EqualOcean | Southern Weekly 2022 'China Greenwashing List'

Amid the rapid global economic and societal progress, corporate responsibility and sustainability have evolved from fringe topics within Corporate Social Responsibility (CSR) to core concerns for both investors and consumers. Against this backdrop, ESG has been widely discussed and integrated into business strategies, symbolizing a renewed business ethic and vision for the future.

In recent years, especially under the guidance of green topics such as 'carbon neutrality' and 'carbon footprint', many companies have become more proactive in promoting their environmental stewardship. This is not only out of genuine concern for global climate change but also because businesses recognize that showcasing their green attributes can win the affection of consumers and the preference of investors. Such a shift indicates companies' pursuit of differentiation in competition, and it also reflects the growing awareness and demand for ESG among today's consumers and investors.

With the promotion of the ESG concept, a pressing issue has gradually emerged - 'greenwashing.' While many companies ardently tout their environmental, social, and governance achievements, there are no shortages of those that are all show with minimal actual effort. Some businesses overly advertise their contributions to environmental friendliness or sustainability, yet their actions fall significantly short of their claims. This phenomenon is increasingly drawing the attention of the public and regulatory bodies, becoming a hot topic in the market.

What is 'Greenwashing?'

The term 'greenwashing' was first coined in 1986 by American environmentalist Jay Westerveld, aiming to describe businesses that advocate for environmentalism in name only, but in reality, act mainly to cut costs. For instance, hoteliers might encourage tourists to reuse towels, claiming it's to reduce ecological impact, but the underlying reason might simply be to save on operational costs.

As time progressed, the definition of greenwashing expanded and deepened on a global scale. Today, many organizations and authoritative dictionaries have offered their definitions. The Cambridge Dictionary defines greenwashing as 'a situation in which a company advertises its products as being more environmentally friendly than they really are'. Such behavior is not limited to minor marketing strategies; it has even affected large enterprises and their product lines.

A study conducted in 2007 by the American environmental marketing company Terra Choice provided an in-depth analysis of the greenwashing phenomenon. They identified what they termed the 'Seven Sins of Greenwashing,' which include: the Sin of the Hidden Trade-Off, the Sin of No Proof, the Sin of Vagueness, the Sin of Irrelevance, the Sin of the Lesser of Two Evils, the Sin of Fibbing, and the Sin of Worshipping False Labels.

Data suggests that the phenomenon of greenwashing has garnered widespread attention in recent years. The Massive Arithmetic Index shows that compared to 2021, the comprehensive attention index on greenwashing in 2022 has increased by 100% year-on-year, with the search index also seeing a rise of 54.55%. This clearly indicates that the public's awareness and ability to distinguish between genuine environmental actions and mere greenwashing tactics for market strategies are gradually strengthening.

Review of Companies Listed in the 2022 'China Greenwashing List'

After years of meticulous observation of the 'greenwashing' phenomenon, Southern Weekly released the '2022 China Greenwashing List,' which covered a broad spectrum of renowned enterprises, encompassing listed companies, China's Top 500, and Fortune Global 500 companies operating within China. Nine companies ultimately made the cut: Tesla (TSLA:NSDQ), SanYuan Foods (600429:SH), Huatong (002840:SZ), Xinhua Pharmaceutical (000756:SZ,0719:HK), New Hope (000876:SZ), China Railway Group (601390:SH), China Shenhua Energy (601088:SH,1088:HK), SHEIN, and H&M.  These enterprises span diverse sectors such as passenger vehicles, food, chemical pharmaceuticals, farming, construction, and apparel.

Tesla

Tesla (TSLA:NASDAQ) was founded in 2003 and stands as a global leader in the electric vehicle market. As of 2022, it secured the 242nd spot on Fortune's Global 500 list. The company's super factory in Shanghai was hailed as the National 'Green Factory' of 2022. In the same year, Tesla raked in a revenue of USD 1.78 billion through the sale of carbon credits.

Yet, in February of that year, the Environmental Protection Agency (EPA) slapped Tesla with a fine in the U.S. for violations regarding exhaust emission control. In May, the firm was removed from the S&P 500 ESG index, with reasons pointing to its undisclosed low-carbon strategy, among others. Environmental groups, such as IPE and Green Jiangnan, highlighted regulatory breaches by several of Tesla's suppliers. Moreover, Tesla's 2022 Impact Report revealed that some suppliers, who had previous environmental violations, did not publicly present their corrective measures. Being an industry benchmark, Tesla's supply chain management has been under the spotlight.

Although Tesla has pioneered developments in the electric and renewable energy sector, making significant contributions to sustainability, its manufacturing stage remains notably carbon-intensive. Furthermore, scrapped cars still pose environmental challenges. It seems Tesla hasn't shown urgency in addressing these issues and hasn't strategically repositioned itself. While Tesla's ESG performance hasn't drastically declined, as other firms in the industry improve their ESG management, Tesla risks falling behind unless proactive changes are implemented.

Following the ejection from the S&P 500 ESG index, Tesla's CEO, Elon Musk, lambasted the ESG evaluation system on Twitter, even going as far as to dub 'ESG as the devil'. Granted, the current ESG evaluation framework isn't perfect. However, as a trailblazer in the electric vehicle domain, Tesla should adopt a more proactive stance, considering ESG performance improvements from a strategic perspective and embracing greater responsibility.

SanYuan Foods

Beijing SanYuan Foods Co., Ltd. (600429:SH), established in 1956, is a bellwether in China's dairy industry, having its corporate social responsibility report repeatedly garnering a five-star rating. Though it professes to 'lead a green future' and advocates for lawful and compliant operations in its report, in 2022, SanYuan Foods and its subsidiaries were handed multiple environmental penalties.

Specifically, in March 2022, environmental authorities in Beijing's Daxing district discovered that SanYuan's JinYinDao ranch continued to discharge wastewater after the anti-seepage film of its oxidation pond was damaged in June 2021. Starting from February 2022, the company sidestepped regulatory oversight and directed wastewater into nearby seepage pits, leading to environmental contamination in the vicinity. One such pit to the south exhibited pollutant levels significantly exceeding regulatory limits, resulting in a fine of CNY 200,000. SanYuan Foods did allude to this penalty in its 2022 report, claiming that rectifications were made, yet fell short of detailing the specifics.

While SanYuan Foods actively promotes its 'green' and 'law-abiding' stance, its affiliated companies repeatedly face punitive actions for various environmental infringements. To a degree, this could signify either inadequate information disclosure or a veneer of deceptive greenwashing. The accolades the company's social responsibility reports received highlight a broader issue: the current assessment of ESG information disclosure quality is somewhat superficial, granting businesses the leeway to embellish their green credentials.

Huatong

Zhejiang Huatong Meat Products Co., Ltd. (002840:SZ), established on August 8, 2001, specializes in livestock and poultry slaughtering. It has been recognized as a 'Green Enterprise' in Zhejiang Province and touts its creation of a 'green industry chain' encompassing feed, breeding, slaughtering, and meat processing.

Yet, data from 2022 by QingYue and GreenNet, as highlighted by Southern Weekly, reveals that several of Huatong's subsidiaries were penalized multiple times for exceeding emission standards. For instance, in June 2022, Quzhou Huatong Animal Husbandry was fined CNY 390,000 for violating the 'three simultaneous' system. Then, in December, Tiantai Huatong Animal Husbandry faced a CNY 370,000 penalty for dodging regulatory supervision in wastewater discharge and was ordered to halt operations twice due to unconnected automatic pollutant monitoring equipment.

Mirroring SanYuan Foods, there's a glaring disparity between the company's green advocacy and its actual environmental conduct. As publicly listed entities in the food sector, both should be particularly vigilant about such inconsistencies. Inconsistencies in the proclamations and actions of food enterprises can lead to severe consequences, notably eroding consumer trust. If they don't bolster the management of their genuine ESG performances, their green claims may very well boomerang back to haunt them.

Xinhua Pharma

Shandong Xinhua Pharmaceutical Co., Ltd. (000756:SZ, 0719:HK), established in November 1943, stands as a primary base for the manufacture and export of antipyretic analgesics. After being recognized as a national 'Green Factory', it clinched the title of 'National Green Supply Chain Management Demonstration Enterprise' in 2022, making it the first domestic chemical pharmaceutical enterprise to receive this honor. In its 2022 ESG report, Xinhua Pharma underscores its strict adherence to legal and environmental responsibilities, particularly emphasizing ongoing optimizations in wastewater treatment.

However, based on 2022 data from QingYue and GreenNet as cited by Southern Weekly, it came to light that Xinhua Pharma and its subsidiaries were penalized multiple times within the year for environmental breaches. Due to various violations inconsistent with their pollution discharge permits, Shandong Xinhua Pharmaceutical and its subsidiary Shandong Xinhua Wanbo Chemicals in Zibo city were fined by the local ecological and environmental bureau.

In its 2022 annual report, Xinhua Pharma disclosed details about the penalties and rectification measures, claiming that all related issues had been addressed. As a chemical pharmaceutical company, its inherent production activities are more prone to causing pollution and environmental issues. Xinhua Pharma should place heightened focus on the management of pollutant emissions to mitigate such occurrences.

New Hope

New Hope Liuhe Co., Ltd. (000876:SZ), established in 1982, primarily focuses on modern agriculture, livestock, and the food industry. According to its official website, it boasts the world's largest feed production capacity and stands as China's leader in poultry processing capability. New Hope is one of China's largest integrated suppliers of meat, eggs, and milk, ranking 356th in the 2022 Fortune Global 500 list. Its 2022 CSR report states that the company has embedded green development philosophy into its operations, meticulously controlling the generation and emission of pollutants to minimize environmental impact and has designed various strategies to manage odors and biogas.

However, environmental penalty data for 2022, collated by Southern Weekly from QingYue and GreenNet, reveals that several New Hope subsidiaries received numerous fines, ranking among the top in terms of amount and frequency within the livestock sector. In September 2022, an environmental penalty issued by the Bengbu City Ecological and Environmental Bureau revealed that Wuhe New Hope Liuhe Livestock Co., Ltd.'s fattening pig farm failed to seal the manure storage pool in accordance with environmental assessment requirements, resulting in foul odors permeating the air. This discrepancy was inconsistent with their inspection report, indicating fraudulent practices.

While the 2022 annual report of New Hope did disclose some penalties and rectification measures, it did not mention the aforementioned fines. As a leading enterprise in domestic livestock breeding, New Hope should further elevate the management standards of its breeding bases, minimizing the occurrence of such basic issues and setting an industry benchmark. The various strategies mentioned in its CSR report for managing odors and biogas should be tangibly reflected in its actual production processes.

China Railway

China Railway Group Ltd. (601390:SH), founded in March 1950, stands as one of the world's largest construction and engineering contractors, with its business scope covering the entire industry chain of infrastructure construction. In 2022, it ranked 34th on the Fortune Global 500 list and was included among the 'Listed Company ESG Practical Cases'. It has promoted several construction projects related to green and environmental protection, aiming to root the concept of green and environmentally friendly construction at the frontline. However, in terms of penalties in 2022, China Railway was among the top in the construction and engineering sector. One notable instance involves a subsidiary, Shaanxi Xunfeng Hanhuang Expressway Co., Ltd., which was fined CNY 569,312 for destroying and occupying 6.6797 hectares of forest land.

In its 2022 annual report, China Railway provided an overview of the yearly penalties: the sanctions pertained to 30 engineering projects, with cumulative fines amounting to approximately CNY 1.6335 million, and rectifications were reported as completed. As a state-owned enterprise listed on the stock market, the standards for ESG information disclosure and management are higher than those of typical private enterprises. However, the widespread destruction of forests indicates that the depth of its ESG management philosophy is still insufficient. For grassroots construction units, there is still a gap in implementation.

China Shenhua

China Shenhua Energy Co., Ltd. (601088:SH, 1088:HK), established on November 8, 2004, operates in coal, electricity, new energy, and coal chemical industries. It ranked 36th on the Fortune China 500 list in 2022. According to its official website, the company's core values are 'green development and the pursuit of excellence', always viewing green development and technological innovation as the 'primary drivers' for high-quality development. It ranked 13th on Fortune's 2022 China ESG Impact List, vowing to achieve carbon peak by 2025 and carbon neutrality by 2060.

In 2022, China Shenhua and its subsidiaries were penalized with fines exceeding CNY 20 million, leading in total fines within the coal industry. A penalty notice from the Yulin City Ecological and Environmental Bureau highlighted that Shendong Coal subsidiary had been fined twice, CNY 12.6445235 million and CNY 3.3110735 million respectively, for commencing construction without prior environmental approval, violating environmental assessment regulations. The company was also repeatedly fined for unauthorized dumping and piling up of hazardous waste, and for using hazardous waste storage without prior inspection.

China Shenhua's 2022 annual report disclosed the penalties and rectification measures, stating that rectification efforts were underway, with the capacity enhancement environmental impact report already submitted for review by the ecological and environmental management department, expecting approvals by the second half of 2023. As the fossil fuel sector is a major contributor to greenhouse gas emissions, energy-saving and emission-reduction efforts can significantly improve its ESG evaluation. However, this may also result in noticeable discrepancies between actual performance and ESG impact rankings.

SHEIN

Founded in 2008, SHEIN has firmly positioned itself as the leader in China's overseas fast-fashion e-commerce, introducing up to 6,000 new products daily, earning it the title of 'ultra-fast fashion'. In June 2022, at the Global Fashion Summit in Copenhagen, the company pledged to invest 50 million dollars in an EPR (Extended Producer Responsibility) fund, aiming to assist Ghana in mitigating textile waste issues in developing countries. While this commitment garnered public acclaim, it was also met with skepticism. Critics argue that SHEIN should address the second-hand clothing issue beyond mere donations. Although its online store launched a range called 'evoluSHEIN', emphasizing the use of eco-friendly materials, the specific proportions of such materials used remain unclear.

SHEIN's adopted 'small orders, quick returns' model claims to reduce waste. However, its vast production volume is still staggering. Regarding the 'evoluSHEIN' label, it describes differences between products and provides eco-material percentages for some items, but many details are still kept from the public.

While SHEIN has expressed its willingness to assume social responsibility, various issues have emerged in its practical execution. Although SHEIN has material recycling plans, the exact proportion of recycled materials remains unspecified, with its scope limited to returned goods and defective products. Moreover, SHEIN's business model seems at odds with the issue of clothing waste. Despite the 'small orders, quick returns' approach, the sheer number of new product launches results in maintaining a high level of production. Considering these factors, one can't help but question whether SHEIN is leveraging green initiatives for marketing purposes, rather than genuinely addressing ESG concerns at a foundational business model level.

H&M

Founded in 1947, Swedish fashion giant H&M operates worldwide with its commitment to sustainability, fashion-forwardness, and value for money. However, in September 2022, H&M was accused of 'greenwashing' by the Netherlands Authority for Consumers and Markets (ACM) for using green labels like 'Conscious' and 'Conscious choice' without providing clear evidence to support such claims. In response, H&M stated that they were improving their information presentation and decided to remove the 'Conscious choice' label.

By July 2023, while the label had been removed from H&M websites in many countries, it still appeared as 'Eco-conscious selection' and 'Conscious choice' on its official Chinese mainland online store, with vague details. Notably, sports brand Decathlon, which also faced penalties from ACM, had clarified related product labels on its official Chinese website.

Similar to SHEIN, H&M's use of green or eco-related labels and promotions without clear explanations and definitions can lead to consumer misunderstandings. Moreover, the discrepancy in how H&M presents its products on official websites in different regions may suggest that H&M differentiates its approach to consumers based on regional regulatory policies, which could be seen as a failure to fully assume its social responsibility.