Discussions in boardrooms worldwide focus on the question of how to map out a better corporate strategy for China.

The answer, many executives are finding, is to build an environmentally and socially sound business model that will drive future growth for the business and support clean and equitable development for the country.

Why would a company take such an approach? There are many reasons. Companies that can prove themselves as ethical and "green" alternatives to their competitors can hope to shore-up demand for their products and services, and attract talent to their firms. This is true not least of all in the domestic Chinese market.

In a study of 3,000 graduates in the United Kingdom, the United States and China done this year by PricewaterhouseCoopers, 87 percent of the Chinese respondents said that they would actively seek out employers whose sense of corporate responsibility reflects their own ethics and values.

While in another study from 2006, TNS, an international market research firm, found that 91 percent of Chinese consumers said that they would be more likely to refrain from buying a product if a company failed to follow environmental and ethical standards.

Although the promise of green and ethical entrepreneurship is gaining an audience among Chinese business leaders, adequate audit systems for developing an environmental and ethical business have only recently started to be adopted.

The first step a company can take toward building a more responsible business is to prepare a sustainability report. Such reports are voluntary and function as in-house audit on environmental and ethical practices.

Through the process of compiling such reports, companies can measure their impact in several areas including their use of natural resources and the way their business impacts society.

Reporting can help a company take stock of the sustainability of its operations as well as for its products and services. Success in the triple bottom line requires addressing both these areas.

Sustainability reports can later be used as a tool to establish a better business model by starting internal processes that lead to cutting waste, improving relations with company stakeholders, such as employees, consumers and the government as well as identifying new business opportunities that take advantage of the growing market for sustainable business solutions which is growing in China.

Automakers, for example, are hedging their bets that China will be a leading future market for small, hybrid cars that pollute less and use alternative fuels.

Last year, Toyota together with its local partner the China FAW group started selling its fuel-efficient Prius model in China. While Chinese car-makers including Chery, Chang'an and SAIC as well as global manufacturers such as GM, Ford, Buick and Volkswagen plan to launch their own hybrid models.

China is already the second largest car market in the world, now the world's biggest automakers expect that it will also soon become the leading market for cleaner cars.

This could help address the challenges of air pollution and increasing energy demands from China's growing fleets of cars. It could also lower prices of hybrid car models globally which could shake up the auto industry worldwide.

But it is not only automakers that are using China's massive manufacturing capacity as a launch pad for global environmental solutions. China is already one of the biggest global manufacturing bases and markets for everything from windmills to energy-efficient printers. In these industries Chinese companies often lead the charge.

The Chinese government is backing the drive toward "green" and ethically responsible industry as a method to promote its vision of a harmonious society. China's current five-year plan spells out reduction targets and central leaders now stress "scientific development" that pollutes less and reduces income disparities between China's coast and its interior.

Local governments are already adopting environmental growth indicators such as "green GDP" and assisting companies that show environmental stewardship. In October, the provincial leader of Jiangsu Province, for example pledged that the health of Lake Taihu would take precedent over GDP growth in the province.

Helped by such government support, some Chinese companies are now getting several sources of funding for their efforts to cut waste. Companies have shown that they can reduce costs by limiting the amount of resources they use in their production process.

Some can gain subsidies from local governments for passing environmental audits or are able to source funding from international partners who pay local Chinese firms for their carbon reductions through a Kyoto Protocol scheme.

The scale of such funding schemes in China is huge. The country already accounts for 60 percent of the world's carbon reduction projects, according to the Financial Times newspaper, and this month the Chinese government established a multi-billion-dollar fund that will invest the government's share of carbon reduction earnings into environmental projects.

But it is not just "green" solutions that can make good financial sense, a focus on people and ethics can also give companies an edge.

For example, businesses have also shown that by engaging a wider number of stakeholders, including society's poor, they can outsell their competition.

Unilever's Indian HLL subsidy, for example, has pioneered sales models that are geared toward the needs of India's poor consumers. Its methods have been replicated by Unilever to boost sales in developing countries from Nepal to Brazil.

In China, companies that can innovate their products to make life better for society's poor could not only sell their solutions in China, but also transfer such knowledge to other markets.

The company quagmire of how to develop a better business in China, is one that already has a partial-answer: Businesses can profit from a market that is demanding environmentally and ethically responsible companies.

The path to a more responsible business can start with compiling a sustainability report. The value of sustainable reporting schemes is recognized by companies worldwide. Over the years, about 1,400 companies have issued sustainability reports based on the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines, including 80 percent of the top 15 Business Week global brands.

Strong values, like strong brands, attract consumers, and a proven commitment to an ethical and environmental business model can help companies boost their business both globally, and in the national Chinese market.

The author is the technical director at Global Reporting Initiative, a non-profit organization based in Amsterdam.

(China Daily January 24, 2008)