Li Keqiang

In his recent state-of-the-nation speech, Chinese Prime Minister Li Keqiang acknowledged the impact of environmental, social, and governance— ESG—issues on that country’s economic policies. He announced that the government will “declare war” on pollution. The environmental impact of China’s mainly coal-powered energy generation has been well documented, with levels of toxic air pollution many times higher than accepted safe standards that have negatively affect commerce and health.

What’s new is the growing social pressure from the Chinese public, and the implications it raises for the government’s governance over the Chinese economy. Last month, the smog that covers much of the country was declared its first “orange” alert, the second highest-level of new pollution standards. As the toxic haze persisted, China’s blogosphere began to ask why a top-level “red alert” had not been issued. Despite the government’s rigorous Internet censorship, the online questioning registered as widespread criticism that had to be answered.

The Prime Minister noted that smog was a growing problem that authorities needed to “fight” with more resources. As an example, he proposed that plans to close “backward” production facilities in the steel, cement, and glass-manufacturing industries be moved forward by one year. The combination of social media commentary and the questions about the government’s policies it raised have added the “S,” social, and the “G,” governance to China’s already admitted “E,” environmental, to complete its adoption of ESG as a guiding economic philosophy.

Article by John Howell.