OBOR investment from China's policy Banks needs to be more sustainable

2019-08-22


On August 22, NRDC’s GBRI partner Tsinghua University released a report entitled “Research on Green Investment Guidance and Financing Standards for Policy Banks in the Belt and Road Initiative”. This report provides systematic suggestions on standards and procedures for Chinese policy banks’ overseas investment, including coal power plant investment, by identifying the shortcomings of the banks’ current policies and comparing and benchmarking these policies with the Environmental and Social Standards (ESS) of other international financial institutions. The report includes interviews with staff from the China Development Bank (CDB) and the Export-Import Bank of China, with the goal of developing green cooperation with BRI countries as supported by Chinese government. The study provides a research foundation for China's policy banks to develop guidelines and specifications for BRI green investment and financing. Lu Hanwen, who has worked in green finance on behalf of CDB for many years, attended the meeting and recommended further communication with CDB and a push for the implementation of these recommendations.

The study concludes that China is gradually establishing a legal system for overseas investment that regulates and supervises enterprises, financial institutions, project approval, and overall planning. At present, no specific laws or regulations have been introduced to monitor the environmental and social performance of Chinese companies investing overseas. For enterprises, the environmental and social impact of investment falls under the social responsibility of the company. Thus, relevant regulations are mainly based on incentives and voluntary actions, with no punitive measures for violations. For regulators, supervisory and control responsibilities are unclear and ineffectively distributed. As a result, these monitoring duties end up relying upon reports that the companies produce. In the absence of independent verification and on-site inspections, oversight becomes a mere formality. Although the financial policy norms are relatively complete, in general, the current policy system is ineffectiveness and fragmented, lacks specific implementation rules and standards, insufficiently discloses information, and elicits little public participation in the implementation process.

 This report proposes the following: (1) Expand the scope of environmental and social assessments, incorporating more than just the project investment. (2) Use compliance with host country standards as a bottom line for BRI foreign investment. On top of this, consider regional standards and introduce industry sustainability standards, along with the superior practices of international financial institutions. (3) Improve risk management in pre-lending, lending, and post-lending stages through classifying projects according to their social and environmental impacts, increasing the content of assessments on these consequences, refining due diligence surveys on risks in these areas, enhancing the role of environmental and social impact documents in loan reviews, establishing independent monitoring mechanisms, and introducing third parties to conduct independent evaluations. (4) In the loan contract, require clients to disclose information, conduct consultations with relevant stakeholders, and establish a mechanism for hearing complaints. Independently review and evaluate the disclosed information and results from investment, making this a condition to the loan. (5) Establish industry policy standards. (6) Aside from adhering to the financial industry’s international norms, including compliance with the international conventions to which China is a signatory as a hard requirement for investment.





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