In China, firms flash green credentials as regulators loom

Apple Inc is planting trees, Mars may move to 'zero carbon' and Foxconn Technology Co Ltd is spending millions of dollars to give its factories a 'green' makeover, as companies operating in China face tighter rules on pollution.

Beijing introduced tougher regulations this year to combat pollution, keen to overhaul China's unwanted image of smog-choked cities, fouled waterways and heavy-metal tainted soil.

This won't come cheap; the country's central bank estimates China will need to spend 2 trillion yuan ($322 billion) a year over the next five years on reducing pollution, and government coffers will only cover about a tenth of that - leaving local and international firms to pick up the rest of the tab.

"For companies and factories which need to seriously cut levels of pollutants, it's going to be extremely costly - we're talking millions of dollars," said Philip Cheng, Shanghai-based partner at law firm Hogan Lovells.

Harsher penalties were also introduced this year, and local governments - with tougher targets of their own - have been putting more pressure on businesses making anything from chocolate to clothing, China-based executives said.

A Beijing regulator last month fined a leading supplier of fries to McDonald's Corp for water pollution,

while the cost of meeting pollution targets for China's mostly state-owned steel firms has jumped 50 percent on average since last year.

"China's environmental law is becoming one of the strongest in the world," said Manuel Baigorri, senior director of sustainability at Levi Strauss & Co, which is working on a project to use less water and power at its China mills.

Rising costs

Apple, which makes the majority of its iPhones in China, said this month it would help plant and protect up to 1 million acres of new forest land in China, and has launched a solar project in southwestern Sichuan province.

US chocolate maker Mars said it was in talks with local governments about sustainability, and planned to replicate something similar to a $345 million US wind power project to help makes its operations "carbon neutral".

"There's a lot of interest and attention in greening the grid and getting more renewables going in China, so it feels like a good time to be working in that direction," said Mars' global sustainability director Kevin Rabinovitch.

Wal-Mart Stores Inc said it is using energy efficient equipment in its stores, while McDonald's is "accelerating" work on sustainability in China in line with "government expectations", a China spokeswoman said.

Executives in China noted the new regulations were already driving up costs, especially in high polluting sectors such as energy, natural resources, chemicals, metals and apparel.

"We're definitely seeing the costs related to environmental compliance going up," said a Shanghai-based executive at a large international chemicals firm.

Others added that costs were rising, but were worth paying to stay on the right side of regulators and local governments, often the gatekeepers to business in the world's second-largest economy. "This can be a competitive advantage for multinational companies, leading the market where the government has quite firmly said it would like it to go," said David Frey, China-based partner at KPMG.

Real impact

A major question, though, is whether China has the resources to enforce the new rules, especially with local governments torn between growth and environmental protection.

Company executives focused on sustainability said directives were coming down from central government, but local authorities often didn't have the muscle, or the will, to enforce them.

"We're seeing Beijing issue policies pushing factories to reduce water and energy use, but local regulators often don't have the systems in place to properly implement them," said a Shanghai-based executive at a global consumer goods firm.

The new rules have, though, created business opportunities for firms helping industries reduce waste, and auditor firms are bulking up their Chinese environmental compliance teams to meet demand.

Major manufacturing firms such as Apple supplier Foxconn invested around $33.5 million on green projects last year, and said it is looking to improve energy efficiency further in 2015.

"Government policies are highly influencing companies to switch to renewables," said Rosie Pidcock, a Beijing-based business development manager at renewable energy project developer UGE, noting her firm has seen an increase in new business since the tougher rules were announced last year.