paper provides a detailed view into the ecological indicators of ThyssenKrupp and Baosteel. In the beginning of chapter 3, it is pointed out that both firms implemented the EMS certified by ISO 14001, whereby Baosteel was in line with the Chinese Cleaner Production Promotion Law (see chapter 2.2). Furthermore, it could be seen that both firms follow the voluntary, but most common reporting guideline of the GRI. Taking the calculations in chapter 4 into account, it becomes clear that there are differences in the quality of ecological reporting between ThyssenKrupp and Baosteel. Even though ThyssenKrupp uses different sources to report their sustainability efforts, the values are presented as absolute numbers for the last three years and it is clear that these are referred to the whole company. Instead, Baosteel uses mainly their CSR report and annual reports to present their ecological efforts. In most cases, the ecological indicators, which are not further defined in the CSR report, are also reported for three years but indicated to changing base years. Additionally, some indicators are presented for the whole company (environmental investments, NOX, SO2, COD, comprehensive energy consumption, resources recovery from solid waste, annual energy conservation), some only for (steel producing) parts of the company (fresh water consumption, dust emission, comprehensive resource utilization rate of solid waste) and some only for Baosteel Co., Ltd. (expensed and capitalized projects and costs). In addition, the names of Baosteel Co. Ltd. and Baoshan are sometimes used similarly. These unclear reporting and differences between ThyssenKrupp’s and Baosteel’s makes it difficult to compare them. Although both follow the guideline of GRI and ISO 14001, this suggests that these are insufficient to provide transparency about the ecological status of a company.

Looking more deeply into the reported ecological numbers of the last 10 years, making projections and adaptions for some indicators of ThyssenKrupp and Baosteel, the companies can be made comparable on a per-ton-of-steel-base for the years 2013 and 2014, as it is done in chapter 4.1 and 4.2 of this paper. Considering on the new investments in environmental projects both firms seem to be comparable and Baosteel invests in absolute as well as in relative numbers more than ThyssenKrupp.


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For GHG, respectively CO2 emissions, it must be concluded that no definite statement can be made about which firm is superior. While Baosteel doesn’t report them on a group level and ThyssenKrupp has to report them to buy certificates on the European ETS market (see chapter 2.3), ThyssenKrupp’s values are higher than the world’s average CO2 per ton of steel and thus higher than the estimated values for Baosteel. ThyssenKrupp’s per ton of steel values are on the same level as the Chinese average between 2001-2010 with 2.27 t CO2 per ton of steel (Tian et al., 2013, p. 358). The value around 2.2 t/t-s CO2 of ThyssenKrupp could be falsified and too high compared to the WSA average caused by the following indications:

• ThyssenKrupp is one of the founding members of the ULCOS project to reduce CO2 emissions (see chapter 3.1.2)

• Germany is the world’s leading country of steel patent registrations (see chapter 3). • It is assumed that ThyssenKrupp’s reported GHG emissions include emissions from

secondary steel processing while the world’s average GHG emissions doesn’t. However, it is striking that Baosteel reports CO2 for the nine enterprises which are part of the ETS pilot project (see chapter 2.3 and Baosteel Group (2015, p. 35)). Sulphur oxides are reported from ThyssenKrupp, and Baosteel’s SOX value is projected. The results of the calculation show that Baosteels absolute value of SOX is estimated on the same level as ThyssenKrupps. This contrasts with the structure of the companies because Baosteel has a higher absolute production and a larger share of steel production of its total business compared to ThyssenKrupp (80.8 % vs. 26.4 % of its total revenue in 2014). If it were accepted that the Baosteel’s SOX emissions is that low, a possible explanation could lie in the use of coal with a low sulphur content as it is Australian coal that Baosteel could access through their cooperation with Aquila Resources (chapter 3.2.2 and ABC News, 2015). Even if the use of Australian coal is assumed, the reduction of SOX compared to ThyssenKrupp is implausible (Hunger, n.d.; Hutton, 2009). Other emissions as NOX and dust as well as VOC seem to be comparable. Comparing nitrogen oxides Baosteel is slightly less polluting than ThyssenKrupp and the same relation can be seen for industry’s dust. Looking on the VOC emissions, ThyssenKrupp is in 2014 on a per ton of steel base slightly less polluting than Baosteel after a big reduction of its VOC emissions compared to 2013 (annual change: -1,54 kg/t-s). The consumption of fresh water of both companies is comparable after the adaption of ThyssenKrupp’s stream cooling, assuming that Baosteel doesn’t include stream cooling in its report. The result shows that Baosteel uses less fresh water per ton of steel than ThyssenKrupp. Looking for Baosteel on an additional water quality indicator, COD, it can be noticed that an absolute specification of the value is in line with the Chinese 12th FYP (see chapter 2.1), but a higher informative value would be given if the value would reported in the unit µg/l as it is common standard for the COD method (Environmental Agency UK, 2007). Even if the recovery rate for solid waste is for both firms at approx. 60 %, this indicator gives no information about the amount of solid waste that is produced. But if ThyssenKrupp’s and Baosteel’s indicators are compared per-ton-of-steel and per-employee, it becomes clear that


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ThyssenKrupp produces significantly less solid waste than Baosteel, which gives a hint that ThyssenKrupp tries to prevent waste in its processes. The total energy consumption of ThyssenKrupp and Baosteel seems incomparable. Under the assumption that the calculation used is serious, Baosteel’s energy consumption per-ton-of-steel has only a share of approx. 0.09 % of ThyssenKrupp’s energy consumption. This brings us to the conclusion that the reportings are not comparable because the value deviates strongly from the other indicators. But another conclusion can be drawn: Baosteel reports its energy consumption in units of coal equivalent while other firms, e.g. ThyssenKrupp, often use watt-hours. This can be interpreted as a direct adaption to China’s plan that also formulates the objective in coal equivalent.

Under the bottom line, considering all indicators, no final decision can be made if ThyssenKrupp or Baosteel have a greater environmental impact looking on a per-ton-of-steel-base. In absolute values, Baosteel has a greater environmental impact but due to that, the limitation arises the companies are difficult to compare. The criticism can be mainly demonstrated on the share of crude steel production of both firms. While ThyssenKrupp’s steel units make 32.4 % and 26.4 % of the total revenue in 2013 and 2014, are Baosteel’s crude steel producing BUs responsible for 81.6 % and 80.8 % of the total revenue in 2013 and 2014. A similar relation can be found for the employee stock. This clearly indicates that the company structure of both firms differs because ThyssenKrupp’s main focus is on their service-oriented BUs, as Industrial Solutions and Material Services and Baosteel still focuses on crude steel production. In effect, this means that the companies cannot be compared on an absolute basis and that the crude steel production by its own could be more polluting than other BUs of ThyssenKrupp and Baosteel. For this reason, Baosteel produces a higher absolute environmental pollution.

But this does not allow any direct conclusion whether the distinctive societal, political and legal environment of China and Germany has any specific impact on the companies’ or industry’s reported ecological performance. Nevertheless, there is evidence that Baosteel, as China’s biggest state-owned steel producer, adapts its reporting to local policies and standards and thus also its environmental objectives (see energy consumption and COD). However, it can be observed that the introduction of the ETS and its financial charges put pressure on the European and German steel industry. The German steel federation, whereof ThyssenKrupp is a member, even talks from a life-threatening burden and from disturbing the market balance that came with the third period of the EU ETS and led to a competitive disadvantage (see chapter 2.3 and 3.1.1). In contrast, a statement about the Chinese ETS and its impact on the Chinese steel industry is not yet possible.

All in all, the disparity between Germany’s and China’s ecological performance seem historically based because Germany passed a similar but desastrous ecological development in the Ruhr region during the economic boom of the country as it happened in the east of China in the last two decades. But looking only on the status quo of the existing policies and


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(international) aggreements it can be concluded that both, Germany and China, formulate ambitious climate targets, not only since the UN Agreement of Paris, and hence, China took important steps for their future sustainable development.


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Appendix 1: Appendix 2:

Source: WSA (2016)

Appendix

Source: Wirtschaftsverbund Stahl (c2016)


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Appendix 3: For further information please consult the enclosed Excel file.

ThyssenKrupp Baosteel ThyssenKrupp BaosteelNew investments in environmental projects in USDm 47,8 308,5 131,6 191,7Share of new investments to revenue in % 0,08% 0,63% 0,23% 0,06%Share of new investments to EBT in % -2,18% 3,05% 23,08% 2,04%New investments in environmental projects per ton of steel in USD 3,0 7,0 7,7 4,4New investments in environmental projects per employee in USD 305 2.356 810 1.423

ThyssenKrupp Baosteel ThyssenKrupp BaosteelAbsolute Value in m t 33,2 79,0 39,00 82,27Per t of steel in t 2,11 1,80 2,27 1,90Per employee in '000 t 0,21 0,60 0,24 0,63

ThyssenKrupp Baosteel ThyssenKrupp BaosteelAbsolute Value in '000 t 8,4 23,2 10,80 22,22Per t of steel in kg 0,54 0,53 0,63 0,51Per employee in t 0,05 0,18 0,07 0,17




ThyssenKrupp Baosteel ThyssenKrupp BaosteelAbsolute Value in m m3 79,0 212,1 186,00 198,35Per t of steel in m3 5,03 4,83 10,81 4,58Per employee in '000 m3 0,50 1,62 1,15 1,51

ThyssenKrupp Baosteel ThyssenKrupp BaosteelAbsolute Value in m t n.a. 1,5 n.a. 1,26Per t of steel in t n.a. 0,03 n.a. 0,03Per employee in '000 t n.a. 11,45 n.a. 9,63

ThyssenKrupp Baosteel ThyssenKrupp BaosteelAbsolute Value in m t 0,7 5,4 0,80 5,45Per t of steel in t 0,04 0,18 0,08 0,19Per employee in '000 t 4,46 40,95 4,93 41,65Recovery Rate from Solid Waste Resources in % 61,11% 59,70% 63,64% 60,20%

2013UnitInvestements

2014

CO2 Unit2013 2014

Dust Emissions Unit2013 2014

NOx Emissions Unit2013 2014

SOx Emissions Unit2013 2014

Fresh Water Consumption Unit2013 2014

VOC Emissions Unit2013 2014

COD Unit2013 2014

Solid Waste Unit2013 2014

B. Environmental Reporting in Germany and China: An analysis based on the energy sector

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Authors: Yannick Hospes, Phuong Anh Tran

In the most recent decades, China’s economy grew in a remarkable way. The communist country evolved into one of the biggest market economies worldwide. But with the rise of the economic global power came serious environmental problems. Today, the Chinese attitude towards the environment is slowly changing and the environmental consequences of economic activities come to the fore. This development leads to a growing importance of sustainability reporting in China. This paper aims to analyse sustainability reporting in the German and Chinese energy industry. The two companies Stadtwerke Goettingen and Shenergy are energy suppliers in Germany and China, respectively. They are used as case study companies to investigate their sustainability reporting.

This paper aims to answer the following questions:

• What are the differences concerning sustainability reporting between Germany and China?

• What are the differences concerning sustainability reporting between Stadtwerke Goettingen and Shenergy?

• How do the historical, social, cultural and political differences between China and Germany affect the sustainability reporting of Stadtwerke Goettingen and Shenergy?

Furthermore, the greenhouse gas emissions of Shenergy are estimated based on a study conducted for Stadtwerke Goettingen. Therefore the paper is structured as followed: after the introduction in chapter 1 the economic and political systems in China and Germany are introduced in chapter 2 and general information on the focal areas is given. Chapter 3 describes the energy sectors in China and Germany. In the first part, the development and structure of the sectors are shown. The second part provides information about sustainability reporting in the Chinese and German energy sectors. Chapter 4 is about the focal companies. Their development, structure and activities are described as well as their


1 Introduction


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sustainability reporting. The companies are compared with regard to their sustainability reporting activities. In chapter 5, the greenhouse gas emissions of the focal companies are investigated. The first part introduces a study conducted for Stadtwerke Goettingen, which analyzed the greenhouse gas emissions of the company. In the second part, greenhouse gas emissions for Shenergy are estimated based on the study for Stadtwerke Goettingen. The third part shows the results and their implications. In chapter 6, the findings of the paper are discussed and chapter 7 concludes the paper.


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China, the most populated country in the world, had a long history of development. Mainland China went through many reforms and ended up with the highest GDP worldwide. The differences in many aspects and historical development cause the differences in economy between Germany and China. However, both countries are orienting to economic development, which is also accompanied with environmental protection.

2.1 Historical development and recent situation throughout China and especially in Shanghai

The People’s Republic of China has practiced a traditional mixed economy and the planning process of the whole country has based on the state, i.e. it has been centrally controlled. In the past, agriculture played an important role in the Chinese economy that enabled to cover the great demand of the country with large population (Tong & Wong 2008, p. 127). After 1949, China started to change as The People’s Republic of China was established. In order to hasten the industrialization process, the Chinese Communist Party government, which had been launched until then, increasingly invested in heavy industries, such as steel, heavy machinery or large buildings. Moreover, for the purpose of supporting the new growing sector, the government also implemented tax policies to extract the surpluses from agricultural sector to transfer and raise capital in the industrial sector (Zhu 2012, p. 109). During the time from 1952 to 1978, economic reforms with continuous Five-year plans were undertaken in China. According to those plans, the nonagricultural sector was under control of the state and the production activities were set up by the government rather than the signals based on the market results (Zhu 2012, pp. 109-110). That means, the state decided the time, the output and the amount to produce, not the citizen demand. However, this change led to many problems. The well-known economic reform in 1959 called the Great Leap Forward (1958-1960) caused a serious food shortage in the countryside (Tong & Wong 2008, p. 130). Many state-owned enterprises (SOE) at that time were also said to be inefficient. Besides, the new appearance of light industry, which focuses on home appliances, furniture, clothing, were not able to cover the consumer’s demand (Zhu 2012, p. 110). After these periods of time, China’s economy was successfully transforming into a market economy. Along with the economy’s transition, the government exerted less influence and economy was less centrally planned (Tong & Wong 2008, p. 130). At that time, personal ideas and concepts in economy and each individual’s interests were liberalized. This was the reason for the rising of entrepreneurship and creativity in modern China (Lu 2011, p. 538). The market-oriented reforms were launched after 1978 (Lu 2011, p. 537). As a result, since the Eighth National People’s Congress, which took place in March 1993, China has officially become a socialist market economy. That caused a massive change in the state’s contribution in decision-making of the whole country that according to Ash and Kueh 1996,

2 Comparison of the economic and political systems


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the state-owned industry contributed about 24% of China’s gross industrial output by 2000, which included large strategic industries. In comparison to in the late 1970s, the percentage was over 70 (Tong & Wong 2008, p. 130).

During the time of reforming from 1953 to 1978, China’s real GDP grew at an average rate of 6.7% per year, although the number may not be accurate as it may have been corrected by the Chinese government, especially at the lower level of the state due to various political reasons (Morrison 2015, p. 2). It was said that the Chinese reports at that time were not reliable, as especially the local authorities overstated and falsified the numbers. One of the assumed reasons was that these figures were used for propaganda purposes. The government must control everything from the plans to the setting of goals as well as the real results. That means, on one hand, if enterprises could not reach the targets, the outcome would be fixed, or on another hand, enterprises must be set under pressure of the government to fulfill the given task. This led to underperformance in production, so that the government felt the need to make exaggerated reports (Tong & Wong 2008, p. 130). However, the situation has changed that nowadays, China has become the world’s largest economy in terms of purchasing power and also as a significant manufacturer, exporter and importer on merchandise. According to an estimation of the World Bank, from 1981 to 2010, the number of people in China living in poverty was reduced by 679 million (Morrison 2015, p.1). GDP annual growth rate in China was at the average of 9.82% from 1989 to 2016 with the highest rate reaching 15.40% in 1993 and the lowest of 3.80% in 1990. Nevertheless, in recent years, the Chinese economy has signaled to slow down, markedly in the growth rates of export and fixed investment (National Bureau of Statistics of China 2016).

China has concentrated on mainly agriculture in the past, but now the modern Chinese economy is dominated by the service sector. This sector accounted for 50.5% of this country’s GDP in 2015. The agriculture sector’s proportion reduced to 9%, the industry sector still plays a significant role in the economy with a share of 40.5% (Statista 2015). Shanghai is a relevant city, which contributes to the two main important sectors of the nation. Shanghai is well-known as the most populous city in China within the city’s permanent resident number up to 14.3234 million according to the Statistics at the end of 2013. The amount was 2.8 times much than in 1949 (Shanghai Facts 2014, p. 22). Nowadays, the population reaches the number of 23.74 million (Statista 2016b). Shanghai is one of the international metropolises in the world that is notably vital to the Chinese economic and social development. This city located in the Yangtze River Delta in East China. The land area is 7037 km2, which covers only 0.06% of China’s land area, but its contribution to the nation’s GDP is 3.8%. In addition to its contribution, Shanghai is responsible for 17.8% volume of cargo containers and for 19.5% of the value of imports and exports in the whole country (Shanghai Facts 2014, p. 22).

In 2013, Shanghai’s industrial enterprises, which produce with the annual revenue of 20 million yuan or above, achieved an industrial added value of 676.964 billion yuan to the


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nation. Meanwhile, the industrial output of the major industrial enterprises earned 3.208888 trillion yuan (Shanghai Facts 2014, p. 28). In addition, “in 2013, 99.1% of the products made by large-scale industrial enterprises in Shanghai were sold. Output of major industrial products, such as auto, crude oil processing and power cable, registered noticeable increases” (Shanghai Facts 2014, p. 29). With many industrial enterprises, either focusing on large-scale production or major industrial products, the government of Shanghai also bears in mind the environmental protection. Many environmental projects were enacted and in 2013, 60.788 billion yuan, or 2.8% of the city’s GDP was invested in those projects. According to the Air Quality Index, the proportion of the days when the air quality was rated as good was 66%. The average concentration of carbon monoxide in the air decreased 3.4%. Moreover, “up to 89% of the days in 2013 saw the level of ozone density fluctuation meet the standard.” According to the state of the environment in China, Shanghai took part in many projects and programs of the government to improve technologies in air pollution control and prevention, such as the Clean Air Research Program and the Blue Sky Technology Program. Moreover, in order to balance the environmental pollution, Shanghai built up an urban park area reaching 1050 hectares. The city has also invested in numerous large green areas. By the end of 2013, the city was covered 38.4% in green, with forest coverage of 13.1% (Shanghai Facts 2014, p. 44).

2.2 Major differences compared with Germany and Goettingen

Apart from differences in terms of geography, history and culture, Germany has other economic characteristics in comparison to China. The economic system of Germany is a social market economy, while China is a socialist market economy.

Germany economy has been growing but the growth rate tends to fluctuate at times. The gaps between the growth rates from each quarter of a year or between different years are small. For instance, the gross domestic product (GDP) growth rated at 0.4 % by the second quarter of 2016. The GDP growth rate of the first quarter was 0.7% (Statistisches Bundesamt 2016c). The GDP growth rate of China is averagely about ten times higher than the GDP growth rate of Germany. Germany has a population of 82.2 million (Statistisches Bundesamt 2016b). The GDP per capita, which uses to compare the relative performances of one nation to another and tells more about the living standard, shows different perspectives. Germany is on the list of 20 countries with the largest gross domestic product (GDP) per capita in 2016 (in US dollar) within the figure of 41,895 US dollar per capita (Statista 2016c). Meanwhile, China’s GDP per capita has reached 8,239 US dollar in 2016 and the amount is predicted to reach 12,542 US dollar until 2021 (Statista 2016a).

In terms of political system, China has a different pattern than western countries. China has conducted a top-down system that all reports concerning various aspects of the government such as economy, culture, education, modernization and so on will be transferred from the


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upper tiers to the next-lower one to implement the tasks. In reality, each tier has its own autonomy, but on a limited level, as the central government will control the modernization of the country (Dumbaugh 2010, p.15). All activities follow the government’s plan such as reforming, projects to develop the country, harmonizing the society by resolving conflicts as well as competing in global markets (Ramphal & Sinding 1996, p. 171).

The political system in Germany is differently structured and follows the decentralized administration. The decentralization was geographical that Germany has been separated into sixteen states and then each state owned its provinces, counties and cities. The provinces, counties and cities are administrated by federal states (Gunlicks 1984, pp. 342-343). However, each subnational unit of government can participate in the decision process independently from the national government (Gunlicks 1984, p. 324).

Focusing on the two observed cities, Goettingen in Germany, in comparison to Shanghai, is a small city in Lower Saxony with a population of 116,650 in 2013, which is 120 times smaller than Shanghai. The total land area of Goettingen is 116.89 km2, approximately 60 times smaller (Goettinger Faltblatt 2015). Another difference between Shanghai and Goettingen are the characteristics of the city. Shanghai is also regarded as a metropolis, therefore, more activities are offered in this city, from daily life routines such as transportation to industrial activities. As a consequence Shanghai is likely to have a much higher specific energy demand than Goettingen. Subsequently, the necessary energy will cover not only the inhabitant’s demand but it will support the industrial production and manufacture of the city. Goettingen is not an industrial city like Shanghai and therefore, activities in production fields are not the focus of Goettingen.


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In the energy sector, environmental problems are taken into consideration nowadays. Bearing the sustainability of economic development in the energy sector in mind, both Germany and China have enacted changes in their energy structure to mitigate climate change.

3.1 Development and recent structure In the last decade, the energy sector played an important role in the economic development of China, as the consumption of energy products ranks in the second place behind the United States. However, nowadays China energy’s consumption is comparable to that of the United States, 3,101 Million tons of Oil Equivalent (Mtoe). In addition to a considerable consumption, China also ranks first in producing energy with the amount of 2,640 Mtoe in 2015. As it is the largest energy producer, China is hence a significant player in the energy market. China’s energy trade balance surplus was 483 Mtoe in 2015, again ranking in the first place (Enerdata 2016).

B. Table 3-1: Total production of electricity and its composition

Year Total energy production in

10,000t standard coal

equivalent (SCE)

Percentage of total energy production

Coal Crude Oil Natural Gas Hydropower, Nuclear power

and wind power

1978 62,770 70.3 23.7 2.9 3.1

2000 138,570 72.9 16.8 2.6 7.7

2012 351,041 76.2 8.5 4.1 11.2

2013 358,784 75.4 8.4 4.4 11.8

2014 360,000 73.2 8.4 4.8 13.7

Source: own illustration based on China Statstics Press 2016

The composition of the electricity production includes mainly coal, crude oil, natural gas and renewable energy (wind power), hydropower, nuclear power. Along with the historical development of economy in China, since the late 1970s, due to the economic reforms, the successful transition to a social market economy and open-door policy, China economy

3 Comparison of the energy sector in Germany and China


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began to grow continuously. The high economic growth of China was maintained by productivity increases (Tong & Wong 2008, p. 140). Depending partly on the productivity of other sectors, China’s energy production and consumption are therefore steadily increasing.

B. Table 3-2: Total consumption of electricity and its composition

Year Total energy consumption 10,000t SCE

Percentage of total energy consumption

Coal Crude Oil Natural Gas Hydropower, Nuclear power

and wind power

1978 57,144 70.7 22.7 3.2 3.4

2000 146,964 68.5 22.0 2.2 7.3

2012 402,138 68.5 17.0 4.8 9.7

2013 416,913 67.4 17.1 5.3 10.2

2014 426,000 66.0 17.1 5.7 11.2

Source: own illustration based on China Statstics Press 2016

Due to the rapid economic growth, an increasing energy production is very likely, accompanying a rise in energy consumption in China. However, the production was insufficient to satisfy the inland demand since 1992. In the past, the Chinese energy production was mainly based on coal resources, which accounted for more than 70% of the total energy resources. The usage of coal is also crucial for some reasons. One of those is the substantial abundance of domestic stocks that China can take advantage of. Moreover, the Chinese government has controlled the commodity prices, which led to an underpricing of coal products in the period of central planning. During this time, the environmental protection was not considered important (Crompton & Wu 2005, p. 196). The coal resources were intensively exploited in this time. In the current stage, as the economy is rapidly growing and the demand of energy is rising, the usage of coal is increasing as well, but in comparison to the rising of other resources, its rising is gradually slowing down. Nevertheless, coal is still the crucial resource of Chinese energy production. The usage of crude oil is gradually decreasing, which is in contrast to the rise of natural gas usage. In relation to the increase of clean sources of energy, the proportion of other energy sources is potentially larger, such as hydropower, nuclear power and wind power. Environmental problems have recently raised awareness of China’s citizens that clean sources are necessary to be favored by policy makers, particularly natural gas and hydroelectricity. Following this trend, the share of coal should decline, while the share of clean energy should rise (Crompton & Wu 2005, p. 196).

In addition to the energy consumption’s trend, the Chinese government has been investing in various sorts of renewable energy, such as hydro power, biomass, wind and solar energy.


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Especially hydro power has a high natural potential in China, therefore hydro power is a significant contributor to electric power production. In 2008, China produced 585.19 billion Wh with hydro power, which accounted for 16.9% of total electricity production. This sort of energy can support the economic development and change the energy structure in an environmentally friendly direction. However, wind power, solar power and other forms are now being developed and their contribution to China’s energy structure is still quite modest (Liu 2011, p. 2594). Despite the cleanness of the renewable power generation, the lack of technology and the high costs of raw material can cause higher costs compared to non-renewable resources such as coal, crude oil and natural gas. Due to the rising demand of energy, the Chinese economy can lose its competitiveness if this kind of power was widely used. Therefore, under current conditions, the proportion is likely rise to some extent, but unlikely to change the energy production structure much (Liu 2011, p. 2597).

Based on the larger population and land area, the energy demand in China is much higher than in Germany. In 2015, Germany produced 121 Mtoe of primary energy, accounting for 12 % of the Europe total production but consumed up to 305 Mtoe, accounting for 17 % of Europe total consumption (BMWi 2016). The amount of production and consumption is less than in China but the trend is also distinctly different. During the time from 1990 to 2015, there was a decline of energy generation in Germany. The production has slowed down, whereas the consumption showed small fluctuations among different years and was quite stable while there is no signal of a big change or a clear movement (BMWi 2016). It also means that Germany will cover its energy’s deficit to satisfy the energy demand through the energy market and trading with other countries. Besides, despite the fluctuation of the consumption, the economy is still growing. The reason for the diverging movement between the economy and the energy consumption are the technological improvements in the energy industry, the more economical and rational of the use of energy as well as the alteration of the economic structure. The fluctuation can be explained by the influence of weather conditions, as cold winters in Germany result in more energy demand for heating (BMWi 2016).

The energy production structure of Germany has been changing in recent decades. In comparison to China, the energy structure of a developed country as Germany comprises many similarities and differences. The energy resources are fundamentally similar to the components of the Chinese energy sector, such as coal (hard coal and lignite coal), mineral oil, natural gas, water and wind power and other sorts of clean resources (BMWi 2016). According to the statistics from Federal Ministry for Economic Affairs and Energy, the proportions of those various resources have changed. In the past, coal was supposed to be the primary resource to produce electricity in Germany. In 1990, coal, including hard coal and lignite coal, accounted for about 86% of total primary energy production. The remaining 14% were mostly produced in the form of natural gas. Similar to the generation of coal in China, in Germany, coal is gradually less important than in the past. The proportion of coal in the electricity sector was about 68% in 2000 and considerably decreased to approximately 45%


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in the last year, which showed a clear decline of coal’s generation. In contrast to China, coal still retains its dominance over other resources. Besides, the proportion of natural gas is currently decreasing and electricity production from mineral oil seems to be stagnant. By contrast, renewable energy (wind power) and other clean resources have increased from about 4% in 1990 to about 29% in 2015 (BMWi 2016). Nuclear power is becoming less significant: in 1990, 28% of the total gross electricity produced was based on nuclear power but the figure dropped to 14% in the last year (Statitisches Bundesamt 2016a). This shows the transition in the energy structure in Germany.

In addition to electricity production, energy consumption has also changed its structure. The amount of mineral oil and other resources that are produced inland cannot cover the demand. Therefore, Germany’s energy consumption depends much on imports. Besides, the consumption of renewable resources has become more important and it is forecasted that Germany will pursue this trend to use the clean resources (BMWi 2016). The trend is acknowledged by energy suppliers, politics and citizens (Konstantin 2013, p. 10). The usage of water power, wind power and others has substantially increased and is expected to continue doing so. The potential increase of wind power is considered significant as the price of fossil fuels is expected to rise and measures to promote wind power are encouraged by the government (Konstantin 2013, p. 6).

3.2 Environmental reporting in the energy sector This Section provides an overview of environmental reporting in the German and Chinese energy industry. As most parts of environmental reporting are not industry-related, this section describes the general differences between Germany and China and refers to the energy sector, if specific information is available.

Sustainability reporting is the reporting of “information relating to a corporation’s activities, aspirations and public image with regard to environmental, community, employee and consumer issues” (Gray et al. 2001, p. 329). Another definition from the Global Reporting Initiative (GRI) highlights the “economic, environmental and social impacts caused by [an organizations] everyday activities”. Furthermore sustainability reporting is about the organizations values, governance and commitment to sustainability issues (GRI 2016a). Many synonyms exist for the term sustainability reporting like triple bottom line reporting, corporate social responsibility reporting or corporate social disclosure (Gray et al. 1995, p. 68; GRI 2016a). The given definitions show that sustainability reporting is not just about environmental issues, but also other non-financial issues. Purely environmental reports were first published in the 1980s and were the most common type of non-financial reports in the early 2000s (Daub 2007, p. 76). According to KPMG, sustainability reporting is common among the most (95% in 2011) of the world’s biggest companies since 2011 (KPMG 2015).

Unlike financial reports, the targets of sustainability reports are several stakeholders ranging from shareholders to organizations or people interested in environmental issues (Busco et al.


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2013, p. 45). The interest of this wide range of stakeholders in the organizations non-financial performance emerges from the external effects generated by its economic activities. Sustainability reporting is a way to satisfy interests and to legitimize the organizations activities (Daub 2007, p. 77). The reporting organization can benefit in several ways. According to the GRI, these benefits can be divided into internal and external benefits. Internal benefits are for example the improvement of efficiency, cost reduction, a better understanding of internal processes, compliance to laws and standards or benchmarking of the sustainability performance. External benefits are, for example, improving the organizations reputation, enhanced understanding of the organization by external stakeholders or the mitigation of negative impacts from environmental or social issues (GRI 2016b).

In 2013, sustainability reporting was not mandatory like financial reporting, but voluntary with a few exceptions and not regulated by national policies (Busco et al. 2013, p. 46). To provide comparability among different reports, standards are needed. The most important standard was set by the GRI and is described in the following (Busco et al. 2013, pp. 46-47). The most recent guidelines published by the GRI are the G4, the fourth generation of GRI’s guidelines for sustainability reporting, which were published in May 2013 (GRI 2016c). The G4 consist of two parts: on one hand the reporting principles and standard disclosures and on the other hand the implementation manual (GRI 2016c). The first part (reporting principles and standard disclosures) describes the requirements a company must fulfil to report in accordance with G4, while the second part (implementation manual) explains how to apply the requirements, prepare needed information and interpret the guidelines’ concepts (GRI 2016d). To show accordance with G4, a self-declaration by the reporting companies on how they applied the guidelines is needed. They can choose between two options, depending on the companies’ needs. The options are the core option and the comprehensive option, with the comprehensive option requiring additional disclosures (GRI 2016c). Additionally, the GRI offers guidelines for certain industry sectors, adding specific content to the sustainability reports (GRI 2016e).

In Germany, sustainability reporting is mandatory for certain companies since the most recent law was passed on 21. September 2016. This law converts the EU directive 2014/95/EU into national law. According to this law, listed companies, credit institutions and certain insurance companies 8 are bound to publish a sustainability report (BMJV 2016, Deutscher Nachhaltigkeitskodex 2016). This law is not related to specific industries and therefore companies in the energy industry are affected by this law if they fulfil the mentioned criteria. Until 2007, only 100 companies published sustainability reports and only 6 were small and medium-sized companies (BMU 2007, p. 23). Nine of those companies are energy and water supplier (BMU 2007, p. 27) and ten reported in accordance to GRI and 38 were GRI-referenced (BMU 2007, p. 28). In 2015, 163 companies published sustainability reports, 8 with more than 500 employees and total assets of more than 20 million Euros or revenues larger than 40 million Euros


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which are less than in 2014 (182 companies) (BSD Consulting 2015, p. 4). 18 companies were small and medium sized companies (BSD Consulting 2015, p 7). 68% of those reports are in accordance to GRI and another 7% are GRI-referenced (BSD Consulting 2015, p. 5). The energy industry is ranked third with regard to the amount of published reports (BSD Consulting 2015, p. 9).

Sustainability reporting in China is essentially voluntary (BSD Consulting 2016, Liu, Anbumozhi 2009, p. 593). But some stock exchanges in China require their listed companies to release certain information. According to BSD Consulting, the Shanghai Stock Exchange requires listed companies to report on environmental, social and governance issues, but the guidelines on how to report are broad. Only companies in the extractive sector have to release environmental information (BSD Consulting 2016). Standards for sustainability reporting also exist in China. The GB/T 36001-2015 is a standard for voluntary sustainability reporting developed by the national standardization administration (BSD Consulting 2016). The most common domestic standard is the CASS-CSR 3.0 reporting guidelines by the Chinese Academy of Social Sciences. It is similar to the GRI standard, which is popular in China (BSD Consulting 2016). Therefore, the Chinese Academy of Social Sciences and the GRI collaborate to link their standards (GRI 2014). According to the Beijing-based consultancy SynTao the number of sustainability reports in China grew strongly over the past few years. In 2006, only 23 sustainability reports were published. This number grew to 1705 reports in 2012, of which 55% are reports from SOEs (SynTao 2013, pp. 6-8). As in Germany, organizations from the electricity sector publish the third-largest number of reports with a total number of 136 reports in 2012. This number sharply increased compared to 2011, when only 50 reports were published (SynTao 2013, p. 9). Nevertheless, the quality of the sustainability reports is an issue which has to be mentioned. More than a half of the published reports in 2012 were shorter than 20 pages and only 3% were audited by a third party (SynTao 2013, p. 7). Additionally, only 12.9% of the reports in 2012 included information on key quantitative indicators, although the number is increasing. Key quantitative indicators are for example energy or water consumption, greenhouse gas emissions or investments in environmental protection. Companies listed on stock exchanges like the Shanghai Stock Exchange showed better key quantitative information disclosure rates, as did SOEs (SynTao 2013, pp. 14-16).

Another way of disclosure of environment-related information is the certification of companies by third parties (Liu, Anbumozhi 2009, p. 593). The worldwide common standards for environmental certification are the ISO 14000 family. ISO 14001 provides tools for organizations to implement corporate environmental management systems (ISO 2016a, Umweltbundesamt 2013). A corporate environmental management system is used to “identify, manage, monitor and control environmental issues in a holistic manner” (ISO 2015). Environmental issues are, for example, resource use and efficiency or pollution issues. The standards are developed for all types of organizations and are therefore usable for broad scope of worldwide organizations (ISO 2015). Organizations with environmental


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management according to ISO 14001 can be certified. The certification shows stakeholders that the organization implemented the standards properly. The certification is not performed by ISO itself, but by third parties (ISO 2015). In 2015, a total of 319,324 certificates for ISO 14001 existed in 201 countries. Most of them are from East Asia and Pacific (51.9%) or Europe (37.5%). Most certificates are existent in China with a total 114,303 certificates. Germany ranks on number seven with 8,224 certificates. Only 3,320 certificates belong to the electricity supply sector and 501 to the gas supply sector (ISO 2016b).

Emission trading schemes are a market-based tool to reach emission reduction targets. The principle of emission trading schemes is that each participating organization holds allowances for covering their emissions during a given time period. The system has a limit of total allowances. Companies who produce fewer emissions than their amount of allowances can sell the surplus. But companies who produce more emission than they are allowed need to buy allowances. The European Union Emissions Trading System is operational since 2005. The important economy sectors including the energy industry participate in the system (Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety 2014, pp. 1-2). China is performing seven pilot projects for emission trading since 2013 with the aim to develop a national emission trading system. One of these projects takes place in Shanghai. The national trading system shall be launched during the Five-Year Plan period from 2016 to 2020 (Swartz 2016, p. 12).


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In terms of the environmental reporting in chapter 3, the two case study companies, Stadtwerke Goettingen and Shenergy are taken into account. The sustainability reports of these two companies deliver information on the businesses in relation to social, environmental, financial and supply- oriented aspects, which represent the basic current situation and explain the potential development of the two companies. All the information collected about Shenergy comes from the Chinese version of its reports, some of which are published on the homepage. Two versions of 2014 and 2015 are available. The sustainability report of Stadtwerke Goettingen was released concerning four years from 2011 to 2014. The sustainability report revealed partly the differences in emission trading, environmental certification, the company structure and the rules for transparency and disclosure of environmental key performances indicators between the two companies.

4.1 Shanghai Shenergy and sustainability reporting According to the homepage of the Shenergy group, Shanghai Shenergy (Group) Co., Ltd was established in 1996 with the approval of the Shanghai Municipal Government and its registered capital is 10 billion yuan, which is 1.5 billion dollars. Shenergy Group takes the responsibility to provide energy for the whole city. It comprises the main energy infrastructure and is known as the major supplier of power and gas outputs for Shanghai. By the end of 2015, the company had 68 holding companies and about 10,000 employees. The Company stated to be committed to fulfill its corporate social responsibility (Shenergy Group 2016a). The business structure on the homepage provides an overview of the electricity and gas industry and other investment or energy saving activities of the company (Shenergy Group 2016b). The key disclosures from 1st January, 2015, to 31st December, 2015, were available on the company’s homepage. Shenergy released a sustainability report in line with the law to enhance profitability, service level, environmental protection, technological innovation, safety production, employee rights, social welfare and other aspects of social responsibility practices and performance (Shenergy Group 2016e).

As one of the important energy suppliers in Shanghai with a high impact on environment, Shenergy has pursued a more sustainable development. According to the up-to-date report in 2015, Shenergy has been adhering to the concept of opening up and steady operation. In the energy industry, the company has steadily expanded its investment portfolio. For electric power, production and finance are taken into account together. Moreover, the provision of energy in consideration of environmental protection is supposed to be safe, clean, efficient and sustainable. Furthermore, the company continues to optimize the energy structure. As a result, at the end of 2015, coal’s proportion was reduced to 57%, while the national proportion of coal was 66% in 2014. The remaining proportion included 25% of gas power, 9% of hydro power, nuclear power accounted for 5% and the remaining 4% is from wind and

4 Introduction to the case companies


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solar power. In 2014, the proportion of coal-fired electric power of the company was 60%, 22% were from gas-fired generation, hydro power accounted for 10%, nuclear for 6% and wind and solar power for 2% (Shenergy Group 2016e). The comparison between the years 2014 and 2015 shows a slight shift of the energy structure towards an environmentally friendly direction, which follows the general trend in China. According to Shenergy, the company invests in new energy assets to stimulate the rapid development of wind power and wind turbines with the aim to increase the share of clean energy. Many projects are now under construction or in operation, such as offshore wind power in Tian Beidagang. As a clean and efficient primary energy, natural gas is said to play an important role in the energy saving and environmental protection of Shanghai. The company endeavored to provide more clean and abundant natural gas to the city. By the end of 2015, the number of natural gas users reached 5.59 million. In recent years, natural gas has been widely used in power generation, distributed energy supply, liquefied natural gas transportation, gas air conditioning and other fields. For the green financial business development trend, China has released the Green Credit guidelines that the environmental performances of the loan applicants are taken into account by the bank. Shenergy financial green credit accounted for 41%. The first carbon trade was completed in Shanghai. The accumulated online transaction of carbon reached 13,000 tons(Shenergy Group 2016e).

Technology plays a vital role in the improvement of environmental protection that was mentioned in the reports of 2014 and 2015, such as reducing the emissions or increasing the productivity without gradually environmental pollution. Moreover, technology innovation is also the crucial point for energy enterprises in the sense of constructing the core competences to increase the competitiveness. Due to this importance of the technology that was acknowledged from the company, many projects are implemented. Among those are the layout and innovation projects concerning the construction of Shanghai Kechuang Center. The technological innovation system has been continued to improve and the scientific and technological innovation capacity was further enhanced. In the current stage, Shenergy has invested in many major innovation projects and has made a lot of efforts to build up the company as a leading enterprise in energy innovation. The projects focus on various ways of power generation, such as the projects accompanied with Shanghai Centre to develop and construct the layout of clean coal-fired power generation achieve a higher performance. The technology of gas turbine has also been developed. By the end of 2015, the company accumulated a total of 115 intellectual property rights (Shenergy Group 2016e).

As a SOE, Shenergy also has to take a certain responsibility for the society. According to the given information on Shenergy’s homepage, the company is committed to fulfill its corporate social responsibility (Shenergy Group 2016d). Unlike a private enterprise, Shenergy claims to take care of the social welfare in Shanghai, including that, first of all, an honest and trustworthy business is guaranteed. The company states that their business focuses on the standardization of operation, fulfillment of tax obligations, obedience to various rules and regulations as well as policies of the state (Shenergy Group 2016e). In the report of 2014,


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Shenergy stated to set high priority on the law. Especially in the political aspects, Shenergy stated its intention to further strengthen the work of clean government and anti-corruption and carry out education on party discipline and integrity. The legal framework was emphasized, hence, the production and business activities must be based on the laws. Besides, Shenergy claims to be perfecting the work system and mechanism of discipline including inspection and supervision. Moreover, Shenergy claims an important role in the society as this company secures a number of jobs (Shenergy Group, 2016e). Shenergy stated to actively create a harmonious business environment, focusing on enterprise development and staff development among each other. According to Shenergy, the company safeguards effectively the legitimate rights and interests of employees, furthermore, it protects the democratic rights of employees, and creates good mechanism and atmosphere of talents. Shenergy also claims an active role in the process of urbanization, as the company is active in difficult areas, actively participates in the city's rural comprehensive help and promotes the integration between urban and rural areas concerning development work. For instance, Shenergy and the Chongming County government signed a long-term comprehensive rural assistance agreement (Shenergy Group 2016e).

Shenergy’s main task is to ensure the supply of energy, which is regarded as the fundament that has been mentioned in the reports of 2014 and 2015. This company as the local power producer and gas supplier protects and stabilizes the city’s energy supply. The overall energy oversupply, peak and valley differences continue to increase the reality of contradictions. In the previous year, the city's highest electricity load increased by 11%. Shenergy focused on strengthening the connection between electricity and gas, optimizing the operation mode and widening the channels of resource regulation. It was stated that the power generation enterprises give full play to the competitive advantages in energy consumption and environmental protection, optimize the operation and management of the units as well as expand the market share. The faults of power plants were reduced significantly; especially the gas supply has completed the task of covering the winter peak. On 26.January, 2016, the city's natural gas supply reached 35.06 million cubic meters, i.e. the gas supply was guaranteed for the whole city. In 2015, the company invested more than 300 million yuan in order to investigate and rectify hidden dangers, coordinate the completion of Shanghai gas emergency drills, strengthen the safety of monitoring the submarine oil and gas pipelines. In order to maintain the low status of annual gas accidents, the company published the new law, which is translated as “Safety Production Law”, as the main line and strengthens the implementation of the party and government responsibility (Shenergy Group 2016e).

In terms of financial aspects, Shenergy Group has continuously improved the profitability. In the previous year, the company held a power generation capacity of 24.6 billion kWh. Shenergy shows its rapid growth through the increase of its annual revenue of its contribution to the parent company. By the end of 2015, the total assets of the company were 145.8 billion yuan, up 7.5% compared to over the same period of last year. The total revenue


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of the company was 32.8 billion yuan which denotes a growth of 6.5% compared to the previous year. The attributable net profit to the parent company was 2.94 billion yuan with a growth of 25.1%. In addition, major power projects were successful in achieving smooth production and in contributing to the steady economic growth in Shanghai. The projects concerned equity transformation, emergency reserve station expansion and natural gas pipelines. Among those, there are some projects related to the participation of foreign partners such as Indonesia and Vietnam (Shenergy Group 2016e).

4.2 Stadtwerke Goettingen and sustainability reporting According to the homepage of Stadtwerke Goettingen, this company is supplying gas, water, long-distance heating and electricity (since January 2013) for the whole city with 130,000 citizens. Not only energy but also parking is a product that Stadtwerke Goettingen offers (Stadtwerke Goettingen AG 2016b). The distribution area includes the whole city Goettingen as well as Nörten-Hardenberg and a part of Uslar. Following the global trend of environmental protection, in the 150th anniversary of the gas supply in 2011, the Stadtwerke Goettingen have developed and pursued a new corporate mission. The company will have a change in the energy transition orienting the direction of sustainability. According to the company’s homepage, the company has implemented a number of different projects, such as the 100% electricity production of hydro power, the activation of four biogas engines with an output of almost 2.5 MW as well as numerous support programs for increasing energy efficiency (Stadtwerke Goettingen AG 2016c).

The up-to-date sustainability report of the Stadtwerke Goettingen was released in 2014, which comprises the concept of climate protection, the sustainability strategy, the products and projects in the future, how the company takes care of its employees as well as the sustainable net product (Stadtwerke Goettingen AG, 2016a). This report revealed the basics, ideas and the real activities of the Stadtwerke Goettingen and how the company keeps its sustainable development. The contents of sustainability report of Shenergy and Stadtwerke Goettingen have the same structure that covers the aspects from the product orientation, energy structure to the social activities, the support program for the employees and the financial report of the recent years.

The masterplan “100% climate protection” associates with a self-commitment that the CO2

emission in the urban area will decrease about 10% every five years. The city of Goettingen and the University of Goettingen have participated in the plan to acknowledge the consequences of the climate change in various fields of the urban development. About 60 organizations and companies have joint the process as well, so the masterplan has received much social consensus. One of the goals of this plan is to reduce the greenhouse gas emissions down to nearly zero until 2050. Concretely, the detailed purpose is to reduce the energy demand in every sort of energy power. With regards to the energy structure, renewable energy, such as solar energy and wind power has been developed and the energy efficiency can improve through technology innovation (Stadtwerke Goettingen AG


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2016a). The sustainability strategy follows also this concept. Similarly to Shanghai, technology improvement is one of many focuses in Goettingen to use the generated energy more efficiently. One point that is not mentioned from the report of Shenergy is the reduction of energy demand (Stadtwerke Goettingen AG 2016a). Stadtwerke Goettingen plans to decrease the energy consumption of private households and companies by increasing the environmental awareness of each citizen. Another similarity to Shenergy of Shanghai is the promotion of renewable energy, which encourages both the production and consumption of products from renewable sources such as electricity and gas. Inside the company, the usage of resources is also reduced in order to save more energy and material (Stadtwerke Goettingen AG 2016a).

In addition to the sustainability strategy, Stadtwerke Goettingen stated to foster its human resources, because the qualification of staff is said to determine the success of the company. Therefore, many programs and measures concerning occupational safety, health care and further training have been implemented. Especially creating a corporate culture is a significant personnel policy of Stadtwerke Goettingen that narrows the gaps between distinct generations and keeps the business competences exchanging and growing as the younger employees can learn from their seniors. That means, the sustainability of Stadtwerke Goettingen is related to the sustainable development from the continuous learning and improvement of Stadtwerke‘s employee team. Sustainability is also referred to social welfare as taking the responsibility in the committee work that contributing in an active way to obtain the goal of the region. Outside the company, through various promotions of other aspects, Stadtwerke Goettingen supports the goal of climate protection and stimulates the energy transition. The sustainability report of Shenergy only mentioned the missions and achievements of the company, an aspect about the participation and action of the citizen was not brought up (Stadtwerke Goettingen AG 2016a).

With respects to the products and projects in the future, the company focuses on the increase of clean energy in the energy structure, such as solar power, wind power and biogas. In comparison to Shanghai, hydro power is less used as China has a natural advantage. Stadtwerke Goettingen invests in energy infrastructure that is necessary to safeguard the quality of supply. Thereby, the rebuilding or modernizing of energy infrastructure and the creation of innovation are taken in consideration as well. For instance, modern heating installation for the clients has increased the efficiency and decreased the energy cost up to 25%. Ultimately, the carbon dioxide emissions in the area have declined. Furthermore, the sustainability is integrated in all areas of the value chain that the sources of Stadtwerke Goettingen products are taken into account and classified. Especially, the products that are based on fossil fuels such as natural gas or oil, are finite. The finite fossil raw material is to be used at a minimum level without reducing sales on eco-sacrificing economic success.


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According to Stadtwerke Goettingen, in the process of producing, the source of renewable energy is given priority and in purchasing, more ecological orders have been made. Trading in the Goettingen gas market, Stadtwerke Goettingen strengthens its position as a local energy provider and efficiency service in spite of losing customers to other competitors. According to the report, by the end of 2014, accumulated 2,615 customers (10.5%) of a total of 24,930 customers changed to other gas providers. In the water supply, there was a minor decline noted in the sale of water. Compared to 2013, 47,000 m3 less were sold. The sale amounted to 7.304 million m3 and revenues from the water sale amounted to € 13.6 million, around 200,000 € less than in the previous year. The sale in long- distance heating supply of 2014 reduced from 101.7 GWh to 82.6 GWh due to the weather conditions. Electricity sales in field of combined heat and power station and photovoltaic systems totaled 26.1 GWh. In the previous year these electricity sales totaled 22.6 GWh. The greatest success in the 2014 financial year of the company was an achievement in electricity sale. In 2014, 2,000 new customers were persuaded by the green electricity product, bringing the total to nearly 16,000 customers by the end of this year. Therefore, the sales volume grew to 56.4 GWh, compared with 36.0 GWh in the previous year (Stadtwerke Goettingen AG 2016a).

In terms of financial aspects, sales in 2014 are around € 9.0 million lower, there was a decline from € 97.0 million in 2013 to € 88.1 million in 2014. Turnover in the gas sales also decreased by € 11.6 million. The gas sales – without transported volumes – went down from 1269.8 GWh to 360.3 GWh against the previous year. The warmer weather was the reason for these declines. In contrast to Shenergy that improving the sustainable profitability is supposed to be an important planned task, turnover of Stadtwerke Goettingen depends partly on the weather. In addition to the sales, Stadtwerke Goettingen also invested in renewal and expansion of the distribution network in the gas, water and district heating with € 3.7 million together. Those are the focal investments, besides these, the investments amounted to € 8.0 million in 2014 (and € 4.0 million in 2013) (Stadtwerke Goettingen AG 2016a).

4.3 Comparison of Stadtwerke Goettingen and Shenergy based on environmental reporting

In terms of rules of transparency and disclosures of environmental key performance indicators, the two companies have different approaches. The sustainability report 2014 of Stadtwerke Goettingen is related to the data in 2013 and 2014 that comprised the economic indicators and data of greenhouse gas emissions. Beside the traditional one like in 2012, the disclosure of key indicators was released in another version according to international report standard from the GRI (Stadtwerke Goettingen AG 2016a). The report thereby followed the GRI Guidelines, which was published for the first time in 2014. On the website of global reporting, the rules are distinct for different sectors (GRI 2016e). However, the report of Stadtwerke Goettingen did not consider the sector’s classification of the company. Following the rules, the report includes three criteria: indications of the report, disclosure of


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management approach and performance indicators in supplement sector. The report covers all aspects relating to society, politics and businesses. Therein, the company seeks to balance social, environmental and economic impact on its business and gives the prospects of many engagements in these fields. Since it is based on an international standard, the report of Stadtwerke Goettingen provided the information including the comparability and transparent communication to all relevant stakeholders (Stadtwerke Goettingen AG 2016a). In contrast to Stadtwerke Goettingen, the rules of transparency and disclosure of environmental key performance indicators for Shenergy are not available on the homepage of the company. There can be an official version of general rules for the same SOE companies in the energy industry, but its publication is probably not on hand on the internet so that the data collection is too complex within the frame of this paper.

The emission trading of Stadtwerke Goettingen was not mentioned on the homepage or in the sustainability report. However, the released report in 2012 discussed the carbon dioxide emissions in various energy sources, such as electricity, natural gas, diesel or gas. The emissions of electricity, natural gas and diesel in 2012 reduced compared to 2011 in general, the emission level was lower than the previous year. In addition, according to the current situation that was mentioned on the homepage, the carbon dioxide emissions per person in the city are 20% lower. Instead of trading emissions, Stadtwerke Goettingen concentrated on the emission reduction by investing in energy technology, improving the energy infrastructure and focusing on distributing clean energy. Moreover, the Stadtwerke Goettingen also promised to support the energy transformation of the city by investing marginal five million euro per year. The next goal of the company is a reduction of emissions by 25%. As a consequence, emission trading probably does not play an important role in the company, both in the current stage or in the future or it can be assumed that Stadtwerke Goettingen can be an emission seller. In reality, within the environmental certificate for the environment-friendly company, Stadtwerke Goettingen can be compensated through a premium certificate (gold standard) for the carbon dioxide emissions that the company does not need to avoid (Stadtwerke Goettingen AG 2016a). Shenergy, by contrast, has entered the carbon market and its first trading with the amount of 13,000 tons was reported in the sustainability report 2015. The total energy production of China is increasing and probably continues to increase. According to the given information of the report, Shenergy Group holds many power plants in Shanghai and has recently taken part in many energy projects. Moreover, there is no signal of a slowdown except for some shut down gas plants (Shenergy Group 2016e). Therefore, it can be predicted that Shenergy’s production will increase and emission trading will still play an important role in the future for Shenergy although technology innovation is continuously improving.

With regard to the company structure, Shenergy and Stadtwerke Goettingen hold different forms of management and organization. Shenergy in Shanghai is totally financed and controlled by the state, the whole shares belong to the Shanghai Municipal Government by which the company was formed as a SOE. It is due to the political structure of China that the


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executive system is top-down in every field. The company structure consists of many layers, each layer and each department has its own function. The supervisor is therefore the state-owned Assets Supervision and Administration Commission (SASAC), which is also generally responsible for the SOEs in China (Shenergy Group 2016a). Meanwhile, differently from Shenergy, which shares are owned by 100% by the state, Stadtwerke Goettingen was partly privatized. 50.1% shares of the Stadtwerke Goettingen belong to the city, 48.9% shares are from EAM participations Ltd. and the rest 1% is from the stock corporation Gelsenwasser. That means, Stadtwerke Goettingen’s shares are 50.1% from the state and the shares from other private companies account for 49.9%. The supervision therefore consists of various memberships. Meanwhile, Shenergy is a state-owned committee, which belongs to Shanghai city. The supervision committee of Stadtwerke Goettingen includes the mayor of Goettingen, the business executive of EAM GmbH & Co. KG, Kassel Ltd. and other functional persons, who are responsible for such functions as audit, electricity or laws (Stadtwerke Goettingen AG 2016c).

According to the report the most recent success for keeping the sustainability of Stadtwerke Goettingen is the certification as a climate-friendly company with the "Stop Climate Change" label (Stadtwerke Goettingen AG 2016a). This label delivers the meaningfulness of the ecological, economical savings and the reduction to a minimum of unavoidable greenhouse gas emissions. In other words, the crucial purpose is not only to having a lower cost but also obtaining a practiced climate and resource protection. Moreover, Stadtwerke Goettingen announced the ISO 50001 certification on the website. With the published ISO 50001 in June 2011, the international standards for an energy management system were set up for the first time. Since the end of 2014, Stadtwerke Goettingen is certified according to DIN ISO 50001 (Stadtwerke Goettingen AG 2016a). The environmental certification is not a key aim for Shenergy due to other perspectives of rewarding in different cultures. Shenergy has received its reward in terms of environmental protection aspects. As a result of strengthening and focusing on the technology research and development as well as continuously improving the technology innovation system, the company achieved several patents and received a lot of honors and awards from the nation and the municipality. Energy saving and emission reduction are claimed to be the key of energy enterprises to protect the environment and create low-carbon lifestyle. Other achievements that contribute to the sustainability report of Shenergy are the net coal consumption rates of the plants from the whole Shenergy Group, which have reached a national leading level. Furthermore, Shenergy claims the achievement of “world-class level” in terms of net coal consumption rate and operating efficiency for Waigaoqiao No. 3 Power Generation (Shenergy Group 2016c).

The Environmental Performance Index (EPI) is related to the national level concerning the performance of the whole country. According to a key finding of the EPI report 2016, economic development can on one hand improve the environmental situation of some areas, such as rebuilding sanitation infrastructure (Hsu 2016, p.13). On the other hand, the increase in production, transportation can cause much pollution to the water or air sources, especially,


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the report mentioned about the air problem as a global issue. With regard to the case companies, there is no information available about the direct connection between the EPI and the two companies’ business. However, as a prediction, Shenergy will contribute to the national environmental performance more than Stadtwerke Goettingen since Shenergy’s energy supply is largely distributed in Shanghai metropolis, in contrast to a small city like Goettingen. Moreover, Shenergy also invested in urbanization and modernization projects in many provinces, which also affects the environment in China. The centralization of the political system can somehow intervene in the EPI index of the nation by many state’s policies, which can make sure about the participation and responsibility for the implementation of those policies by Shenergy, since this company belongs to the state.


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In this chapter, greenhouse gas balances are introduced as an example of environmental information disclosure. In the first part, the balance of Stadtwerke Goettingen is described. Estimation of greenhouse gas emissions of Shenergy based on part one is done in the second part. The chapter finishes with the presentation of the results and the implications for Shenergy.

5.1 Study on the greenhouse gas emissions of Stadtwerke Goettingen

In 2013, Stadtwerke Goettingen commissioned a base study to evaluate their corporate carbon dioxide equivalent balance for the years 2011 and 2012. The Study was conducted by the Chair of Production and Logistics of the Georg-August-Universität Goettingen and was followed by two subsequent studies for the years 2013 and 2014 (Lühn et al. 2015, p.1). The aim of the studies is to identify environmental impacts of corporate activities and potential for optimization. It is therefore a tool for internal environmental management, but also helps stakeholders to gather information on the activities and their environmental impacts of Stadtwerke Goettingen. Furthermore the studies are used as a basis for the certification of Stadtwerke Goettingen in accordance to the Stop Climate Change standard version 3 (Lühn et al. 2014, pp. 2-3). The studies only analyze the greenhouse gas emissions based on DIN EN ISO 14064-1 (2012). Further environmental, social or economic indicators are not used (Lühn et al. 2014, p. 2).

The functional unit used in the studies is kg of carbon dioxide-equivalent (CO2e) per year. This unit measures the global warming potential over a given time horizon of a substance. Carbon dioxide (CO2) is the substance used as a reference with a global warming potential of 1kg CO2e/kg. The global warming potential of other substances identified in the studies is calculated in reference to this. The global warming potential of methane for example is 30 kg CO2e/kg (Lühn et al. 2015, pp.7-8). The use of this functional unit makes different processes, sectors or organizations comparable with regard to greenhouse gas emissions. The reviewed sectors of Stadtwerke Goettingen are water supply, gas supply, heat supply, natural gas fueling stations, electricity distribution, electricity production from renewable sources, parking services and administration (Lühn et al. 2014, p. 4). These sectors are divided into 4 scopes. Scope 1 describes the direct greenhouse gas emissions of a sector, while scope 2 describes the energy-related indirect emissions. An example for scope 1 emissions is the sum of emissions of the combined heat and power plants from burning fuels (Lühn et al. 2014, p. 15). Scope 2 emissions are for example emissions which occurred in the production of

5 Greenhouse gas emissions of Stadtwerke Goettingen and Shenergy


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electricity used by Stadtwerke Goettingen (Lühn et al. 2014, p. 10). Scope 3 upstream and scope 3 downstream describe indirect upstream respectively indirect downstream emissions (Lühn et al. 2014, p. 9). The scope 3 emissions originate from the supply of energy sources and input materials, usage of products from Stadtwerke Goettingen, waste disposal and approach and departure as well as business trips of employees (Lühn et al. 2014, p. 5). Furthermore, emission factors are needed to calculate the emissions caused by corporate activities. Those emission factors are a quantitative description of the link between processes or usage of a substance and the greenhouse gas emissions (Lühn et al. 2014, p. 29).

The results of the study for 2014 are shown in table 5.1 and table 5.2. The total amount of greenhouse gas emissions in 2014 was 298,216.41t CO2e. Compared to 2013 this means a decrease of 19.9%. The sectors contributing mostly to the emissions are gas and heat supply, while gas supply has the strongest influence by far. In both sectors the emissions could be reduced compared to 2013. The reason for this decrease is in both cases the reduced demand. The emissions from electricity distribution increased 30.8%, due to higher demand. In the sector water supply, the emissions decreased because of a lower gas usage in the water processing (Lühn et al. 2014, pp. 43-54).

B. Table 5-1: Emissions by sector

Sector Emissions 2013 in kg CO2e

Emissions 2014 in kg CO2e

Change in percent

Water supply 125,153.75 103,433.12 -17.4

Gas supply 345,609,226.26 277,254,416.77 -19.8

Heat supply 27,704,888.31 22,055,201.35 -20.4

natural gas fueling stations

212,110.04 235,995.07 +11.4

electricity distribution

101,043.29 132,190.80 +30.8

electricity production from renewable sources

10,090.70 9,729.34 -3.6

parking services 5,609.38 5,258.26 -6.3

administration 431,540.31 386,965.07 -10.3

Source: own illustration based on Lühn et al. 2014, pp. 44-54

Table 5.2 shows the emissions by scope. Emissions from scope 1, which are the direct emissions, are a small part of the total emissions. They originate mainly from the sector heat


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supply (burning of fuel in the combined heat and power plants). Scope 3 downstream emissions are the main part of the total emissions, originating from the burning of gas by the customers of Stadtwerke Goettingen (Lühn et al. 2014, pp. 52-53).

B. Table 5-2: Emissions by Scope

Scope Emissions 2013 in t CO2e

Emissions 2014 in t CO2e

Change in percent

1 21,781.29 15,691.91 -28.0

2 15.91 4.03 -74.7

3 upstream 47,075.85 44,224.59 -6.1

3 downstream 303,206.18 238,295.88 -21.4

total 372,079.23 298,216.41 -19.9

Source: own illustration based on Lühn et al. 2014, pp. 52-53

5.2 Estimation of greenhouse gas emissions of Shenergy Unlike Stadtwerke Goettingen, Shenergy does not publish a carbon dioxide equivalent balance or other information on their greenhouse gas emissions. Therefore, this part provides an estimation of Shenergy’s greenhouse gas emissions. The only information Shenergy publishes is about their installed capacity for electricity production, utilization hours of coal-fired power plants and the amount of distributed natural gas. This data can be found in table 5.3.


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B. Table 5-3: Data published by Shenergy9

Technology Installed capacity in MW in 2015

Capacity share in 2015

Utilization hours in 2012

Distributed amount of natural gas in m3 in 2015

Total 7,580 7,430,000,000

Gas 0.25

Coal 0.57 5,428

Nuclear power

0.05

Hydraulic power

0.09

Source: own illustration based on Shenergy Group 2016f; Shenergy Group 2016g; Shenergy Group 2016h

With only this data given, it is not possible to create a detailed carbon dioxide equivalent balance like the one for Stadtwerke Goettingen. Detailed insights into the company’s processes are necessary for such a purpose. Nevertheless, an estimation of greenhouse gas emissions originating from electricity production and natural gas distribution is carried out based on the emission factors given in the carbon dioxide equivalent balance of Stadtwerke Goettingen.

Emission factors for the different electricity production technologies of German energy company E.ON are available in the study for Stadtwerke Goettingen (Lühn et al. 2014, pp. 38-40). These are used to calculate the emissions caused by the electricity production of Shenergy. Therefore the electricity output per technology is needed. It can be calculated via the installed capacity and the utilization hours. The installed capacity per technology is given from the data Shenergy published. But Shenergy does not distinguish lignite coal from hard coal. Therefore the proportion of lignite and hard coal usage in whole China is used as the proportion for Shenergy’s coal-fired power plants. According to Bundesanstalt für Geowissenschaften und Rohstoffe (BGR), China used 145.0 Mt of lignite coal and 4,010.3 Mt of hard coal in 2015 (BGR 2015, pp. 129/137). The utilization hours for coal-fired power plants in 2012 are published by Shenergy. In the absence of other data utilization hours of German power plants were used for the other technologies (BDEW 2013, p. 21). A summary of the used data is shown in table 5.4.

9 Shenergy also published the amount of liquefied gas distributed in 2015, but they did not defined what kind of gas is meant by that. Stadtwerke Goettingen only distributes natural gas and therefore emission factors are given for natural gas only (Lühn et al. 2015, p. 33). For this reason the liquefied gas is not included in the estimation.


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B. Table 5-4: Basic data for electricity production facilities of Shenergy

Technology Capacity share Capacity in MW Utilization hours Emission factor in g CO2e/kWh

Gas 0.25 1,895 2,640 411.5

Lignite coal 0.02 151 5,428 1,085

Hard coal 0.55 4,170 5,428 833.6

Nuclear power

0.05 379 7,800 32

Hydraulic power

0.09 682 3,750 2.8

Source: own illustration based on BDEW 2013, p. 21; Lühn et al. 2014, pp. 38-40; Shenergy Group 2016f; Shenergy Group 2016g

Shenergy is, unlike Stadtwerke Goettingen, not just a distributor of gas, but is also responsible for production, purchasing and pipeline transmission (Shenergy 2016c). The emission factors given in the study for Stadtwerke Goettingen only relate to distribution (Lühn et al. 2014, pp. 11-14). Therefore the other parts of Shenergy’s gas processing are not considered. To calculate the emissions, the calorific value of the distributed natural gas is needed. The calorific value for natural gas ranges from 8.83 kWh/m3 to 10.36kWh/m3, depending on the quality (Konstantin 2013, pp. 222-223). The mean value is used for this calculation. A summary of the used data is shown in table 5.5.

B. Table 5-5: Basic data for natural gas distribution of Shenergy

Distributed amount of natural gas in m3

in 2015

Calorific value in kWh/m3

Emission factor in kg CO2e/kWh

Natural gas 7,430,000,000 9.595 0.03

Source: own illustration based on Konstantin 2013, pp. 222-223; Lühn et al. 2014, p. 33; Shenergy Group 2016h

5.3 Results and implications According to the estimation, the electricity production facilities of Shenergy produced a total output of 33,969.47 GWh in 2015. The total amount of emissions was 21,915,919.76t CO2e. Shenergy relies strongly on coal-fired power plants, which account for 69% of total electricity production. Therefore and because of the high emission factors of lignite and hard coal, they account for 86% of total emissions in electricity production. Nuclear and hydraulic power generation technologies are the cleanest technologies concerning greenhouse gas emissions, but account only for 16% of electricity production. Shenergy holds about 30% of


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the electricity production capacity in Shanghai (Shenergy Group 2016f). A summary of output and emissions of Shenergy's electricity production facilities is shown in table 5.6.

B. Table 5-6: Output and emissions of Shenergy's electricity production facilities in 2015

Technology Electricity production in GWh Emissions in t CO2e per year

Gas 5,002.80 2,058,652.20

Lignite coal 818.37 887,931.08

Hard coal 22,633.85 18,867,574.98

Nuclear power 2,956.20 94,598,40

Hydraulic power 2,558.25 7,163.10

total 33,969.47 21,915,919.76


Shenergy delivered natural gas with a total calorific value of 71,290.85 GWh to its customers, which caused greenhouse gas emissions of 2,138,725.5t CO2e. Shenergy covers about 90% of the gas market of Shanghai and serves 6,570,000 household (Shenergy Group 2016h). Table 5.7 shows the results for natural gas distribution of Shenergy.

B. Table 5-7: Emissions of Shenergy's natural gas distribution

Total calorific value in GWh Emissions in t CO2e per year

Natural gas 71,290.85 2,138,725.5


Compared to Stadtwerke Goettingen, the greenhouse gas emissions of Shenergy are much higher in total. The first and most obvious reason for this is the different scale of the companies. Shenergy serves a bigger market as Shanghai has 23.74 million inhabitants (2015), while Goettingen is about 120 times smaller with 116,650 inhabitants in 2013 (Statista 2016b). Furthermore, Shanghai is home to large industrial companies. This adds up to a higher energy demand. A second reason for the differences is the business models of the companies. Stadtwerke Goettingen acts mainly as a supplier of water, gas, heat, electricity and other services, while Shenergy is in addition involved in the production of gas and electricity. Stadtwerke Goettingen produces heat and small amounts of electricity from renewable energy sources. But these activities contribute little to the greenhouse gas emissions. Therefore, is a comparison of the total greenhouse gas emissions of Stadtwerke Goettingen and Shenergy not meaningful.


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The studies for Stadtwerke Goettingen exposed saving potentials and contributed to the understanding of internal processes. Especially the switching of electricity supply reduced the emissions. The main conclusions were that heat and gas supply are the main contributors to greenhouse gas emissions and that those emissions depend highly on demand. Furthermore a detailed description of information and data on activities is necessary for the carbon dioxide equivalent balance and is therefore fostered by these studies (Lühn et al. 2014, p. 62). These advantages would also be available to Shenergy, if a detailed analysis was conducted. Nevertheless the simple estimation provided above shows the saving potential in a broader scope. The main reason for Shenergy’s greenhouse gas emissions is the high proportion of coal-fired power plants. For a reduction of emissions Shenergy would have to perform structural changes in their electricity production sector.


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In the past few years, sustainability reporting became more important in China, but has not reached the level of Germany yet. The weaker reporting situation in China is based on the historical development of the economy and the political system. Until 1991, all companies in China were state-owned and did not disclose any information to the public (Hong Yang et al. 2015, p. 32). Therefore, sustainability reporting was seen as a cost burden for a long time. Additionally, the fear of potentially negative impacts of voluntary reporting blocked its development (Hong Yang et al. 2015, pp. 35-36). Also pressure from external factors like competition or non-government organizations is lower in China, especially for SOEs (Weber 2014, p. 304). Limited foreign investments lead to absence of influence from foreign stakeholders and therefore little pressure to change sustainability reporting behaviour (Weber 2014, p. 305). But with the opening of the Chinese economy and growing international relationships of the companies, the view of the government as well as managers changed. Sustainability reporting was seen as way to improve competitiveness by the government and some managers saw it as a chance to improve their company’s image (Hong Yang et al. 2015, pp. 35-36).

Although sustainability reporting is improving, the environmental performance of the Chinese economy appears to be poor. Air pollution (Zhang et al. 2016) or water pollution (Deng et al. 2016) are major issues in China. A gap between improving sustainability reporting and poor environmental performance exists. Obviously, reporting is not the solution to environmental problems, but the case of Stadtwerke Goettingen shows the potential of detailed reporting. On one hand, it helps the organization to improve environmental performance and on the other hand, it can stimulate the interest of other stakeholders and the public in environmental issues. The development of sustainability reporting in China appears to be a step in the right direction. But the willingness of the government and the companies to improve environmental performance is necessary to achieve success. It is a moot point how willing they are to risk short-term economic success in exchange for environmental performance. The case of Shenergy highlights this. Shenergy produces a vast amount of greenhouse gas emissions with their coal-fired power plants. But in an economic centre like Shanghai, the security of energy supplies is very important for the whole economy. As an energy company, the products of Shenergy have a strong influence not only on the economy but also on society. It therefore remains to be seen whether Shenergy will face stricter regulations in the coming years.

The sustainability reporting and information disclosure appears to be weak from a foreign point of view. The sustainability report is only available in Chinese and its quality cannot be judged as a consequence. Other information about their operations is scarce. As it is a SOE, it is possible that Shenergy reports to the government in a detailed manner, but resigns to

6 Discussion


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report to the public. The reporting of Datang International Power Generation Co. Ltd. differs from the reporting of Shenergy. Their annual report is available in English and contains information on emissions and social responsibility (Datang 2013, pp. 17-31). Datang is based in Beijing, but listed on the stock exchanges of Hong Kong, Shanghai and London (Datang 2013, p. 203). The international relationships are likely the reason for the different reporting. Shenergy’s activities concentrate on the metropolitan area of Shanghai with some projects in Southeast Asia. Therefore Shenergy is not under pressure to improve their sustainability reporting.

The weak reporting also affects the quality of data used in chapter 5. Data from other contexts were needed to calculate the greenhouse gas emissions. The emission factors did not refer to Shenergy or Chinese companies, but were from the studies for Stadtwerke Goettingen. As a consequence they do not fit the properties of Shenergy’s activities. The average utilization hours of German power plants in 2012 were used, except for the coal-fired power plants. But the ones published by Shenergy are from 2012, while the capacities are the ones from 2015. Furthermore the capacity shares do not add up to 100%, which means another source of inaccuracy. The calculated electricity output (33,969.47 GWh) is higher than the one published by Shenergy for 2015 (26,100 GWh) (Shenergy Group 2016f). The reason for this is probably the data for utilization hours of German power plants. They differ from the utilization hours of Shenergy, because of different market conditions in Germany, the merit-order-effect and flexibility and availability of single power plants (BDEW 2013, p. 21). But the results showed the major contributor to Shenergy’s greenhouse gas emissions, namely the coal-fired power plants. The creation of a meaningful and detailed greenhouse gas balance is only possible with insights into Shenergy’s processes, which are not available.


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Nowadays, environmental protection is supposed to be a global issue in every industry. In the investigated energy industry, many companies have used environmental reporting as means of communication. Obviously, the reports are different among many countries as each country has its own way of reporting. The focus in this paper is the comparison between Germany and China, especially the two representative companies: Shenergy Shanghai and Stadtwerke Goettingen. The similarities and differences depend basically on the culture, the society and the political system that were substantiated in the sustainability report and other aspects concerning environmental reporting, such as the rules of transparency and emissions trading.

The second chapter delivered an overview of the historical development of China’s economy. The transition to the market economy and the investment in industry and service sector has caused the Chinese economy to grow at a fast rate. The Chinese economy continues to grow and has now the second highest GDP. Shanghai plays an important role in the nation’s economic development. In contrast to Shanghai, Goettingen is only a small city in Germany. These two cities are different from each other from the population, the size and the focus as well. Therefore, their influences on the environment issue of the nations are also distinct. The third chapter focused on the energy sector of Germany and China. The differences and similarities between those countries were also elaborated on. The energy structures of these two countries are slightly different about the components and the proportions. Nevertheless, Germany and China have the same direction of changing that the energy structure oriented in an environmentally friendly way. Much clean energy from renewable resources is encouraged to be widely produced and consumed. The environmental reporting of the countries differs mainly in their state of development.

Based on general knowledge from chapter 3, the two case companies, Shenergy and Stadtwerke Goettingen, were investigated in chapter 4. In terms of company structure, Stadtwerke Goettingen is a partly privatized company. Meanwhile Shenergy is a SOE. Stadtwerke Goettingen is mainly a supplier of water, heat, gas and electricity, while Shenergy acts additionally as a producer of electricity and gas. In chapter 5, greenhouse gas emissions for both companies were described. For Stadtwerke Goettingen, a detailed study exists, but the emissions for Shenergy had to be estimated. It was shown that both companies can hardly be compared with regard to greenhouse gas emissions, because of their different business models. But Shenergy emits significantly more greenhouse gas than Stadtwerke Goettingen. Furthermore it was shown, that the coal-fired power plants are the main contributor to Shenergy’s greenhouse gas emissions.

7 Conclusion


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The findings of this paper concerning the research questions are that sustainability reporting in Germany is further developed than in China. Organizations in China pursue this reporting for few years. Until now, parts of sustainability reporting are yet underdeveloped in China. The sustainability reporting in China is a way to foster good environmental performance, but it will take time until significant effects take place.

The main difference concerning sustainability reporting between Stadtwerke Goettingen and Shenergy is the disclosure of environmental information. Stadtwerke Goettingen publishes a detailed greenhouse gas balance on a yearly basis. This balance shows the global warming potential of nearly all corporate activities in a detailed and scientific manner. Shenergy on the other hand publishes, at least in English, only very little information. The sustainability report of Shenergy is only released in Chinese and its quality can therefore not be judged.

The reasons for the different sustainability reporting behaviour of the companies are mainly induced by the development of society and economy. The political system in China did, for a long time, not encourage participation of society. Additionally, the companies were owned by the government. The consequence was that no public information disclosure existed. With the opening of the economy this changed, but mainly for companies with international interests. They see sustainability reporting as a necessity to remain competitive. Other organizations see it as a burden. Shenergy has few international relations and those are concentrated on East and Southeast Asia. They probably perceive sustainability reporting to an international audience as not necessary.


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C. Development of Environmental Reporting: Comparison of China and Germany in Chemical Industry

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Authors: Cheng Shen, Ni Liu

The environment, which is considered as the basic premise of human existence and development, has received extensive attention from all over the world. Since individuals have the right to know environmental information at all times and places, environmental reporting, as one of the most important communication tools between companies and stakeholders has become an increasingly more common topic in academia and society.

Extensive studies have been undertaken to investigate the influencing factors, contents, tasks and functions of environmental reporting globally. However, only few studies focus on the differences and comprehensions of environmental reporting among different countries. Furthermore, there exist almost no studies to compare the environmental reporting differences between Germany and China.

In order to close this research gap, this study provides an exploratory study via comparing exists data from two representative chemical companies, Badische Anilin-und-Soda-Fabrik (BASF) and Shanghai Chlor-Alkali Chemical Co., LTD, to investigate the differences in terms of environmental reporting between China and Germany. This study consists of four parts. The following section provides a literature review of environmental reporting, comparison of the historical development of the chemical industry in China and Germany and general information of two companies. The differences in environmental reporting-related issues between two companies and two countries will be presented in the third section to make further comparisons. In the last section, we discuss the future trend of environmental reporting and the problems in environmental disclosure and regulations, which deserve further attention.


1 Introduction


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Various theoretical perspectives can be utilized to understand environmental reporting. A review of relevant literature reveals how environmental reporting has been developed and changed for a number of years and how the influential factors are affecting the way of how companies report their environmental strategies and performance. In order to investigate the environmental reporting as a means of communication in the chemical industry, we further want to understand the market of two countries and make a comparison of the historical development of the chemical industries of China and Germany.

2.1 Literature Review on Environmental Reporting Corporate environmental reporting is defined as the practice of measuring, disclosing and reporting to external and internal stakeholders the environmental and organizational performance (Globalreporting, 2016). It enables stakeholders to assess their relationship with the reporting entity to pursue the goal of sustainable development (Grary et al., 1996). The corporate environmental reporting comprises information communicated to stakeholders about the environmental issues regularly as well as in the case of need (Von Ahen et al., 2004). Companies can provide information concerning all environmental aspects such as emissions, material consumptions, waste, and the corresponding impacts on the environment (Morhardt et al., 2002). Corporate environmental reporting also comprises information about the interdependencies between the environmental and economic issues, which makes environmental reporting one of the most significant manifestations of environment-business interactions using two-way communication processes between customers and companies (Von Ahsen et al., 2004). Components and information of the environmental reporting include a summary of policy, targets, and achievements of environmental efforts, the state of environmental management, the state of activities for reduction of environmental burden, and state of performance of organizations in the social area (Jose & Lee, 2007). Currently, several ways of presenting environmental information can be found, which it can be included as part of the annual report, on the company's website, as part of the sustainability report, or as a solely performed report (Gray et al., 1995). The stand-alone report is not required by any provisions of law (Gray et al., 2001). The environmental information provided in the annual report is often considered as the primary source of communication between the company and its stakeholders. In addition, most existing studies on environmental reporting examine the environmental information originating from the corporate sustainability report. There are few works of literature that are focusing solely on the environmental reporting (Wong, 2012). Environmental reporting can be published as a self-reporting initiative, in the

2 Background


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form of a voluntary report or as mandatory report request by governmental agencies (Jose & Lee, 2007). The environmental reporting is changing over time and varied across different reporting environments. There has been an increasing attention on the role of corporations in combating the climate change and abating the emissions of greenhouse gasses (Berthelot et al., 2003). Environmental reporting as a medium of environmental disclosure was being used to determine the corporates' relationship with society in general and the environmental pressure in particular (Gray et al., 1995).

Renfred Wong evaluated the environmental reporting from the stakeholder's point of view. The information from the environmental reporting will be valuable only if it focuses on stakeholder needs and support their decision-making (Wong, 2012). Findings suggest that the stakeholders tend to prefer a standardized approach from a common framework and also the consistency and comparability of information from the report (Holder-Webb et al., 2009). Another study also showed that the current legislative requirements and voluntary guidance are presenting different requirements on environmental reporting, which also represent that the various information needs of stakeholders across the different groups (Centindamar & Husoy, 2007). Domicile of the company is one determining factor influencing the level of the environmental reporting. Companies originating from developed countries are more likely to report their environmental performance more extensively than the companies that located and operate in a less developed nation (Douglas et al., 2004). Compared to Europe, the environmental reporting level in Asian in general is still behind those in the west (Setyorini & Ishak, 2012). In Asia, there is a trend that the quality of corporate environmental reporting is becoming better, which is due to the regulation imposed by governments, which have motivated of companies to disclose corporate environmental information. National societal pressure seems to play an important role in the environmental disclosure, especially in developed countries such as the UK and Germany (Setyorini & Ishak, 2012). Until 2010, the environmental reporting by U.S. multinational companies has stabilized, while there was a significant rise in both Europe and Japan. The region of origin has increased the importance of environmental reporting practices (Kolk, 2005).

Instead of areas of the company's domicile, the industry sectors are also an influential factor affecting the corporate environmental reporting (Kolk et al., 2001). Many industrial sectors with a substantial direct environmental impact, including pharmaceuticals, chemicals, oil and motor vehicles are more willing to disclose their environmental performance to gain a positive image as an environmentally friendly corporation to their stakeholders (Kolk, 2008). Researchers have conducted a survey by making the division between financial and non- financial sectors in environmental reporting. In financial sectors, the companies in securities and banking are the more active reporter than companies in insurance industries (Davis- Walling & Batterman, 1997). Chemicals and pharmaceuticals industries are the leading industries of the


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frequent environmental reporters, followed by computers, automotive and electronics. Non-industrial industries such as communications and media have a lower tendency in publishing their environmental performance (Aerts & Cormier & Magnan, 2006). Multinational companies, as the most influential companies, are particularly affected by the pressure of corporate governance and social responsibility (Gao, Heravi & Xiao, 2005). Large multinational companies are more active in showing their commitment and to report the activities connected to environmental pollution or other negative potentials in their international trade and production (Kolk 2003).

Although there has been an increasing importance of the environmental report to all stakeholders, there is little extensive literature to examine the direct influential factors on the environmental reporting (Wong, 2012). And the diversity of concerns and approaches in the literature due to the diversity of countries, time periods and investigated groups makes it hard to draw the universal conclusion about environmental report practice and the report would not appear to be a systematic activity (Gray et al., 1995).

2.2 Comparison of the Historical Development of China´s and Germany´s Chemical Industry

The chemical industry, as a traditionally essential part of the German economy, is characterized by the highly concentrated structure (Oxford Economics, 2014). Germany has become one of the largest players in global chemical market (Aftalion, 1991). Compared to the current status of the chemical industry in Germany, China has become the biggest growth market for global companies. According to a survey of European Chamber of Commerce, China is perceived as one of the best regions for investment in a challenging global environment. By contributing more than 10% of the national GDP, China's Chemical Industry holds the third position of China's economy only after textile and machinery industry (Hong & Liu, 2013).

As one of the three distinct centers of independent developments, China, together with India and the Egypt-Arabia-Europe area, has developed early skills in dyeing, glassmaking, gunpowder and fireworks manufacture, etc. (Oxford, 2013). The ancient Chinese discovered many chemical pieces of knowledge long before the Europeans (Adolph, 1922). From the seventh century to the mid-twentieth century, China established a chemical industry, with the employment of power-driven machinery, the use of the methods and equipment invented and discovered in the West, which have been introduced into China (Temple, 1998). Later in 1949, the Communists took over China (Reardon-Anderson, 1986). Initially, the knowledge and skills derived from the early experience and the physical base laid down contributed to the growth of the Chinese economy. After the recovery period, China launched the first Five-Year plan in


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1953, which has the purpose of expanding China's heavy industry including chemical industry. Several plants were set up in Jilin, which became the center of the Chinese chemical industry (Temple, 1998). Chinese chemical products primarily serve the light and agriculture industry. Key areas of chemical manufacturing are organically synthesized products, chemical fertilizers, and basic chemicals (Fairbank & Goldman, 2006). Regarding the industry structure, a large majority of chemical products are manufactured by small-scale plants, which could be built more quickly with relatively lower costs than large, modern plants. Now there are challenges for both multinational companies and state-owned enterprises (Xie et al., 1993).

Compared to China's chemical industry, Germany's historical development of the chemical industry is strongly dependent on the advance of technology. In the 19th century, products including dyes, pharmaceuticals, fibers, explosives, fuels, and other products have entered the consumer economies, agriculture, and machinery industries. Industrial production on a large scale did not start until the 1860s (Hofmann & Budde, 2005). The relatively late development allowed the German chemical producers to choose the best technology available. Germany became the second largest exporter worldwide only ten years after the first funded factory (Meyer, 1982). German chemical industry has success in the field of organic chemistry. By the end of the 1870s, German chemical industry had covered more than half of the world demand for synthetic dyestuffs (Smith, 2011). After World War I, the share had risen to almost to 90 percent. Due to the monopoly of the production, Germany was dependent on the global market. The major players of German chemical industry, BASF, Bayer, and Agfa, exported their products globally, and the export business accounted for around 82 percent of their turnovers in dyestuffs in 1933 (Abelshauser, 2004). German chemical industry had achieved world leadership during the nineteenth century largely depend on the relationship with German academic chemists and the industry. There was close and mutually profitable cooperation in many industry sectors and levels (Meyer, 1982). The collaborations included established academic style research laboratories supported by substantial industry contributions during the late nineteen century, industrially funded organizations, which supported chemical literature and educational institutions, and the politicization and militarization of the academic, industrial symbiosis under National Socialism (Lesch, 2000). Germany had become the dominant actor on the international market and played a strategic role in both world wars. The German dyestuff has stimulated the other industries of Germany and also the chemical industry abroad (Abelshauser, 2004). The organic chemistry has developed after the dyestuff. Not only the big players like BASF and Bayer, but there were also some medium-sized manufacturers specialized in organic chemistry (Meyer, 1982).


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2.3 Companies’ Information The preceding literature review gives us a general impression of the environmental reporting. However, different countries have various environmental reporting systems. In order to investigate these differences between Germany and China in terms of diverse aspects, we decided to carry out an exploratory study via comparing and analyzing available data from two representative companies in practice as a means of the qualitative method.

In this study, we choose the Shanghai Chlor-Alkali Chemical Co., Ltd. and Badische Anilin-und-Soda-Fabrik (BASF) as our research subjects. We focus mainly on the company sizes, products structures, annual profits, energy consumptions and sustainability strategies. All data for comparison is based on the Annual Report and Corporate Social Responsibility (CSR) of these two companies in the year of 2015. The general differences are presented in the following table.

C. Table 2-1: General differences

Differences Units Shanghai Chlor-Alkali BASF

Employees People 1,340 112,000

Overseas sites Yes / No No Yes

Products structures Segment 1 5

EBITs Euro 822,78 million 6,248 million

Energy sources Type 1 (coal) 4 (natural gas mainly)

Disclosure forms Form CSR+AR* Sustainability report

Time to ED** Year 2010 2007

Languages of ED** Language Chinese English and others

Emission data Yes/ No No Yes

* AR= annual report **ED=environmental disclosure

2.3.1 Company Sizes The Shanghai Chlor-Alkali Chemical Co., Ltd is a state-owned listed company in China, which is established in 1992. The company’s main production base is located in Wujing Chemical Area in the central part of Shanghai and Chemical Industrial Zone in the south part of Shanghai. The total area is about 210 hectares and the number of in-service employees reach 1,340 at the end of 2015. This company mainly serves the Chinese local market and does not have any overseas subsidiary. Nonetheless, part of its products are exported to the Asia-Pacific region and some other European


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countries. The firm has international cooperative partners including Bayer, BASF, Huntsman, and Mitsubishi Gas as well (Shanghai Chlor-Alkali Chemical Co., Ltd, 2015).

On the contrary, BASF is the largest privately owned chemical company in the world. It was founded in 1865. As an international brand in the world, the BASF Group has sites in more than 80 countries, customers in over 200 countries, and supplies products to an extensive range of industries. The headquarters of the company is located in Ludwigshafen and its main locations in Germany are Ludwigshafen, Münster and Düsseldorf. According to its annual report, the company employed more than 112,000 people, with over 52,800 in Germany (Basfcom a, 2016). The percentage of German employees in the whole company is about 47.14%. This proportion will be used in this study to approximately get the data for BASF Germany.

2.3.2 Products Structures The products of Shanghai Chlor-Alkali Chemical Company are mainly concentrated in chlor-alkali industry and its by-products, for example, sodium hydroxide, chlorine, chlorine products, polyvinyl chloride plastics resin and the products. As stated by its annual report, the company can annually produce 720,000 tons of sodium hydroxide, 720,000 tons of ethylene dichloride and 600,000 tons of liquid chlorine with a total gross profit rate at 9.9% (Shanghai Chlor-Alkali Chemical Co., Ltd, 2015). The detailed data are shown in Table 2.2.

C. Table 2-2: Main business by product of Shanghai Chlor-Alkali Chemical Co., Ltd

Product Operating income

(RMB) Operating cost

(RMB) Gross profit rate (%)

PVC 494,916,263.20 575,229,431.08 -16.23

Sodium hydroxide 1,282,836,609.51 940,728,848.52 26.67

Chlorine products 2,147,385,018.64 1,895,920,517.00 11.71

Total 6,124,554,444.71 5,518,452,007.04 9.90

Source: Annual report Shanghai Chlor-Alkali Chemical Co., Ltd, 2015

However, the products structure of BASF Company is not as simple as Shanghai Chlor-Alkali Chemical Company. The main business of BASF Group can be divided into five segments, which are Chemicals, Performance Products, Functional Materials & Solutions, Agricultural Solutions and Oil & Gas. There are dozens or hundreds of types of products under each segment (Basfcom b, 2016). Figure 2.1 below displays the details of the proportion of total sales for each segment.


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C. Figure 2-1: The proportion of total sales of BASF Group in 2015

Source: BASF Report 2015

The comparison of the two companies’ products structure indicates that the Shanghai Chlor- Alkali Chemical Company sites an upstream position in the value chain and has less product diversity. In other words, the Shanghai Chlor-Alkali Chemical Company is one of the raw material suppliers of BASF (Shanghai Chlor-Alkali Chemical Co., Ltd, 2015).

2.3.3 Annual Profits In 2015 the Shanghai Chlor-Alkali Chemical Company earned a sale at RMB 143,024,579. In this study, we choose an exchange rate at around RMB 7.5 to the Euro, this leads to an annual profit of Shanghai Chlor-Alkali Chemical Company at about € 19.07 million. Its operating income (EBIT) is about RMB 6,170,874,223 (about € 822.78 million), which has decreased 12.04% than last year. The company is not allowed to pay dividends (Shanghai Chlor-Alkali Chemical Co., Ltd, 2015).

Due to a slow growth in the global chemical industry, the sales of BASF Group decreased by 5% to € 70,449 million, while the Chemicals segment declined by 14%. The income from operations (EBIT) for the whole company reaches € 6,248 million, which is 18.07% lower than the level of the previous year. However, the BASF share is 1.2% above the previous year’s closing price, trading at € 70.72 at the end of 2015. There is a dividend of € 2.90 per share in 2015 which increases 3.6% than last year (Basfcom b, 2016).

To multiply the EBIT before special items for chemical segments (€ 2,156 million BASF, 2015) with German employee rate 47.14%, we can get the EBIT for BASF Germany chemical segment is about € 1,016.33 million. This number is about 1.24 times larger than the EBIT of Shanghai Chlor-Alkali Chemical Company (€ 822.78 million), which means BASF Company holds not only a better profitability, but also better performance since it can draw extra dividends for shareholders.


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2.3.4 Energy Consumptions As reported by the CSR of Shanghai Chlor-Alkali Chemical Company, the energy consumption per RMB 10,000 turnover reaches 1,375 tons of standard coal, which is 6.7% larger than the annual plan. Its comprehensive energy consumption achieves 553 thousand tons of standard coal, 8.9% below the level of the previous year. The number of comprehensive energy consumption decreases annually (Shanghai Chlor-Alkali Chemical Co., Ltd, 2015).

The total energy consumption of BASF is 37.1 million MWh and consists of natural gas (83%), heating oil (0.6%), coal (2.7%) and residual fuels (13.7%). Its primary energy demand in 2015 is 57,262 million MWh, which is 2.88% less than last year. The energy efficiency is 599 kilograms of sales product per MWh, which is 1.87% more than 2014 (Basfcom b, 2016). The information about the coal consumption in tons of standard coal is not available in the report of BASF.

Since the units of the energy consumption of two companies are different, we cannot compare them directly. Nevertheless, the data above can demonstrate that the Chinese energy source composition is mainly coal, which is less climate-friendly and less efficient. Seeing that most of BASF energy source is eco-friendly nature gas (83%), German company in improving building energy efficiency is more advanced than Chinese company.

2.3.5 Sustainability Strategies One of the most important parts of CSR or sustainability report is sustainability strategies. As stated in CSR of Shanghai Chlor-Alkali Chemical Company, the company is committed to save energy and reduce emission, by means of operating energy-saving projects like using production machines more efficient, optimizing the integration of Wujing area and saving nonproductive energy, etc. As one of the first carbon emissions trading pilot units in Shanghai, the company also tries to make the use of national carbon emissions policies more appropriately. In 2015, the total carbon trading amounted to RMB 9.38 million (around € 1.25 million). Another important sustainability strategy is recycling of resources. One of the by-products of the Chlor-Alkali industry: saline water used to direct discharge after treatment. Now, after cooperation with a downstream plant, the salt water will be recycled. The chlorine will be supplied to a downstream plant after electrolysis of recycled salt water so that circular economy can be achieved. Besides, the company also achieved an environmental information monitoring mechanism in 2015. The company has six monitors to supervise the emission of waste water, cyclooctadiene (COD) and ammonia nitrogen with 99,97% data transmission efficiency and 100% passing rate (Shanghai Chlor-Alkali Chemical Co., Ltd, 2015).


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Several methods are utilized to save energy by BASF. One of the most important components of energy-efficiency strategy is “Verbund system”, for example, “Production Verbund”, which smartly links together production units with energy demand so that extra heat can be used as energy in other plants and by-products of one plant can serve as feedstock in other plants. In this way, around 17.6 million MWh have been saved in 2015, which leads to a savings of 3.5 million metric tons’ worth of carbon emissions (Basfcom b, 2016). Since there are 5 segments in BASF, there are also diverse appropriate “verbund” strategies for each segment. Furthermore, energy efficiency is not the only goal that BASF tries to achieve. The company is also committed to reduce air and water and soil emission, make use of renewable resources, protect crop and support preservation of biodiversity along the value chain. There are several corresponding strategies under each goal. An example for reducing water emission is sustainable water management. The company set up a group with globally appropriate standards to aim at using water as efficiently as possible, identifying savings potential and offering customers solutions that help cleanse water, use it more efficiently and reduce pollution (Basfcom b, 2016).

In general, the sustainable strategies of BASF cover a wider range than Shanghai Chlor-Alkali Chemical Company and the goals for each strategy are more detailed in BASF report.


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The preceding introduction of environmental reporting gives us an understanding of the

definition and affected companies’ willingness of environmental performance disclosure.

However, there is a clear tendency that environmental reporting has broadened to a

more inclusive form as sustainability reports present social, environmental, and financial

aspects (Kolb, 2005).

3.1 Basics and Development of Sustainability Reporting

The percentage of purely environmental reports from Fortune 500 declined to 13% in 2005 (Kolb, 2005). Since the first publication of the environmental reports, the number of corporations which started to publish environmental, social and sustainability policies and performance has increased substantially. Sustainability reporting has emerged as a common practice of twenty-first-century business (Ballou et al., 2006). Companies primarily produce a substantial stand-alone paper or web-based report. Corporate sustainability reporting involves reporting financial and nonfinancial information to stakeholders. The reports provide information to various stakeholder groups on the reporting organization's ability to manage key risks associated with the organization that is of concern to the stakeholders (Kolk, 2003). Companies have the chance to utilize the practice of releasing reports containing nonfinancial information aimed to inform stakeholders on the effectiveness of the organization in managing different risks that threaten its ability to satisfy the stakeholders (Levin & Clark, 2010). The corporations realize that the sustainability reports, which contain large quantities of diverse nonfinancial performance measures, present a leading indication for improving and predicting future financial results (Kolk, 2005). According to a survey conducted by KPMG, about 74 percent of over 1,600 companies worldwide considered economic reasons as an important driver for their sustainability practice (KPMG, 2013). The reporting of sustainability issued by the organization is an important part of the sustainability agenda and initiatives by governmental or independent organizations to assist companies with sustainability reporting. The non-financial CSR reporting is usually published on a voluntary basis. However, some countries have issued the regulation to make disclosure on CSR issues mandatory (Dilling, 2010). Currently, there are several sustainability frameworks to help the organizations to improve their sustainability performance by reporting on it so that they can have a positive impact on society, economy, and sustainable future. The guidelines of the Global Reporting Initiative (GRI) were voted among the most helpful and beneficial reporting frameworks followed by CDP and Dow Jones Sustainability Index (Unerman et al., 2007). The Global Reporting Initiative provides the trusted and widely used standards for sustainability reporting. GRI have strategic partnerships with international organizations

3 Environmental Reporting-Related Issues


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including OECD, UN, Global Compact, UNEP and ISO (Globalreporting, 2016). The situation in the different countries can link to the level of regulatory and societal attention. Government and market regulators play multi-faced roles in promoting sustainability reporting. Some countries have the legislation on environmental and social reporting; some governments encourage the disclosure of environmental information instead of mandatory reports (Kolk, 2007). The development of European environmental regulation began with the creation of environmental policy in European Economic Area (EEA). The nations within the EEA were required to protect, preserve, and improve the quality of the environment. However, there were no mandatory regulations for individual companies to publish their environmental performance and policy in sustainability report (Rumpelt, 2004). Based on the policies in the EEA, the EU began to guide the environmental reporting issues. It required companies to disclose in their annual reports details of their environmental policy, activities, and the effects, details in their accounts of the expense of environmental programs, and the environmental risks and future environmental expenses (Gray et al., 1996). Apart from the EEA regulation, the European Union's Environmental Management and Audit Scheme (EMAS) encourage organizations to improve their environmental measures. Companies, who register for the scheme, are permitted to use an Eco-logo and are rewarded by various stakeholders. Companies are expected to set their environmental performance objectives, initiate a pattern of eco-auditing to assess their environmental performance and provide information needed to develop their environmental management systems (Gray et al., 1996). The above two models, which are of voluntary nature, aim to improve the perception of sustainability reporting accountability.

BASF received an award for the best German sustainability report in 2013 by the annual conference of the German government's council for sustainability development (Rumpelt, 2004). BASF served as a pilot enterprise in the development of the framework for integrated reporting of the international integrated reporting council and also has been active in the IR business network since 2014 (Basfcom a, 2016). Aligned with the sustainability reporting, BASF's corporate website has been judged to be the most comprehensive corporate website in the field of online sustainability communications. BASF publishes topical information, including news and case study updates, and offers extensive GRI-based performance data, which brings benefits to the stakeholders of BASF (Basfcom b, 2016).The company defined the corporate purpose as “ we create chemistry for a sustainable future,” which gives the impression that sustainability is of strategic level in its corporate value. BASF also showed a strong focus on how to create values in their corporate report and how the financial and non-financial values drive the essential contribution to the corporate success. This demonstrates that the non-financial value drivers, including environmental factors, along with aspects of society and their business partners form the foundation of their actions (Basfcom a, 2016). As the emphasis in the corporate social report, the


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company revised and updated goals for safety, security, health, and environmental protection. They addressed energy and climate protection and described the relevant responsibilities, requirements and assessment methods of the environmental issues (Abelshauser, 2004). Detail information about the environment protection throughout the value chain can be found in the management report. They listed several environmental goals in the future and also showed their performance on their environmental progress. As an energy-intensive company, BASF also committed to energy efficiency and global climate protection. As an example, they want to reduce the greenhouse gas emission in their production and along the entire value chain (Basfcom b, 2016).

After the launching of the Open Door Policy in 1978, China has been undergoing an economic reform (Xie et al., 2010). This results from a change from agriculture to manufacturing as the dominant source of the gross domestic product. China is currently in a new stage of economic development and has built up a socialist market economy, where the market is functioning as allocating resources under the government's macro-regulation (Ziming, 2012). Along with the fast economic boost, China experienced insufficient environmental protection; this situation was changed slightly due to the external pressures from the expansion of foreign trade (Noronha et al., 2013). The Chinese suppliers, who supply their products to international companies, are facing the higher requirements of corporate sustainability disclosure by their foreign partners (Marquis & Qian, 2013). Since the mid-80s, many Chinese government entities have been transformed to publicly trade state-owned enterprises (SOEs). SOEs, which play a significant role in Chinese economy, are still keeping considerable ownership and controlled by the government (Ziming, 2012). There is a lack of the rule of law and the lack of government transparency, which can obscure the government's priorities and decision-making process. SOEs, as the key drivers of Chinese business market, face the ambiguity in how to interact with the government. They hold the legitimacy and receive support and protection from the government agencies by which they were founded (Chinadialoguenet, 2016).

Aligned with the development of the economy, concerns for environmental protection have become the trend among enterprises in China. Environmental protection is not only important for companies to have economic progress and to sustain continuously profit making, but also to promote social awareness of sustainability development (Marquis & Qian, 2013). The Chinese government, government agencies, stock exchanges, and non-government organizations are pushing the CSR to become more acknowledged by Chinese corporates (Noronha et al., 2013). The government of China has introduced a number of regulations and rules to create incentives for improving sustainability practices and promoting standardization of corporate information disclosure. In 2006, the Shenzhen stock exchange was the first organization that encouraged its listed enterprises to issue voluntary CSRs including the environmental


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protection and sustainable development information to all stakeholders (Chinadialoguenet, 2016). In the same year, the government had published the article 5 of the 2006 Chinese Company Law; it requires companies to take social responsibility in their company operations (Kolk, 2010). There is no apparent difference in the way the law applies to SOEs or private-owned corporations. Although firms face different pressures depending on their characteristics and structure, both types of the companies share same likelihood of issuing a corporate sustainability report. SOEs are striving to develop a positive international image, while private-owned companies want to communicate with the government to gain more allocation of resources (Marquis & Qian, 2013).

In comparison to BASF, Shanghai Chlor-Alkali Chemical Co., Ltd began to publish the company's annual corporate sustainability report since 2010 (Basforg, 2016). The CSR is downloadable for all stakeholders via the Internet and comprehensively introduced the general sustainability information and goals for environment, safety, and social responsibility. The structure of the report is based on the CSR Guideline for Corporations (SEO-CSR1.0) and is referred to the CSR Guideline for Chinese industrial corporations and organizations, ISO 26000 and other documentations (Emiscom, 2016). In the first part of the report, stakeholders can investigate the general information of the company including the corporate structure and company culture. In the second part, Shanghai Chlor-Alkali Chemical put an emphasis on the social responsibility, including the scientific development, managerial operation, environmental protection, safety, customer relationship, partnership, labor relation and community development. In the third chapter of the social responsibility part, the company mentioned several environmental strategies, including the energy performance contracting. They published their progress in energy saving and emission reduction (Shanghai chlor-alkali chemical co, ltd, 2016). The CSR of Shanghai Chlor-Alkali Chemical Co., Ltd showed the company's effort in constructing a positive image of green production and strong social responsibility to the public. Although the report is not as comprehensive as the BASF report, investors and the public can still receive ideas and evaluate the performance based on the information given.

3.1.1 Basics and Development of Environmental Certification Due to the urgent need for environmental protection, governments from many countries have formulated policies to command and control environmental activities, such as setting energy conservation goals (Junior et al., 2014). However, the command and control policies are often criticized due to inflexibility, cost-ineffectiveness, and many other reasons. Because of the limitations of local control and command policies, governments in many countries have begun to encourage voluntary approaches for industries (Alrazi et al., 2015). Environmental certification, as an effective tool, enables companies to manage the environmental impact, leveraging the competitive


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capabilities, and ensuring that they comply with environmental principles. It is a form of the environmental development and regulation where companies are able to choose to comply with the objectives and predefined processes set by the certification service (Campos et al., 2015). The environmental certification is a form of corporate social responsibility, which enables companies to address their obligation of minimizing the negative impacts to the environment by voluntarily following external regulation and measured objectives (Daddi et al., 2015). There is a growing number of countries worldwide adopting this practice, and many companies choose to implement the environmental certification in order to provide their customers ethical products, improve the image of the company, realize sustainable development, and gain a positive relationship with stakeholders. Several environmental certifications are being applied to the chemical industry (Campos et al., 2015).

One example is the Eco-Management and Audit Scheme (EMAS). As the universal tool, EMAS applies to any kinds of organization to improve the management of their environmental aspects and reach the continuous improvement of company's environmental performance (Testa et al., 2014). It is regulated by the European Regulation EC 1221/2009 and allows any organizations to set up the environmental management system according to its internal characteristics and then identify the most effective solutions for improving environmental performance (Morrow & Rondineilli, 2002). The first EMAS was issued in 1993, the key principles of which, like the voluntary approach to the improvement of environmental performances, were included in the environmental policies of the European Union (Daddi, 2015).

Apart from the EMAS, the International Organization for Standardization (ISO) generates several standards to facilitate cost reductions by minimizing errors and wastes and increases productivity (Campos et al., 2015). As an independent non-governmental organization, ISO is the world's largest developer of voluntary international standards and has a multi-faceted approach to meet the needs of all stakeholders from various industries. ISO 14000, as a family of standards related to environmental management, is designed to minimize the negative effect of the corporations' operations to the environment and developed to help the organization to take proactive approaches to managing environmental issues (Isoorg, 2016). Different environmental challenges, including climate change, can be contributed to meet by ISO with the standards for greenhouse gas accounting, verification, and emission trading, and for measuring the carbon footprint of products (Isoorg, 2016).

The published standard ISO 14001 is the world's most recognized framework for environmental management systems, which helps organizations to manage the impact of their activities on the environment and is equivalent to the national level (Testa et al., 2014). It is available from private accreditation organizations, such as TÜV in Germany and is suitable for organizations of all types and sizes including private, non-profit, and


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governmental (Delmas, 2001). The organizations are responsible for setting their targets and performance measures, with the help of the standard for meeting objectives and goals. The organizations are required to consider all environmental issues relevant to its operations, such water, air pollutions, climate change, and resource efficiency (Potoski & Prakash, 2005). ISO 14001 satisfies the needs for continual improvement of the corporation's environmental systems and approach to the environmental concerns (Delmas, 2001). Currently, more than 188,000 ISO certificates have been issued worldwide, of which 48,000 in Europe and 72,124 in China. Compared to EMAS, ISO 14001 is adopted on a much larger scale globally. ISO 14001 has an important role to play by establishing the minimum standard for environmental management in firms worldwide (Isoorg, 2016). Therefore, they can obtain differential advantages by developing efficient production processes that reduce operational and waste disposal costs (Potoski & Prakash, 2005).

By using energy efficiently, organizations can receive assistance to save money, conserve resources and improve climate change. ISO 5001 is based on the environmental management systems of continual improvement, which is also used for Standards ISO 14001 and ISO 9001. Firms can easily integrate energy management into the overall efforts to improve quality and environmental management. The framework requires the organizations to develop a policy for efficient use of energy, to use data to understand, and make a decision about the use of energy, to continually improve energy management (Isoorg, 2016).

Both of our research subjects are certified with the standard ISO14001: 2004 (Basfcom a, 2016 & Shanghai Chlor-Alkali Chemical Co., Ltd, 2016). Both companies have implemented and continue to maintain an environmental management system, and the scope of the certifications includes research, development, production, sales and distribution of the products. Also, both BASF and Shanghai Chlor-Alkali Chemical Co., Ltd are being certified to the ISO 5001 for their energy management systems. Apart from the above-mentioned certifications, BASF is also practicing Eco-Efficiency Analysis to look at the environmental impact in proportion to product cost- effectiveness and to support customer's sustainable development along the value chain, NSF international and, based on ISO 14040:2006 and ISO 14044: 2006, environmental life cycle assessments. It also followes ISO 14045: 2012 (Basfcom a, 2016).

3.2 The Environmental Performance Index The environmental performance index (EPI) is a joint research project of Yale University (Center for Environmental Policy and Law) and Columbia University (New Haven and Center for International Earth Science Information Network) commissioned by the World Economic Forum and the Joint Research Center of the European Commission. It is a method of numerically marking and quantifying the environmental performance of a nations’ policies. The Index ranks nations' performance on high-


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priority environmental issues. Indicators from the EPI evaluate countries' proximity to globally established targets as well as in the absence of agreed upon targets (Yaleedu, 2016). The central question is: How does an individual nation compare relative to the best performing countries. The index was originated from the Pilot Environmental Performance Index first published in 2002. Between 1999 and 2005, the Environmental Sustainability Index (ESI) was released as the precedence of EPI and was developed to measure the environmental sustainability about other countries (Esty el al., 2010). Constructed through over 20 indicators reflecting national-level environmental data; The EPI has a framework comprised of two overarching policy objectives, to protect human health from environmental harm and protect the ecosystem. The two objectives are divided into nine issue categories, each of which fit under overarching objectives, including high priority environmental policy issues encompassing agriculture, biodiversity and habitat, air quality, climate and energy, forests, fisheries, health impacts, water resource, and water and sanitation. Policy-makers can easily use EPI, which focuses on outcome-oriented indicators and makes environmental data easy to understand and relevant to policy (Yaleedu, 2016). The EPI continuously adapts to global events, political developments, and emerging technologies to stay relevant in a changing international policy landscape. The most recent EPI, the 2016 Index, includes new metrics to capture environmental performance at the national level. For the next generation of environmental policy monitoring, metrics that capture the environmental policy performance at many government levels will become critical (Yaleedu, 2016). To create the EPI, the raw data are transformed into comparable performance indicators to calculate performance High- performance benchmarks are determined through an analysis of ten best performing countries. The EPI methodology has been adapted and replicated at the provincial or sub-regional level to evaluate the environmental performance in many countries like China. China has adapted the EPI framework by adding another category on economic sustainability to reflect the nation's green growth priorities (Yaleedu, 2016). Regard the result of 2016 EPI; Germany ranks 30th out of 180 countries while China ranks 109th. Finland, Iceland, and Sweden rank top places, and Madagascar, Eritrea, and Somalia are the countries with worst environmental performance. Due to the diverse geographical landscapes and fairly autonomous local governments, the Ministry of Environmental Protection’s Chinese Academy of Environmental Planning, City University of Hong Kong, Columbia University and Yale University created a sub-national index as a tool evaluating the country's environmental policy. By giving the rankings of 31 provinces in China, the Chinese government can use the index to track progress toward policy goals (Esty et al., 2011).

As we mentioned above, the EPI only addresses the environmental issues at the national or sub-national scale. It's impossible to evaluate a single industry or moreover, a company's environmental performance based on the EPI indicators. We can only address the conclusion that China’s environmental performance is lagged behind Germany’s environmental performance. The difference between the two countries is


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large. However, in this research paper, we are solely focusing on the chemical industry, and we have chosen BASF and Shanghai Chlor-Alkali Chemical Co., Ltd as our research subjects. We are not able to evaluate the environmental performance of the two industrial companies. Among the nine indicators of the EPI report, the Climate and Energy, Health Impacts, Water& Sanitation, and Air Quality are related to the chemical industry. By overviewing these indicators, the chemical industry, and the industrial companies can know the nation’s environmental performance at a macro-level. The change in these national indicators each year would be the incentives to make adjustments of companies’ environmental operations and the industry can regulate the policies and the market based on the rankings and scores of each indicator (Yaleedu, 2016).

For Germany, as an industrialized country, national data was collected mainly from United Nation (UN) databanks. Data for several indicators such as energy and CO2-emissions can only be approximately determined. Also, the low number of indicators together with the low data quality does not allow the report maker to capture the environmental performance of a nation in its entirety. China is facing the same problem as Germany. The report-maker is unable to make an aggregated EPI due to the lack of clear policy targets for many indicators, the absence of suitable data for some key policy areas, and an inability to evaluate data source properly (Hsu et al., 2014).

3.3 Rules for Disclosure of Environmental Performance In the last few decades, nonfinancial information disclosure, environmental disclosure (ED) in particular, has received growing attention from society as well as from academics (Verbeeten,F. H.,et al., 2016). Capital costs for anti-pollution equipment, recycling and protection policies, environmental management and emission standards, etc. are all important components of ED. The ED tends to diversify widely among firms due to the partially legislated ED Rules (Cormier, D., & Magnan, M. 1999).

Revealing this environmental information could provide not only benefits but also costs to the companies. According to the study of Beierle, T. C. (2003), there are three types of benefits and costs of information disclosure in general. The benefits are supported by three principles, namely, normative, substantive and instrumental principles. The normative principles indicate that the individual has the right of self-protection so that the government has to inform about the risks residents face. Besides, the society needs to set and enforce emission standards to reduce emissions (Graham 2002). Substantive rationales demonstrate that such disclosure could result in new awareness and apprehension of environmental problems and new ways to solve them. Furthermore, a better control of regulators could be achieved by sharing information with government agencies. Instrumental principles argue that revelation improves environmental performance. Companies are forced to change in some manner in order to reduce emissions, increase accident safety and prevent pollution


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On the other hand, there are three types of costs of information disclosure. Firstly, to reveal information requires cost of data collection and reporting. Time, labor, IT- support and financial investments etc. all have significant impact on the quality of the disclosure. Secondly, there exists potential risks of unpredictability and loss of control, since the public is an important participator in the whole process of revelation. On the basis of Fung and O’Rourke (2000), “environmental ‘standards’ are not determined by expert analysis of acceptable risk, but are effectively set at the levels informed citizens will accept.” In consequence, deficient, biased, or imprecise information can misdirect the public, so that the decisions are based on an estimation rather than the reality (Gowda & Fox 1998). Thirdly, the unintended use of information is the other cost of information revelation.

There are two types of ED: voluntary and mandatory disclosure (Carreira, F., et al., 2014). “Mandatory” means the company reveals the environmental information under some legal requirements such as environmental standards issued by International Organization for Standardization (ISO) and International Accounting Standards issued by the International Accounting Standards Board (IASB). On the contrary, companies can also voluntarily publish their sustainable development to build up public support, to attain low-priced capital or to strengthen the firm's reputation as a plausible and dependable commercial or financial partner in public (Cormier, D., & Magnan, M. 1999). However, due to the voluntary character, ED can also be subjective. Seeing that the publication standards can be confirmed individually via negotiating with National Entities or Standard Setting Bodies (Carreira, F., et al., 2014).

In Germany, there is no particular regulation on environmental disclosure (Barbu, E. M., et al., 2014). Therefore, most of the environmental disclosures in Germany are voluntary. Although German reporting routines are mostly based on IRFS-norms, there are no regulatory frameworks for environmental issues but only disclosure guidelines (Blecher, J. 2016). In 1997 the National Institute for Standard-Setting (Deutsche Institut Für Normierung) issued a memorandum called “Leitfaden für Umweltberichte” (Guidelines for Environmental Reports to the Public). The government enacted later a minimum amount of information which has to be integrated into firms’ environmental reports. The targets of the environmental disclosure are all companies in Germany and the target audiences are all corporate stakeholders. There is no differentiation among segments or company sizes for this rule. The minimal information requirements of this report consist of four parts: basic information block, demonstration of significant environmental figures, evaluation of all significant environmental issues and notification of formal requirements. The basic information block has to contain a depiction of the organization’s activities, a demonstration of the organization’s environmental policy and a depiction of the organization’s environmental management system (Barbu, E. M., et al., 2014).


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Meanwhile, a management instrument developed by the European Commission named EU Eco-Management and Audit Scheme (EMAS) is another alternative for German companies. The EMAS Regulation is found on international environmental management standard ISO 14001 with a focus on measurable improvements in operational environmental protection and the publication of the users’ environmental performance (Federal environment agency, 2013). Since 1995, EMAS has been unfolded for voluntary participation by the government. Its core missions are valuing, reporting, and improving companies ‘environmental performance. In the last few decades, the number of registered participants increases steadily (EMAS, 2016).

In China, the environmental disclosure regulation is evolved in environmental policy system (Wang, H., & Bernell, D. 2013). In the 1990s, the Ministry of Environmental Protection (MEP) and the World Bank co-founded the Green Watch program, which evaluated Chinese companies’ environmental performance and published the ratings (Guo, 2005; H. Wang et al., 2004). This Program was then successfully applied entirely in China after 2006 (Jin. Wang, & Wheeler, 2010). Up to 2013, there are three guidelines of ED in China: 1. Environmental disclosure guidelines (A Guide on Listed Companies’ Environmental Information Disclosure) issued by the MEP in September 2010; 2. Shanghai Stock Exchange (SSE)’s environmental disclosure guidelines (Guidelines on Environmental Information Disclosure of Listed Companies on Shanghai Stock Exchange) issued in May 2008; 3. The explanatory statement and guide of the Green Securities Policy (Instructing Opinions on How to Enhance Environmental Protection Monitoring and Management of Listed Companies) released by the MEP in February 2008. Additionally, “China’s corporate social responsibility (CSR) initiative has also built a foundation for voluntary environmental disclosure ordinances.” This fact also confirms the results of a study by Liu, X., & Anbumozhi, V. (2009), which states that the voluntary based environmental information disclosure is mainly caused by government pressure, shareholder pressure and creditor pressure. The content of ED of listed companies includes environmental accounting information, emissions conditions, resource consumption information, environmental management information, etc. in general. However, there are slight differences among those guidelines. For instance, if an environmental accident occurs, the SSE Guidelines force the company to reveal details in two days, and the Guide to the Green Securities Policy requires disclosure within one day (Wang, H., & Bernell, D. 2013).

Although environmental disclosure in China has been increasing over the last few decades, the disclosure level remains still low. Much of the information is limited and includes positive rhetoric lacking in substance (Y. Yang, Li, & Shen, 2011). According to MEP’s Green Securities Policy, Chinese listed companies in 14 highly polluting industries (thermal power, steel and iron, cement, aluminum, coal, metallurgy, building materials, mining, chemicals, oil, pharmaceuticals, light industry, textiles, and leather) have to reveal certain environmental information to public, but there is no clear


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standard for other companies. As a consequence, the disclosure proportion among companies in highly polluting industries reaches 94% in 2008 (Shen & Li, 2010), but the disclosure proportion in other industries and the total average of ED in China is quite low. Besides, Shen and Li (2010) also found that the quantity of the environmental disclosure has increased but with a declined quality. In this respect, as environmental disclosure currently dos not reach adequate attention in China, it can still be improved in many ways.

Concerning BASF’s environmental disclosure, it is integrated into its sustainability report (BASF Group 2015) and is published annually. BASF published its first environmental report in 1988 and published the first integrated company report with a common representation of economical, ecological and social issues in 2003. Since 2007, BASF reveals the environmental information every year in one report (sustainability report). The BASF Report is downloadable for public via Internet (http://basf.com/group), which contains the results of the last fiscal year and the new global goals for environmental, health and safety (Econsense.de, 2012). As stated in the BASF Group report 2015, the corporate purpose of BASF is “We create chemistry for a sustainable future.” Based on this purpose, four strategic principles are designed: adding value as one company; innovating to make customers more successful; driving sustainable solutions; forming the best team. Meanwhile, diverse goals are planed including several goals relating to the environment. For example, in terms of energy and climate protection, the company wants to cover its primary energy demand through the introduction of certified energy management systems (ISO 50001) at all relevant sites with the proportion of 90% and a reduction of greenhouse gas emissions per metric ton of sales product (excluding Oil & Gas, baseline 2002) to -40% in 2020. Besides, the sustainability management is also covered in this report. Three strategies are used for sustainability management, which are identifying significant topics and trends; taking advantage of business opportunities and minimizing risks. In the part of “Responsibility along the value chain”, the corresponding strategies, goals for suppliers, ram materials, energy and climate protection, water and air and soil, etc., currently used methods, machines and current emissions are published (Basfcom b, 2016).

As for Shanghai Chlor-Alkali Chemical Co., Ltd the environmental disclosure is documented as a part of CSR. As a company in 14 highly polluting industries, the company began to disclose environmental information since 2010. The CSR of Shanghai Chemical Company is released annually. The main frame of this report is based on the CSR Guideline for Listed Companies (SEO-CSR 1.0) and is referred to the Guideline to social responsibility of China industrial enterprises and industrial associations, ISO 26000, Guidance on Social Responsibility and other documentations. There is little content related to environmental information in this report. In the third chapter of social responsibility the company mentions some sustainable strategies to


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energy saving and emission-reduction. In this part, the energy consumption, pollutant emissions reduction ratio and the graph of the trend of industrial wastewater emission reduction rate is given. Furthermore, the Environmental management is also involved, including supervision mechanisms of environmental information; monitor VOCs (Volatile Organic Compound) emissions to improve air quality; integration project in chemical industry district wastewater to build a recycling economy system and establishment of emergency plan for environmental emergencies to protect public health (Shanghai Chlor-Alkali Chemical Co., Ltd, 2015). Compared to the ED of BASF, the environmental information disclosure of Shanghai Chlor-Alkali Chemical Company is quite abbreviated and imprecise.

3.4 Emission Trading Schemes The emission trading is also called trading marketable emission permits. It is an economic instrument used to obtain an intended level of environmental quality by the government. A lot of empirical studies have proved that the emission trading method is a cost-effective strategy for controlling environmental contaminants (Rubin, J. D. 1996). According to the study of Dales. J. H. (1968), the basic concept of emission trading consists two steps. First of all, total level of emissions will be limited by the regulators via setting a standard or allocating emission at an appropriate proportion to every enterprise. Secondly, the enterprises can trade their emission permits or remaining permits between each other. Two possible trading methods are available for every enterprise. A company can choose to pollute less than the current standard so that they can sell the rest permits to other companies or keep the rest permits in an emission bank. This permit in the bank can be used in the future or sell to other firms later on. When a firm pollutes more than its current standard, it could borrow or buy permits from other companies (Rubin, J. D. 1996). Trading under a preordained amount of emission brings flexibility that ensures emissions are reduced. Up to dates, an increasing number of countries have adopted such trading systems including the EU, Germany, and China.

Several types of emissions are involved under an emission trading system; one of the most concerned topics is greenhouse gases emissions. As the worldwide largest greenhouse gases trading program and the world’s largest market for carbon, the European Union Emission Trading Scheme (EU ETS) plays an important role in this area (Ellerman, A. D., et al. 2010). In Germany, a national emission-trading scheme, which is based on German national conditions, is adapted to the country. However, as an EU member, this policy is highly dependent on EU ETS (Brunner, S. 2008). The EU ETS was launched in 2005 to cap greenhouse gasses emissions encompassing carbon dioxide (CO2), nitrous oxide (𝑁2𝑂) and perfluorinated compounds (PFCs). It is motivated by the Kyoto Protocol and embedded in EU law (Ellerman, A. D., & Buchner, B. K. 2007). The main principle of EU ETS is to “cap and trade”. The European


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Commission gives a total estimated amount of certain greenhouse gases (cap). Then companies receive or trade emission allowances within this cap. Up to date, 11,000 heavy energy-using installations and airlines in 31 countries are operating this scheme. In 2015 the EU ETS covered about 45% of the greenhouse gas emissions within the EU. Now the EU ETS is in its third phase (2013-2020) with the goal: In 2020, emissions from sectors covered by the system will be 21% lower than in 2005 (European commission, 2016).

As the world’s largest carbon emitter (Han, G.et al. 2012), China is also trying to build an improved emission-trading scheme, especially for carbon emission. Since the legal system of China are different from the Western countries, the Chinese emission rights theory also has different characteristics. In China, all the natural resources are state-owned. The government allocates the right to use the environmental capacity to firms in the form of emission permits. There are two types of markets for emission trading in China: primary and secondary markets. In the primary markets the government allocates the emission permits. Because of the limitation of natural resources, firms receive this allocation not for free but by means of auction. In the secondary market, the emission permits can be traded freely between firms. However, the exploration of Chinese emission trading system is mainly concentrated in the primary market. The secondary market is still not a formed stable trading market at present. Starting in the late 1980s, the Chinese emission trading system has developed nearly 20 years and has been improving via practicing in different regional carbon trading pilots (Wang J.N. et al. 2014). To reduce carbon emissions per unit of GDP by 40– 45% from the 2005 levels by 2020 is the latest goal, which was announced at the 2009 Copenhagen Summit (Cui, L. B.et al. 2014). As an emerging environmental economic means, the Chinese emission trading system still faces a lot of problems. The possible improvements will be discussed in the next section.

BASF did not mention any information about emission trading in their sustainability report in 2015. According to an article from Rob Elsworth, 2013, BASF has never exceeded the number of its given allowances until 2013. As a consequence, the company can bank more valuable free allowances or sell them with a profit. The reason why BASF do not report its emission trading information cannot be determined. However, it can be estimated that the BASF’s shareholders are not interested in this information. Perhaps, comparing with BASF’s annual profits, the emission trading profits are only very small part.

Shanghai as one of the earliest regional emission trading pilots, began to trade emissions permits in 1987. In 2013, the total volume of carbon emission in Shanghai reached 23,270 tons and the total turn volume was RMB 645,330 (about € 86,044) (Cui, L. B.et al. 2014). Shanghai Chlor-Alkali Chemical Co., Ltd as a company in chemical industry was chosen as one of the Shanghai’s first carbon emission trading


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pilots in 2012. According to its CSR, the total carbon emission trading volume attains at RMB 9,38 million (around € 1,25 million) and the accumulative total carbon emission trading turnover is RMB 30,25 million (€ 4,03 million) at the end of the business year 2015. Although the external environment for carbon trading is unsatisfactory in China, the company still gains impressive economic result (Shanghai Chlor- Alkali Chemical Co., Ltd, 2015).

3.5 Interdependence of Regulation and Company Form The environmental law in Germany is influenced by international law (Global Reporting Initiative) and EU law (Practicallawcom, 2016). The main issues of German environmental law are water pollution, air pollution, climate change, renewable energy, energy efficiency, nuclear use, and waste management. Meanwhile, the states (“Bundesländer”) have a collateral legislative power. Three levels are organized to administrate the environmental law: ministry for the environment (top level), the regional state agency (middle level), the county agency of the state, an institution of general administration and some specialized agencies (lower level). As a consequence, the general administration of environmental law differs from state to state (Jarass, H. D., & Dimento, J. 1993).

In China, the history of environmental legislation is about 40 years. The Chinese government began to build an environmental legal system after the United Nations Conference on Human Environment in Stockholm, Sweden in 1972. Seven years later, the fifth National People's Congress adopted the trial implementation of environmental protection law. Later in 1989, the Seventh National People's Congress officially approved the formal environmental law, which is a revised summary of the previous environmental protection law. At present, there are over 30 laws on environmental protection and more than 90 rules and regulations of administration (X. Zhu, 2014). The main contents are tasks and guiding principle of environmental law, basic principles and systems of implements, the extent of application and supervision institution. The Chinese environmental law involves many aspects, including air pollution, water pollution, noise pollution, industrial pollution, ocean environment protection, conservation of resources, food hygiene and so on.

The Chinese environmental standards and principles are identical over the whole country. However, there exist different implementations and supervisions among provinces and different types of industries in terms of industrial land. In China, there are 23 provinces, 4 municipalities directly under the central government, 2 special administrative regions and 5 autonomous regions. Due to different levels of economic development, the emphases on the environmental protection are distinct as well. The governments of provinces with rapid economic development like Shanghai, Beijing, Zhejiang, Jiangsu, etc., pay more attention to issues of environment protection and supervise the companies’ environmental activities with a stronger rigor. For example,


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some heavy polluted companies choose to set up factories in economically less developed provinces like Inner Mongolia, Shanxi, Anhui, etc. The reason why is, that the emission standards and pollution treatment costs in those provinces are less severe than in “big cities” like Shanghai or Shenzhen. For those companies, the transport costs are less than the pollution treatment costs. Besides, in some provinces, it is even forbidden to construct some particularly serious polluting factories.

Another difference is caused by the different types of industrial land. In China, industrial land is divided into three types: Basically no pollution industrial land (also called “first class industrial land”, such as land use for electronic industry, sewing industry, etc.), industrial land with a certain pollution to the environment (“second class industrial land”, such as lands, which are used for food industry, pharmaceutical manufacturing industry, etc.) and industrial land with serious interference to the environment(“third class industrial land”, such as lands, which are used for metallurgical industry, chemical industry, etc.) Based on this classification, the industry can also be classified into these three types. The companies in the third class are required with more strict supervisions and higher standards.

Since the BASF Germany has sites in different states, the implements and administrations of environmental law could be different. However, its sustainability report did not mention this difference. The Shanghai Chlor-Alkali Chemical Co., Ltd as a heavy polluting company and the third class of industrial land receive more attention from the government. Besides, as Shanghai is also one of the most economically developed areas in China, environmental protection receives high attention from the state, local government, and public. Due to these reasons, the Shanghai Chemical Company discloses their supervision system and pollution treatment system in its CSR as required. The supervision system is 24 hours online for the local supervision department to supervise the emission all the time. If the company pollutes in excess of the standards, it will be stopped and required for rectification immediately.


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The above analysis of the environmental reporting-related issues revealed that the attention on the environmental performance of corporations has increased. We have received the impression that regarding the development of environmental reporting and environmental performance, China is lagging behind Germany in several aspects. We see a general trend for global environmental reporting and problems of environmental disclosure and regulation in both countries, but mostly in China. There is a need for further investigations about environmental reporting across industries and efforts required improving the environmental practices. We will discuss in detail in the following sections.

From the debate about the future of environmental reporting, the primary topic is the recognition that the current standards for reporting are inadequate. Currently, the most widely used reporting standard is generated from the Global Reporting Initiative (GRI) (Gray, et al., 2001). The environmental reporting has experienced two stages characterized by various driving forces. During the early state, environmental reporting was driven by the legal and regulatory as the key driving force. Companies are publishing environmental information due to the law obedient behavior driven by the control and command or the regulatory regime-based considerations and cost considerations. Currently, the environmental reporting is transforming into the second stage driven by the competitive advantage-based view. Economic and ecology are no longer as opposed to one another, and a superior environmental performance potentially leads to additional profits (Jose & Lee, 2007). Companies in this stage usually implement proactive environmental reporting, which has a competitive advantage due to the better reputation resonates favorably with all stakeholders. Additional factors affecting the environmental reporting in this stage are the development of technology and the amendable policies (Burritt & Schaltegger, 2010).

Currently, the well-documented corporate social responsibility among all stakeholders has coincided with the growing incidence and sophistications of environmental reporting. The majority of large businesses volunteer information concerning the impact of their activities on the environment, and the environmental impacts are manageable within the firm (Qiu et al., 2014). Environmental disclosure through the means of reporting has commonly been viewed as a pre-emptive to mitigate the adverse regulatory or legislative pressure in the future (Brammer&Pavelin, 2008).

One of the most noticeable features of environmental reports is the lack of full and accurate disclosure regarding the environmental impacts, especially the negative aspects (Adams, 2004). Most environmental reporting only shows how the companies are doing well, trying hard, and struggling to be better. There is usually little coverage

4 Discussion


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of negative impacts on environments and insufficient evidence that companies accept their environmental responsibilities (Adams, 2004). Environmental reports often provide insufficient information on the reporting process as well as the governance structures of environmental reporting. This has raised serious concerns about the values of the responsible care guidelines as a legitimating tool and insurance policy (Burritt & Schaltegger, 2010). Another concern about environmental reporting disclosure is the lack of completeness. Reports usually omit the details of impacts on the communities or the environment which are important to key stakeholder groups. The incompleteness may affect the economic performance of the companies. Also, as we have mentioned in the previous chapter, the extent of disclosure is a function of exposure to the environment. As a result, companies with a poorer environmental performance are facing greater exposure pressure, and they would be expected to provide extensive and comprehensive environmental disclosures (Patten, 2002). The previous study showed that there was a significant negative relation between the performance and the disclosure. The environmental performance, as based on the released information, is a more significant explanatory factor for variations in environmental reporting disclosure for firms, which subject to higher potential environmental regulatory pressure due to industry involvement (Tilt, 1994). We have mentioned in the previous chapter that the environmental and social disclosures entail real, proprietary, and opportunity costs. However, there is an increasing tendency that the large listed firms from around the world are also making higher and better quality disclosures (Clarkson et al., 2008). The trend towards greater disclosure is aligned with the growing interests in environmental issues on the part of various corporate stakeholders including employees, customers, socially responsible investors, regulators, government, and diverse social, environmental activist group (Clarkson et al., 2008). There is a consensus that large firms or firms operating in more environmentally sensitive industry sectors are more likely to make the extensive environmental disclosure (Gray et al., 2001).

The environmental reporting and disclosure in China are at a stage of being pressure- oriented. Companies are usually reluctant to release their environmental information if they are not required to do so, or nobody puts much pressure on them (Zeng et al., 2010). Enterprises in China often want to disclose as little as possible as the process of the disclosure is usually costly (Liu et al., 2010). Also, the effectiveness of the environmental disclosure in China also raises the external pressure on a business to act in an environmentally sensible way. Currently, companies are in the first stage of environmental reporting and receiving external pressures from the government, standards, certifications, and investors (Lu & Abeysekera, 2014). Moreover, the active role of mass media and increasing environmental awareness is creating more requirements for accurate and proactive environmental reporting and disclosure linked with the management reputation. The liberalization of the economy has promoted more freedom and flexibility within the Chinese media systems. The transformation of the media landscape including the rise of social networks, including weibo (microbloggers


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with 300 million active users), allows the wider and faster information distribution (Zeng et al., 2010). These changes have also led to a large increase of pressure-oriented environmental disclosures. However, pressure-oriented disclosure may lead to the quality issues in the publishing information. The significant question remains whether the increasing trend of environmental reporting is truly indicators increased transparency or just an elaborate “propaganda” machine (Zeng et al., 2010). The accuracy of the information from environmental reporting is still a problem needed to be solved. The further investigation can be made to improve the voluntary disclosure in China. What kinds of incentives can be provided for Chinese companies for the active disclosure?

Apart from the environmental reporting and disclosure, the environmental policy and regulations are also the direction needed to be further investigated. Growing economies and burgeoning populations are pushing global environmental systems to destabilizing limits (Gao & Heravi & Xiao, 2005). This has led to an increased connection of diverse societies as environmental problems are increasingly transcending national borders and pose serious challenges to the planet. Environmental legal norms have to become increasingly internationalized (List & Co, 2000). Both of the national environmental legal systems have to align with international environmental agreements, which mean the laws could be international, national, and transnational in character all at once. Global environmental regulations as a result of sovereign national initiatives are generated to improve and advance the national legal systems at the same time, coordinate the efforts to harmonize and integrate the environmental norms (Rugman & Verbeke, 1998). The creation of global standards requires multi-nation efforts of legal cooperation and standardization of legal approaches. Institutions and formal international treaties such as the WTO are among the types of organizations that can best promote the creation of global environmental laws. Sub-national government entities, multinational corporations and non-governmental organizations (NGO) play significant roles in the implementation and articulation of global environmental regulations (Al Tuwaiiri et al., 2004).

Global environmental laws can also expand our thinking of how to advance international environment governance. The construction of global environmental law requires more institutions than traditionally engaged organizations. The important and persistent concerns about the globalization of environmental laws are the effectiveness and enforceability. There will be continuous efforts to strengthen the international environmental law systems (Patten, 2002).

Both countries are working on the improvement of regulations and policies. The government agencies of Germany that supervise compliance with the environmental laws are generally well organized and staffed. The strict enforcement culture in Germany complements strict permitting regimes, which usually exceed the EU or


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global requirements (Bergheim & Brinke, 2003). In contrast to Germany, China is facing tremendous problems of new emerging national environmental regulations, the alignment of national and international environmental policies and standards, etc. The biggest and most intractable problems are institutional obstacles, which hinder any substantial environmental action in China (Dean & Lovely & Wang, 2009). Although many researchers suggest that China needs structural changes and a marketization approach to energy consumption and other environmental problems, it is relatively impractical to realize the environmental plans. The government has established an entrenched coalition with the SOEs. It is very difficult to put pressure on their operations. China's central government is trying to make improvements by introducing a number of legislative measures on the environment. Moreover, China is also suffering from untruthfulness in the system of oversight. The problem is originating from the political structure. As a country that emphasizes centralized power, top-down oversight is the mainstream oversight method. It leads to the fact that many local governments and supervisory bodies are themselves among the beneficiaries of environmental exploitation. The problem originates from the enforcement phase (Chang & Wang, 2010). Due to the difficulties China is experiencing, there is the necessity of further investigations on the method of better implementing of the emerging legislation and strict oversight.


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There is no doubt that sustainability and environment management have become an important priority for many businesses globally and the growth in environmental reporting has resulted in a wide range of actual and potential accounts of organizational interactions with society and natural environment (Lungu et al., 2011). After reviewing the detailed information of chemical companies of two countries and the environmental reporting-related issues, we can conclude that China has made huge progress in its environmental practice, which has reached the international standards. Nonetheless, China has still fallen behind Germany in many aspects.

In this research paper, we have carefully reviewed the extensive literature regarding the environmental reporting, which help the reader to better understand the environmental reporting and influential factors affecting the reporting formation and structure. By choosing chemical industries from China and Germany as our research targets, we have briefly introduced the current status of two industries and have made comparisons of the historical development to support the future investigations regarding environmental reporting. We have selected two representative chemical companies from two comparative nations, China and Germany to study the application of environmental reporting. We presented the background information of two companies by comparing the sizes, product structures, annual profits, energy consumptions, and sustainability strategies. In the following part, we have analyzed different environmental reporting-related issues. First of all, we introduced and evaluated the structure and development of corporate sustainability reporting. As the tendency of future environmental reporting, the sustainability reporting is the broadened inclusion form of social, environmental, and financial information. We then provided information about the environmental certifications for regulating reporting. The environmental performance index has been introduced, and we carefully analyzed the rules for disclosure of environmental performance. We have also talked about the emission trading schemes and the interdependence of regulation and company form. At the end of the paper, we discussed the future trends of environmental reporting, the aspects including environmental disclosure and environmental regulations which need to be further investigated. More in-depth research on the future of environmental reporting in two countries deserves to be done and some problems of China’s environmental situation still need to be addressed.

5 Conclusion


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reform and regulation: china’s environmental policy

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