pnbsp; nbsp; 2 Green Stocks Phase II Report nbsp;Authors Institute of Public and Environmental Affairs Green Hunan Lvse Jiangnan nbsp;Cover Photo Liu Ke nbsp; Acknowledgements nbsp; Many thanks to the SEE foundation for their support. The contents of this report represents the personal views of the authors and does not represent those of SEE. nbsp;Many thanks to all the volunteers who helped in the research and authoring of this report. nbsp;Disclaimer nbsp;This report has been written by the Institute of Public and Environmental Affairs and ination contained in the report is for reference only. Ination in the report was obtained from public and lawful sources and as far as is possible to say, is reliable, accurate, and complete. Ination in the report cannot be said to be any legal basis or proof assumed by IPE. IPE can supplement, correct and revise ination in the report according to relevant legal requirements and actual circumstances and will publish these as quickly as is possible. IPE does not accept any responsibility for any direct or indirect consequences arising from the publication of ination in the report. Any quotes from the report must be referenced to IPE and should not be quoted incorrectly, out of context, or in an abridged or amended way. The right of final interpretation, modification and to update the report is borne solely by IPE. nbsp;Translation Accuracy Disclaimer This document has been translated by IPE for the purposes of reference only. Due to the difficulties of translation slight differences may exist. If any questions arise related to the accuracy of the ination contained in this translation, please refer to the Chinese version of the document which is the official version of the document. Any discrepancies or differences created in the translation are not binding and have no legal effect for compliance or enforcement purposes. nbsp; Contents 1. FOREWORD 1 2. EMISSIONS FROM LISTED COMPANIES IN SOME INDUSTRIES ARE EXTREMELY HIGH 4 2.1 LARGE SCALE EMITTERS REPEATEDLY VIOLATE DISCHARGE STANDARDS 4 2.2 ANALYSIS OF LISTED COMPANIES IN KEY SMOG-CAUSING INDUSTRIES 11 2.2.1 Cement Industry 11 Case Study 1. China National Building Materials Group Corporation Stock Code 3323.HK 11 Case Study 2. Tangshan Jidong Cement Co., Ltd. 000401.SZ 14 2.2.2 Non-Ferrous Metal Smelting Industry 18 Case Study 3 Aluminum Corporation of China Chalco Stock Code 601600.SH, 2600.HK 18 2.2.3 Steel Industry 24 Case Study 4. Shandong Iron some insiders present the view that it will take 30 or even 50 years to control the smog. nbsp; nbsp;Figure 1. NASA satellite map the North China Plain shrouded in smog on October 9, 2014 nbsp;Facing smog events that come one after the other, residents wear masks and children are asked not to take part in outdoor activities. Will there come a time when people can do nothing at all The fact that there were blue skies during the APEC summit of November 2014 confirmed that smog is not a natural phenomenon that is impossible to solve. It showed that it can be controlled effectively even in unfavorable meteorological conditions if pollution emissions are reduced significantly. nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; 1 nbsp; 2 Green Stocks Phase II Report Smog is controllable but this control necessitates a breakthrough at some key points. The practice of air quality guarantee covering seven provinces and municipalities directly under the central governments during Asia-Pacific Economic Cooperation APEC 2014 proved that present air pollution shows an obviously regional feature and that coal burning and industries play the main part in emissions in major areas. It is much easier to control the emissions from a limited number of large point sources than to control that from millions diffuse sources such as motor vehicles. Among many air pollution sources, quite a few are related to enterprises affiliated to listed companies in the thermal power, steel, cement, non-ferrous metallurgy and chemical industries. nbsp;In our research, we found that enterprises affiliated to over 1,000 listed companies have violated relevant regulations and standards, with a higher proportion of violations amongst listed companies in the smog-causing power, steel, non-ferrous, cement and chemical industries. The real-time disclosure of online monitoring data initiated since 2014 has further highlighted the fact that listed companies and enterprises in some key smog-causing industries frequently fail to discharge pollutants in accordance with the relevant standards. nbsp;Listed companies held by the public should not continuously cause damage to the environment and public health. According to an estimate by the World Bank in 2007, the health costs resulting from air and water pollution in China were equivalent to 4.3 of the country’s GDP. Some scholars have comprehensively assessed the socio-economic effect 2 of air pollution events using disease cost s and the human capital s. For example, they found that the large-scale, national, smog event in January 2013, caused total health and economic losses due to emergency treatment/outpatient services of around 22.6 billion yuan. 3 nbsp; However, during our research we found that a group of listed companies with serious air emissions failed to respond to questions about smog problems. Most of the 34 enterprises that we communicated with failed to provide proper responses to their serious air emissions, and just three of them made positive responses to this problem. Among the 34 enterprises, one listed steel company based in the region seriously affected by smog explicitly refused to respond to the question about its emission in violation of the discharge standards, saying “the smog problem is not very important for us”. nbsp;Such severe environmental and health hazards are pushing the Chinese government and all sectors of society to take action. With environmental law enforcement and social supervision being intensified, those listed companies that have air emissions problems will be under increased pressure. The “Environmental Protection Law of the People’s Republic of China”, which will come into force on January 1, 2015, contains some strong measures such as fines that accrue on a daily basis. Based on this, for some enterprises, that according to online monitoring data, repeatedly violate the related standard and are affiliated to listed companies, we have attempted to measure the daily fines that they would have faced and we found that the amount is likely to reduce the profits of the related enterprises significantly. Meanwhile, the expansion of environmental ination disclosure means that existing and new projects of some large-scale pollutant emitters violating the regulations and standards may meet “NIMBY” resistance from local communities. nbsp; Only when listed companies from major smog-causing industries that repeatedly violate discharge standards feel that there is a risk in doing so will they carry out large-scale emission reduction on the basis of the rule of law. This will also help to solve severe overcapacity in related industries through survival of the fittest. Our report recommends that the environmental authorities strengthen environment laws and continue to expand ination disclosure so as to promote, through social supervision, the implementation of measures such as daily fines. nbsp;Facing the public’s urgent requirement for smog control and the government’s expanding nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp;2 uation of the direct socio-economic costs of the large scale smog event in China in January 2013, Mu Quan and Zhang Shiqiu. 3 Equivalent to 32.2 of Chinese society’s average monthly expenditure on health. nbsp; nbsp; 3 Green Stocks Phase II Report ination disclosure, the negative and unresponsive large-scale pollutant emitters will not only take risk themselves but also create real investment risk. We recommend that the listed companies that contribute to the smog see the severe situation clearly and move toward large-scale emission reduction and compliance with environmental laws. This report also recommends that investors pay close attention to the emissions and coping capacity of the listed companies, to reduce their exposure to smog risks and drive China’s smog control through responsible investment. nbsp; nbsp; 4 Green Stocks Phase II Report 2. Emissions from Listed Companies in some Industries are Extremely High 2.1 Large Scale Emitters Repeatedly Violate Discharge Standards nbsp;As of December 12, 2014, the IPE’s Green Stocks database contained 1069 environmental supervision records for listed companies and their subsidiaries, accounting for almost two fifths of all listed companies. 4 Emissions of sulfur dioxide, nitrogen oxides and soot from industrial sources account for between 70-90 of their total emissions. Amongst 41 different industries, the five key industries below account for between 78-93 of their total volume of atmospheric pollutant emissions, so they can be referred to as large scale emitters. The report that follows analyses the emissions from listed companies in these five key smog-causing industries nbsp;Š Thermal power production and supply; Š Ferrous metal smelting and rolling processing industries; Š Non-ferrous metal smelting and rolling processing industries; Š Non-metal mineral products industry; Š Chemical raw materials and chemical products industry. nbsp; Figure 2. Proportion of emissions from each of the five big emitting industries 5 nbsp; Figure 3 shows that listed companies in the five key smog-causing industries shown in orange generally have a higher proportion of environmental violations. For example, 34 out of 36 listed steel companies ferrous metal smelting and rolling processing industries, were under supervision for having poor environmental compliance records, which equals a non-compliance rate of 90. Furthermore, around 80 of listed companies in the power industry have poor environmental supervision records. nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp;4 IPE Green Stocks Database In total there are 2679 A share companies, H Share companies and foreign listed companies. As of December 5, 2014 there were a total of 5359 records for 1069 listed companies in the database. 5 Source 2012 State of the Environment in China Report nbsp; nbsp;5 Green Stocks Phase II Report nbsp;Figure 3. Comparison of the percentage of listed companies in a particular industry that have environmental violation records as of October 31 st 2014 94.4 78.2 69.5 69.1 65.7 56.0 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 Average39.9 nbsp;6 Green Stocks Phase II Report By looking at the average number of violation records for listed companies in each industry we can see that in the top 15, the five key smog-causing industries are near the top. The 68 listed companies in the power industry have 738 environmental supervision records between them, which means each listed company has on average more than 10 records. One of the reasons for this is that listed power companies often own very large groups of power generators, which means that when discharge standards and supervision enforcement gets stricter, repeat violation problems for power generators, such emissions breaching discharge standards, become increasingly prominent. nbsp; nbsp;Figure 4. Total number and average number of supervision records for listed companies by industry as of October 31, 2014 nbsp;The real-time disclosure of online monitoring data has helped to highlight that some listed companies are repeatedly breaching discharge standards. nbsp;According to Ministry of Environmental Protection MEP requirements, since 2014, a large number of environmental protection bureaus EPBs at provincial, municipal and autonomous region level across the country have had to set up online plats to publish real-time discharge data for key state monitored enterprises. nbsp; This real-time data has shown that a range of key air emission sources are breaching discharge standards. The “Pollution Map” app developed by IPE and SEE shows that nationally, every hour, there are more than 400 key air emission source enterprises that are unable to adhere to discharge standards. 10.85 8.18 7.04 6.58 4.96 0 2 4 6 8 10 12 14 16 18 0 100 200 300 400 500 600 700 800 Total number of supervision records for listed companies by industry Average number of supervision records for listed companies by industry Average4.94 nbsp; nbsp;7 Green Stocks Phase II Report nbsp; Figure 5. Screenshot from the “Pollution Map” app with real-time discharge data showing air emission source enterprises breaching discharge standards nbsp;We have done some matching of online air emissions data and listed companies and looked in detail at the online monitoring data from 900 affiliates of 213 listed companies in the five key smog-causing industries. nbsp; We calculated the instances of discharge standards being breached by affiliates of listed companies according to the following criteria and ology nbsp;Time period August 1, 2014 – October 31, 2014. A total of 92 days. Pollutants Sulfur dioxide, nitrogen oxides, soot particulate matter Data source Provincial level key state monitored enterprise self-monitoring ination disclosure plats Definition of breaching discharge standards A company is considered to have breached discharge standards if at one discharge outlet, one pollutant, is discharged at a concentration in breach of the legally recognized discharge standard limit value for three hours consecutively. 6 The day that this occurs is then considered a day whereby the company breached discharge standards. nbsp; Table 1 and 2 show that a large number of subsidiaries of listed companies in the five key smog- causing industries have long periods where they breach discharge standards. nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; nbsp; 6 If the data source publishes both real-time concentration and converted concentration values then the converted concentration value will be used for the calculation. nbsp;8 Green Stocks Phase II Report nbsp;Table 1. Number of listed companies in key industries that have breached discharge standards and the total number of days where discharge standards were breached Industry Group No. of Companies Exceeding Discharge Standards Total No. of Days Discharge Standards were Exceeded Thermal power production and supply; 125 1621 Non-metal mineral products industry; 83 963 Ferrous metal smelting and rolling processing industries; 19 618 Chemical raw materials and ch/p