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Environmental Protection Series (Ⅷ) - The Era of “Big Social Credits” for Corporate Environmental Protection is coming

2020.04.24 ZHU, He (George)NI, Tianling (Carey Nee)LIU, Xin

On March 3, 2020, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued Guiding Opinions on Establishing the Modern Environmental Governance System, which set up a goal of establishing and improving a social credit system for environmental governance by 2025. Considering that the establishment of environmental credits is a key aspect to the overall systemization of social credit, in this context, we will briefly introduce the significance of environmental credit evaluation, how to maintain and enhance environmental credits as well as the key compliance precautions from a corporate perspective.


I. The significance to corporations of Environmental Credit Evaluations


1. The mechanisms for “Incentives for Trustworthiness and Punishments for Untrustworthiness” regarding  Environmental Credits


In 2013, the former Ministry of Environmental Protection (the current Ministry of Ecology and Environment, “MEE”), together with the National Development and Reform Commission (“NDRC”), the People’s Bank of China and the China Banking Regulatory Commission, jointly released Measures for the Evaluation of the Environmental Credit of Enterprises (For Trial) (the “Evaluation Measures”), stipulating the preliminary requirements for environmental credit evaluations of corporations with respect to information collection, credit ratings, publicity and the application of the evaluation results. The Evaluation Measures use a centesimal mechanism and classify the results into four different categories, namely, (i) corporations with great trustworthiness in environmental protection, (ii) corporations with good trustworthiness in environmental protection, (iii) corporations that have received warnings with regard to environmental protection, and (iv) corporations with poor trustworthiness in environmental protection (corresponding to green flags, blue flags, yellow flags and red flags, respectively).  Corporations with different grades will be subject to a number of specific measures, with incentives for trustworthiness or punishments for untrustworthiness. For instance, trustworthy corporations with good credits may be prioritized by being included on a government procurement list, and enjoy active credit support as well as preferential insurance rates; by contrast, an untrustworthy corporation may be subject to some restrictions or punishments such as the suspension of various special funds and subsidies, more frequent law enforcement and supervision, and higher insurance rates.


In addition, in 2016, NDRC and several other ministries jointly released the Memorandum of Cooperation on Implementing Joint Punishment against Untrustworthy Manufacturing and Operative Entities and Their Relevant Personnel in the Area of Environmental Protection, emphasizing that various joint punitive measures would apply to untrustworthy entities, for example, by forbidding untrustworthy environmental corporations from participating in government procurement activities, restricting untrustworthy corporations in obtaining land supplied by the government, and restricting their issuance of corporate bonds.


2. The Legislative Process at both the National and Local Level Is Expediting.


According to some public reports available online, the MEE and other relevant authorities (including the NDRC) are examining and drafting Regulations on the Administration of the Evaluation of Enterprise Environmental Credits (Draft). We understand that authorities at the national level are improving or may further improve laws and regulations as well as regulatory documents relevant to environmental credit evaluation. We cannot rule out the possibility that future legislation may specify and reinforce these requirements, or even change some principles, provided in the Evaluation Measures.


Although in recent years we have not noticed any newly enacted law at the national level, more than 20 provinces have already published detailed plans on the evaluation of corporate environmental credits so far. It is worth noting that there are some gaps among local plans with respect to the evaluation targets, the scoring system and categories, as well as the incentive and punishment measures. For instance, according to the Zhejiang Province Administrative Measures for the Evaluation of the Environmental Credit of Corporates (For Trial) (“Zhejiang Plan”), instead of the centesimal mechanism used by the Evaluation Measures, a full score of environmental credits is 1000, which then may be deducted from, taking in to consideration the evaluation results of the corporation’s environmental compliance, environmental management, ecological protection, and social responsibility. The Zhejiang Plan also stipulates various incentives and punitive measures which shall respectively apply to corporations classified in categories from A (Excellent) to E (Bad).


Given that various regions use different criteria for environmental credit evaluations, we foresee that the central government may soon issue a nationwide unified evaluation method or scheme. Prior to or after the issuance of such a unified evaluation method or scheme, corporations should continue to pay attention to the requirements of the environmental compliance policies and credit scoring management at the local level, particularly for groups and multinational corporations with cross-province production sites.


3. Environmental Credit Information is Open for Public Research.


The environmental credit evaluation is important for corporations to consider, due to the incentive and punitive mechanisms discussed above. Meanwhile, environmental credits have a significant (and even sometimes decisive) impact on a customer’s management, since customers or partners of a corporation can search at any time for a corporation’s credits (including environmental credits) and any "untrustworthy" records, through the above-mentioned public channels. The relevant environmental credit research channels include the ‘Credit China’ website, national and local ecological environment department portal websites, the websites of the National Corporate Credit Information Publicity System, Qichacha, Tianyancha and specific industry association platforms (such as the National Industry Credit Public Service Platform), etc.


II. Major Considerations for Corporations under Environmental Credit Evaluation.


Taking into account the significance of the environmental credit evaluations to corporations, we have summarized the following important considerations. You may consult with or seek help from your environmental lawyer or consultant if necessary.


Firstly, corporations should ensure their environmental compliance, which is the basis for acquiring a positive environmental credit rating.


Secondly, if the government conducts an environmental investigation on a corporation, the corporation should respond as our last article ‘Environmental Special Topic Series (V)- Strategies of Response to Environmental Administrative Penalties and Hearing’ discussed, and consult with an environmental lawyer on whether or not to conduct a defense or hearing.


Thirdly, corporations should pay attention to discover and correct any faulty or out of date untrustworthy information disclosed to the public, as well as rectify in a timely manner a damaged rating to minimize any unnecessary adverse impact.


Fourthly, corporations may be required to disclose large amounts of data for environmental credit evaluations (especially for corporations which would like to achieve a positive credit rating). Before the disclosure of any relevant data, corporations should be aware of the relevant laws and regulations with respect to business secrets, employee privacy and data transmission security, as well as take into account the internal policy requirements of the corporation or group (you may need to consult with a professional lawyer).


Fifthly, corporations should actively and timely follow and pay attention to the national and local legislation and all regulatory documents regarding environmental credit evaluation.


III. Conclusion and Suggestions


Under the background that both the central and local governments are consummating legal and regulatory documents regarding environmental credit evaluation, in order to obtain a positive result under the framework of the environmental ‘big social credit’, corporations should attach importance to the environmental credit evaluation and take precautions, as well as pay attention to matters which we have discussed in Section two above.  If you have any specific questions or need any assistance, you may contact us via email at ecoenvpro@junhe.com.


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