Why the Beijing Olympics Are Awkward for Corporate Do-Gooders

Probably that it was business-as-usual. Most multinationals, their investors, their corporate social responsibility departments, and even the ESG companies rating them grew up in a world with a certain set of convenient assumptions about China: fast-growing and politically intolerant, but with a political culture and institutions that would become more like the democratic West as it grew wealthier. And of course China was just too big of a business opportunity to ignore.

Now those assumptions are unraveling quickly. Beijing is becoming more repressive, not less, even as its once-blinding economic growth is starting to slow. Tough measures to combat Covid-19, a punishing crackdown on high-growth employers and structural forces such as worsening demographics have hammered Chinese consumption growth. Overall Chinese economic growth in 2022 could easily be under 5%, after decades when the economy hummed along at high single digit or even double digit growth rates.

All of this means that foreign companies choosing to actively ignore human rights issues in China, particularly at a high-visibility event like the Olympics, could be making a bigger gamble than they realize. If Chinese growth doesn’t strongly rebound in the mid 2020s—and the government continues becoming more repressive and aggressive abroad—companies might find they have traded away their good name at home for a much lower than expected return.

For the Olympic sponsors themselves—including many household names like

Coca-Cola,

Visa,

Procter & Gamble

and

Airbnb

—the dangers are particularly large. The Beijing Games risk becoming an acid test for credibility on corporate social responsibility. Beijing has been accused by several Western governments and human rights groups of systemic rights violations against the Muslim Uyghur minority in China’s Xinjiang Region, although it denies claims of any abuses.

That raises obvious questions for sponsors, particularly ones that have positioned themselves as good corporate citizens at home. Can Coca-Cola be a credible advocate for progressive political causes in the U.S.—as it has made a point of being with voting rights in Georgia—and also be a sponsor of the Beijing Olympics? Procter & Gamble, which has made a point of highlighting gender equality issues in its advertising, says on its website that its “goal is to use every opportunity we have—no matter how small—to set change in motion. To be a force for good and a force for growth.” Is such a credo compatible with sponsorship at this Olympics?

Companies have entire departments and armies of outside public relations helpers to whistle past the graveyard until a big event like the Olympics fades into the rear view mirror. Or they might not be so lucky: Beijing has threatened retribution against athletes who make political statements during the games. Should one choose to do so anyway—particularly an American—and be subjected to rough treatment, U.S. corporate sponsors might quickly find themselves in a supremely awkward position.

And what about the booming industry of grading companies on their virtues for giant investors? It already has taken heat recently for coming up with an alphabet soup of different rating methodologies which often return contradictory results. Now those companies’ very credibility as judges of social and environmental responsibility could face a test. Visa and Procter & Gamble, for example, are both included in the FTSE4Good and the Dow Jones Sustainability Indexes, which tap companies based on ESG scores from providers such as S&P Global and Sustainalytics. Will future scores be materially impacted by the decision to act as sponsors for the Beijing Games?

If not, then why not?

And even if the Games pass without too many awkward questions being asked of the companies or their raters, plenty of potential pitfalls lie ahead that could expose them as hypocrites. China is an ESG problem which isn’t going away unless there is a marked change in the political environment there. Unfortunately, human rights problems have become entangled with other ESG-related concerns like the solar supply chain, which runs through Xinjiang.

For most companies, a full China exit is unrealistic; strong business ties between China and developed democracies remain an important overall stabilizer in the relationship. But the nuances matter, both for business and for perceptions among investors and customers. Companies like Tesla which actively choose to open new branches in Xinjiang or companies that actively support an Olympics that their governments have chosen to boycott on human rights grounds might end up paying a larger price than they anticipate—particularly if Chinese growth continues to slow and Beijing’s repressive tactics keep intensifying.

At the very least they might be expected to explain themselves.

Write to Nathaniel Taplin at [email protected]