China’s Financial Challenge and Opportunity for Environment, Society and Governance (ESG)

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February 2007 Volume V, number 1

Net Contents

I. Network Presentation
Key Learnings
Perspectives

II. What’s New

III. The Women’s Network for a Sustainable Future
The Concept of the Network
Contact Information
Sponsorship Opportunities

I. Network Presentation

A big thank you to those who took the time to attend WNSF’s luncheon panel on February 7, 2007 entitled “China’s Financial Challenge and Opportunity for Environment, Society and Governance (ESG)” hosted by AIG at the Down Town Association in New York City. The session featured speakers from AIG, Renmin University’™s Center for Venture Capital and the Woodrow Wilson Center’™s China Environment Forum, who shared ‘˜ESG’™ challenges for China and its business partners.

Key Findings

  • Climate Change and Pollution are rising at an alarming rate and greatly affect business worldwide.
  • Environment, Society and Governance (ESG) issues need to be addressed by government and business in the US and China.
  • Microfinance techniques may help lift the poor in China out of poverty.
  • Sustainable investments are compatible with business growth.

Perspectives

  • Moderator: Ann Goodman, Executive Director, WNSF.
  • Welcome:
    • Alice LeBlanc, Director, Office of Environment and Climate Change, AIG Corporate Affairs
    • Marlys Appleton, Vice President, Sustainability Initiatives, AIG Global Investment Group, New York
  • Speakers:
    • Jennifer Turner, Director of the China Environment Forum at the Woodrow Wilson Center
    • Leonard J. Battifarano, Senior Vice President of American International Underwriters, part of American International Group (AIG)
    • Mannie Manhong Liu, Director, Renmin University Venture Capital and Private Equity Research Center

Alice LeBlanc, AIG
Alice LeBlanc opened the program by introducing AIG’S environmental and climate change policy, which recognizes that climate change is real and likely caused primarily by human activities. AIG’s climate change strategy focuses on pursuing new business activities to help meet customer demand to reduce greenhouse gas emissions. AIG is in the process of incorporating climate change awareness into many business initiatives, such as investments including new private equity for GHG mitigation technologies, carbon finance, and sustainable agriculture and forestry. The company is also providing loans for energy efficiency. AIG’S insurance business is providing insurance for renewable energy and other low carbon technologies, such as bio fuel and wind energy, and developing new products to support the carbon market, such as insurance to guarantee delivery of project-based carbon credits. AIG is involved in research projects regarding incorporation of climate risk into catastrophe models, and developing models for community resilience to catastrophic climate events. China’s green house gas emissions are projected to over take those of the US, currently the highest emitter, by 2009. AIG has a strong presence in China and hopes to work with Chinese enterprises to meet their insurance and investment needs related to climate change.

Marlys Appleton, AIGGIG
Marlys Appleton presented AIG’™s Global Investments Group’™s (AIGGIG) new sustainability policy, which aims to incorporate ES&G principles across all investment lines, including equities, fixed income, alternatives and real estate. Given emerging values in the marketplace, AIGGIG views this type of due diligence as a requirement and sees such sustainable finance principles as an engine of innovation driving new products. Ms. Appleton chairs the Sustainable Investments Steering Committee and Task Force. The Global Investment Group has worked for several months to achieve buy-in across the asset classes to prepare for implementation. AIGGIG is mobilizing people, process and technology to support its approach to sustainable finance. A structure and process is in place to adhere to a defined set of industry-accepted best practices incorporating ESG criteria into investment. The goal is to implement the criteria in 2008. AIG also is reviewing its own green house gas emissions and recently received recognition from Innovest as one of the ‘œTop 100 Most Sustainable Companies.’

Jennifer Turner, China Environment Forum
The Woodrow Wilson Center is trying to aid China in driving more sustainable growth. The Jilin PetroChina explosion in Northwestern China in November 2005 demonstrates a failure of the country’™s environmental governance system to check economic growth. The central government has created an extensive range of environmental laws, but enforcement at the local level is poor. Decentralization of economic power created fast growth in GDP (10% annually for the past 25 years), but the central government lacks power to force local government compliance to pollution control laws. Air pollution problems in China stem in great part from China’™s dependence on coal, which is plentiful, but dirty. Some speculate that up to 25% of particulates over Los Angeles now comes from China, while China itself suffers from up to 500,000 premature deaths from respiratory illnesses a year attributed to pollution. Fortunately, there is hope: new laws include incentives to encourage renewable energy and energy efficiency. In fact, 90 percent of US SUVs would not pass a new Chinese fuel-efficiency law.

Water remains China’™s biggest environmental problem; desertification in the north from over-extraction is creating a growing population of so-called eco-refugees. Water pollution is a major concern; half of China’™s rivers are grade IV and V, which means water cannot be used for industrial or agricultural protection, much less drinking. Social stability is a big driver of the central government’™s concern about the environment, as more and more people begin to protest polluting companies. Poor environmental standards are responsible for an estimated loss of 10% to 12% of GDP annually. Via its slogan of ‘˜Harmonious Society’™ the government is pushing more progressive policies. Public participation is also pushing environmental issues to the forefront of Chinese civil society. The government is prioritizing investments that are environmentally friendly, with a focus on green GDP. International businesses often contribute to these efforts by helping to bring in cleaner processes and technologies.

Leonard J. Battifarano, American International Underwriters
AIG has launched a worldwide strategy on a long-term basis to introduce micro insurance in the interior provinces of China. Microfinance has created worldwide opportunities for the poor to lift themselves out of poverty. AIG is mindful that a significant increase in rural business development as a result of these loans could have an adverse effect on the environment, and so will be monitoring this over the next five years. Historically the poorest people have the best repayment record, with default rates less than 2%. Notably, 85% of micro loans have gone to women, who have a better record of using loans to build businesses and help their families. These loans create a trickle-up effect, offering grantees improved access to education, healthcare, and jobs. The second and third generations of grantees also bring to their communities a higher level of education, creating a continuous cycle of increasing contribution. There is not yet enough synergy between microfinance and environmental issues, but over time potential impact and remediation will become more apparent. ACCION, one of the world’™s largest microfinance NGOs, launched a project in Inner Mongolia with the goal of providing loans to 60,000 people over next 5 years. This can be a model for the way microfinance expands throughout China, particularly if the government decides to support additional pilot programs in the future.

Manhong (Mannie) Liu, Renmin University, Venture Capital Research Center
China is responsible for a third of greenhouse gas emissions. China is known for its manufacturing sector but needs a strong financing sector, as well. China’™s Security and Regulation Committee (CSRC) controls the stock market, China Insurance Regulatory Commission (CIRC) controls insurance, and China’™s Banking Regulation Committee (CBRC) controls banking, but the committees don’™t cooperate with each other very well. One of the biggest problems in the financial sector is the banking industry because it is government controlled, state owned, inefficient and rife with corruption. The Chinese banking industry has improved; some of the biggest banks have gone public, which means more transparency and less corruption.

Historically, China has had one question on its mind ‘” how to feed its people. In experiencing a cultural change—a planned market economy—the government has turned on ‘˜green light’™ so that people for the first time can pursue personal well being. An unintended consequence is a shrinking of traditional Chinese values, such as doing good works. Some are seizing opportunities to advance their own well being at the expense of others.
Another challenge is that constant change in policy has bred continual uncertainty—and ‘˜me-first’™ behavior—in commerce as in other aspects of life, in contrast to traditional Confucian culture, which teaches that the two most important aspects of human nature are: ren , or mercy to the poor, and li, politeness and thinking of others. And, while traditional Chinese culture teaches that nature and people are one, the two are in greater conflict all the time, as tension mounts between economic growth and environmental health.

II. What’s New

  • WNSF’™s Board member Karen Flanders is PINK Magazine’s first-ever winner of the Corporate Conscience award of “America’s Top Women in Business: Game Changers.” Read about her contributions: http://www.wnsf.org
  • The World Bank sponsored WNSF’™s roundtable “Sustainability and Gender: Private Sector Perspectives” on Tuesday, March 06 2007 in Washington, D.C. Please visit WNSF’s website for a summary of highlights soon. Roundtables are also being scheduled for New York City and other cities this spring. Look for email invitations and announcements on the WNSF website.

III. The Women’s Network for a Sustainable Future
The Concept of the Network

The Women’™s Network for a Sustainable Future (WNSF) provides a forum for businesswomen to congregate, reflect, and act on the convergent issues of corporate social responsibility and sustainable development. Through meetings, training and simple electronic support tools, WNSF facilitates the exchange of experiences and best practices, building a community of businesswomen who can serve as powerful change agents for corporate responsibility sustainability in the US and internationally.
The Women’s Network for a Sustainable Future is a 501c3 organization. Gifts are tax deductible.
For more information, please contact:
Ann Goodman, Executive Director
Women’s Network for a Sustainable Future
Please direct inquiries to: info@wnsf.org
Board of Directors:

CHAIR: Kathy Robb, Esq., Partner and Head of Environmental Practice, Hunton & Williams; Dianne Dillon Ridgley, Director, Interface Inc. Board; Karen Flanders, Director of Sustainability, Coca-Cola Co.; Joanne Fox-Przeworski, Director, Bard Center for Environmental Policy, Bard College; Ann Goodman, Executive Director, WNSF; Sarah Howell, Director, Corporate Communications, BP; Michele Kahane, Special Projects Director, Center for Corporate Citizenship, Boston College; Clair Krizov, Executive Director of Environmental and Social Responsibility, AT&T; Joyce La Valle, Senior Vice President, Interface Inc.; Anita Roper, Director of Sustainability, Alcoa Corp.; Deborah Sliter, Vice President of Programs, National Environmental Education & Training Foundation.

This issue of Net Notes was written Carrie Clyne and Rohini Vagarali . WNSF thanks founding sponsors AT&T and the Ford Foundation for their generous support.

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