The Governance Effect of Environmental CSR Reporting in China: State and Non-State Facilitation

In this chapter, we examine the governance effect of environmental reporting in China and the potential for non-state actors to positively influence the quality and impact of reporting on company behavior. In western markets, companies issue environmental reports to lower information asymmetries and improve relations with non-state actors such as investors, buyers, and activists who directly reward or punish companies on the basis of environmental performance. In China, on the other hand, non-state actors have limited power to directly incentivize company behavior; hence, environmental reporting serves a largely symbolic function, to assure state actors of company compliance with environmental regulations and policies. Environmental reporting is one aspect of CSR Reporting that currently is required of some (but not all) publically listed companies by China’s stock market regulators. Our research shows that, currently, environmental CSR reporting and related company behaviors are narrowly aligned with Chinese government priorities to lower pollution and resource usage, neglecting other important environmental issues such as biodiversity. Nevertheless, efforts by third-party, non-state, standard-setting organizations are starting to widen the lens and improve both the quality and effectiveness of the reporting function. To a lesser extent, foreign buyers of Chinese stocks can also enhance the quality and impact of environmental CSR reporting, as can financial industry professionals who lobby stock market regulators to impose more stringent and effective rules.