Can China Keep a Green Promise?

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"Environmental challenges led minister to declare China 'ecologically bankrupt.'"

Chinese leaders complain that we expect too much of them on climate change. Still, speaking at the World Economic Forum's fourth Summer Davos in Tianjin, Premier Wen Jiabao said that while his country would maintain rapid economic expansion and stimulate domestic demand, it would balance growth with sustainability. China, he pledged, "will continue to conserve resources and protect the environment, and raise the efficiency of resource utilization and the capacity to tackle climate change."

Great, but a huge question mark hangs over the nation's ability to deliver on such promises. Just as China has adopted some of the worst of Western carbon-intensive industrial processes, it may also adopt weak market solutions to the environmental challenges that led one minister to declare China "ecologically bankrupt."

It may be good news that China is launching an environmental, social and governance (ESG) investment index, the CSI ECPI China ESG 40 Equity Index, comprised of 40 domestic companies. But it's troubling when you hear senior people from leading global companies, such as Rio Tinto or Unilever, expressing concerns about the lack of mainstream investor interest in what they're doing on sustainability issues.

Unilever Senior VP Gavin Neath reports that "mainstream investors have [shown] little interest and given us very little credit for what we do—and there's little sign that is going to change."

The financial liabilities incurred by BP in the Gulf may fuel greater interest in ESG factors, though the market-leading Dow Jones Sustainability Indexes delisted BP only after the spill. If such companies are dropped because of such incidents, are socially responsible investment (SRI) funds really providing investors with value added? Probably, but I don't believe that current levels of SRI activity will exert sufficient leverage on the capitalist system to achieve anything like the sustainability outcomes that Wen Jiabao seeks.

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