United States: Social Risk Assessment: China Raises Its Game

Last Updated: January 8 2013
Article by Nicholas Renzler

Until recently, it was not uncommon for Chinese companies to be invoked as bogeymen in certain circles. The narrative went something like this:

Western companies are more accountable than Chinese companies – via tort suits, civil society pressure, government regulation, and non-judicial accountability mechanisms such as the OECD Guidelines, to name a few.  Although Western companies' operations do create negative social, environmental and human rights impacts, it could be worse. Be thankful that they are operating in difficult environments such as Sudan, because in their absence, Chinese companies will fill the vacuum, and operate unaccountably and without regard to human rights impacts.

This may be poised to change. Recently, the Chinese government announced "that all major industrial projects must pass a 'social risk assessment' before they begin." The decision was evidently prompted by protests associated with negative environmental impacts of large-scale industrial and infrastructure projects. Although the nature, scope, and outcome of the risk assessment process remain unclear, it is clear that improved transparency and public involvement will be part of the process.

The purpose of China's social risk assessment process is to defuse threats to social stability. Large-scale projects around the world continue to regularly face operational threats from public opposition. For example, construction of what is projected to be the world's third largest hydroelectric dam, the Belo Monte Dam in Brazil, has been halted a number of times due to environmental and human rights concerns, and most recently last week due to a labor dispute. Last September, the Burmese government halted the construction of the Myitsone Dam, developed in conjunction with the China Power Investment Company, due to public opposition.

Signs of a growing awareness of the importance of assessing and mitigating human rights impacts in developing large-scale projects seem to be everywhere these days. Beginning with the publication of the  Guiding Principles on Business and Human Rights in March 2011, many prominent institutions have updated their approach to such impacts. As discussed previously on this blog, the OECD updated its Guidelines for Multinational Enterprises in May 2011, taking account of the growing consensus that corporations must be proactive about human rights impacts. In September 2012, the new draft Equator Principles were published, including language on free, prior and informed consent. This follows the January 2012 update of the IFC Performance Standards, also requiring free, prior and informed consent in certain instances.

China's proposed approach is a step in the right direction, but it still leaves a lot to be desired. China's decision, as bold as it may be, is about avoiding project-stopping problems, and not necessarily about obtaining local buy-in.

Thinking proactively – for example, asking how to work with local communities to ensure all stakeholders are satisfied – is preferable to, and in the long run, more cost-effective than, simply seeking to hold public dissatisfaction at bay. Smart players should recognize this and incorporate forward-looking human rights policies into their global operations.

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