The more money a listed polluting enterprise raises from the stock market, the more pollution it will release as it expands production. Those who own shares in such companies will certainly suffer when the environmental authorities inflict financial penalties or should an environmental accident happen.
It is hoped the guiding principles on strengthening the supervision of listed companies in the area of pollution control that have been released by the State Environmental Protection Administration (SEPA) will change this situation by forcing listed firms to regularly release information about their environmental performances.
Known as "green securities", the principles join the "green credit" and "green insurance" schemes adopted by the central government to step up environmental protection.
The principles require companies that could possibly cause serious pollution and consume a lot of energy, such as thermal power plants, iron and steel producers and cement plants, to undergo environmental performance assessments by environmental watchdogs before listing. The SEPA is cooperating with the China Securities Regulatory Commission, which recently released a document saying such assessments will be a prerequisite for companies to get listed.
The joint efforts by the two departments will kill several birds with one stone.
The regular release of information about the environmental performance of polluters and the penalties imposed by watchdogs to punish bad behavior will make them update their facilities to reduce pollution.
For investors, production and profitability will no longer be the only performance indicators worth watching when deciding whether to invest in a firm. Instead, they will also have to show concern for a company's environmental performance, since a polluting firm's development cannot be considered sustainable, creating risks that would be hard for investors to ignore.
This will undoubtedly help cultivate a sense of awareness of the need to protect the environment among stock market investors. And this awareness will exert pressure on listed companies to do a better job of reducing pollution.
This policy, if successful, will use the capital market as a lever to help fulfill the country's goal of preserving the environment.
(China Daily February 26, 2008)