“Comply or Close” The New Reality for Industrial Facilities in China Piers Touzel Country Manager, ERM China piers.touzel@erm.com Cherry Hu Partner, ERM China cherry.hu@erm.com The business of sustainability
Background Over the last 12 months: • MEP issued 230,000 violation notices • Most involved fines • Some resulted in plant managers and/or local officials jailed • ~10,000 factories shut down • Business interruption, chaos with supply chains, etc • MNCs caught by surprise. They should not have been • Part of a well-signaled shift from permitting & approvals to operational compliance The business of sustainability
Inspections have been well-signaled http://english.sepa.gov.cn/News_service/news_release/index.shtml The business of sustainability
Areas of focus: Environmental Priorities differ by region and include: • Air emissions, particularly in three degraded airsheds • Hazardous waste treatment and disposal • Surface water and drinking water protection areas The business of sustainability
Areas of focus: Industrial Industries targeted for particular focus include: • Cement • Steel mills • Chemicals • Mining • Oil production and refining • Electroplating • Tanneries (leather production) • Waste to Energy The business of sustainability
Areas of focus: Individual Companies • Government has drawn up “ Supervision Lists of Polluting Enterprises ” for each Province and City. • These lists have been published on the EPB’s website. • Individual facilities named as “Key Polluting Enterprises” • Facilities named on this list can expect: • Increased inspection, monitoring and public reporting requirements • Possibly having to convey real time monitoring data direct to EPB • To be a focus of environmental actions, eg during air quality alerts. The business of sustainability
Areas of focus: Individual Companies Shanghai Supervision List for Key Polluting Enterprises* Number of Key Number of Wholly Number of Chinese Polluting Owned Foreign /Foreign JVs Enterprises Enterprises Water Polluters 672 151 142 Air Polluters 287 75 87 Soil Polluters 398 145 119 Noise Polluters 7 0 1 Other Polluters 119 18 17 TOTAL 1,068 264 242 *Published 7 January 2018 http://www.sepb.gov.cn/fa/cms/shhj/shhj2133/shhj2136/2018/01/98067.htm In Shanghai alone, over 1,000 companies are named as “key polluting enterprises”. Half of them are foreign -invested The business of sustainability
What do Inspections Involve? All follow a similar pattern: 1. Review of compliance with environmental permits 2. Environmental sampling; and 3. Investigation of community complaints, such as odour. The business of sustainability
Looking Forward How will this play out over 2018? • MEE has signaled that the focus of 2018 is to follow up on the 2017 inspections and those on current supervision lists • Not expecting to see more facilities added to “Supervision Lists” in 2018. Next lists to be published early 2019 • Any companies on a “Supervision List” should closely monitor MEE website as new requirements for these companies will be issued from time to time. • From 1 July 2018, Key Soil Polluters may be required to undertake soil and groundwater sampling and to report this to Govt The business of sustainability
More Information Piers Touzel Country Manager, ERM China piers.touzel@erm.com Cherry Hu Partner, ERM China cherry.hu@erm.com www.erm.com The business of sustainability
Presented at AmCham Shanghai's Environmental Committee AmCham Shanghai Conference Center, April 17 th , 2018 Beyond Compliance G Weathering China’s Environmental Storm 庄博闻/ Johnny Browaeys Director International Business
Executive Summary 1) A 3-year environmental storm started which is reshaping the industrial landscape in China 2) The storm will impact your sites, and likely even more so your local supply chain 3) The impact will be very different for different locations, depending on regional sensitivities 4) You will have to abide with national interests but can/should protect against local interests 5) It requires cross-checking various data sources to truly understand your situation 6) Tactical actions may suffice to mitigate risks, critical business decisions may be required 7) Planning is required to minimize damages and maximize benefits 8) Using DRMT, the vulnerability of your site can be assessed by its address, without visiting
Personal Introduction 庄博闻/ Johnny Browaeys Director International Business Masters in Bio-engineering & in Environmental Policies • 25 years experience with EHS consulting in Asia, Africa, • Europe and Latin America, based in China since 2003 Previously worked for ERM, CH2M Hill and DuPont • Profile: https://www.linkedin.com/in/johnnybrowaeys/ • Mobile & Wechat: 13761894720
Company Origin and Locations GREENMENT originated in 2012 when Fortune 500 Company CH2M Hill decided to localise their environmental Business Unit, their operational procedures are embedded in our operations. GREENMENT now is owned and managed by China’s pioneers in Environmental Management, serving MNC’s since the early nineties. We are the largest environmental consultancy in China with close to 100 staff and have offices in Shanghai, Beijing, Guangzhou and satellite offices in US Sacramento and Europe Antwerp and delivery partners in 36 countries. We also offer EHS due diligence and permitting services via local delivery partners in several other countries, both for foreign and Chinese companies. Clients include 80% of Fortune 100 manufacturers. 4
Areas of Expertise Transaction Impact Assessment Services and permitting From investment over operation to divestiture Sustainable Contaminated Site Operations and Management Supply Chains
Outline 1 Change of Environmental Policy 2 Business Impact 3 Choices to Make 4 Case Studies
P art 01 Change of Environmental Policy
The New Environmental Era in China China started organizing environmental sweeps, closing, relocating & upgrading factories in line with the 13 th 5-year plan & China’s 2020 Milestone to become a « 全面建成小康社会 » (*) Compliance with regulations is no longer enough. Local Government KPI and new Environmental Initiatives all focus on: – Improving « regional environmental quality »` – Reducing industrial impact until the « regional environmental quality » goals are achieved – Taking environmental « emergency response measures », eg. at times of heavy pollution weather – Closely monitor companies that are published in the «Supervision Lists for Key Polluting Enterprises» (*) 全面建成小康社会 : the 13th Five-Year Plan aims to build a moderately prosperous society in all aspects. Xi JinPing raised “three tough battles” preventing and defusing financial risks, targeted poverty alleviation and pollution control (http://skill.qsbdc.com/mobile/?mid=3&aid=20749).
P art 02 Business Impact
Sharp increase in local initiatives that require companies to upgrade, move reduce or even close operations « Shandong Chemical Industry Special Action » moving factories « Suzhou 263 & 4 batches » upgrading SME « Nanjing Two reductions » reducing chemical and coal industries « Six Uprisings » cleaning black rivers and Taihu Lake & ….. « Zhejiang 61 Entreprise License Cancellations » « Sichuan and Hubei relocations of Dangerous Chemical Factories » and many more… Companies are Expected to Participate Unexpected requirements from local governments The Good News: to reduce environmental impacts, and to reduce, relocate or even close operations. Policies instruct a planned approach,with disclosure, compensation and even financial This is linked with a bigger plan of addressing over-capacity, support, BUT companies are often unaware re-organising the industrial landscape (old – new industry) (for example: « Instruction 77 ») and other more local motives (tax, land use…) And the country is getting rid of « old, polluted, messy, and scattered » factories…
Instruction 77, from the General Office of the State Council to local governments (Sept. 2017) Streamline the relocation of hazardous chemical enterprises from heavily populated areas to specialised locations Timeline – Develop plan to relocate and improve hazardous enterprises by the end of 2017 – Improve and relocate small, medium-sized and large enterprises with significant potential risks between 2018 and 2020 – Improve and relocate other large enterprises between 2020 and 2025 Objectives – Make inventory and shut down those who refuse – Develop relocation plan with scope, objectives, schedule and arrangements for industrial parks, workers, security… – Sollicit opinions from related enterprises, disclose relocation plan to the public before implementation Support – Fiscal Support – Financing and investment
P art 03 Choices to Make
First Understand Your Vulnerability Environmental risk results from 3 dimensions: Environment § The factory/site itself (compliance) - S Site: : compliance sensitivity § Its surrounding environment (sensitivity) - E § Industrial and regional policies (conformity) - P Policy/planning: conformance Targeting compliance (S) is NOT enough to protect yourself. Requirements that come from (E) and (P) are dynamic and go “BEYOND COMPLIANCE”
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