UN Photo/Loey Felipe President Xi Jinping of the People’s Republic of China addresses the general debate of the General Assembly’s seventieth session.
Author: Shouqing Zhu, Research fellow, Center for Finance and Development of Tsinghua National Institute of Financial Research & Sha Song, Specialist, Knowledge Networks and Sustainable Development, World Economic Forum Beijing.
The emergence of China as an economic and political power in the past decade has made waves in the ocean of geo-economics and geopolitics, especially with the country’s “Belt and Road Initiative” (BRI), a recent ambitious infrastructure project along the ancient land and maritime Silk Road routes. Through the BRI, China aims to strengthen connections between Asia, Europe and Africa, and promote cross-border trade, economic integration and inclusive growth.
While the BRI is generally viewed as an opportunity to address the infrastructure gap and boost economic growth, it is not without controversy. China is the largest emitter of greenhouse gases in the world, responsible for 30% of global carbon emissions. It has an abundance of surplus industrial capacity, much of which is heavily polluting. Meanwhile, some Chinese financial institutions and corporations made mistakes in other countries and their handling of environmental issues has attracted criticism from the international community.
On the flipside, China has also been a leader in renewable energy investment, accounting for 36%, 40% and 36% of the world’s total investment in hydro, wind and solar respectively. It also plans to invest $360 billion more into renewables from 2017-2020. China is making leaps and bounds in technological innovation, spending $408.8 billion on research and development in 2015, surpassing the European Union and catching up with the US.
China has played a positive role in the fight against climate change since the US withdrew from the Paris Agreement, and its corporations are increasingly taking the lead in renewable energy development overseas, investing $32 billion – more than any other country. One example of the country’s foreign direct investment activity is the 244 megawatts’ worth of wind farms that the China Energy Investment Corporation is building in South Africa.
With trillions of dollars projected for infrastructure investment in the BRI and China going all out to integrate its huge market with those countries, it is fair to ask how we can make this an opportunity for green transformation in the region.
Facing international pressure and critique, the Chinese government is fully aware of the imperative of “greening” the BRI, highlighted by the release of two government directives in May 2017: The Belt and Road Ecological and Environmental Cooperation Planand Guidance on Promoting Green Belt and Road.
China has also taken measures to implement these directives. One is the International Coalition for Green Development on the Belt and Road, a multi-stakeholder platform convened by the ministry of ecology and the environment. This platform is open to multilateral organizations, government departments, corporations and think tanks from around the world, and has a mission to share good practices and provide policy solutions to sustainable development.
Another initiative is the Green Investment Principles for the Belt and Road, a set of voluntary guidelines currently under development by a consortium of international organizations led by the Green Finance Committee of the China Society for Finance and Banking.
To ensure that environmental friendliness, climate resilience and social inclusiveness are built into the new investment projects and daily business operations in the Belt and Road region, we need to make the following happen:
Firstly, China must take mandatory measures to enhance social responsibility in Chinese corporations. In the past decade, various Chinese government departments and industry associations issued guidelines for responsible overseas investment. But all these guidelines are of a voluntary nature and, therefore, compliance is poor. It is time to give them teeth. At a business level, corporations must embed sustainability into corporate strategy and organizational culture, set up robust sustainability management systems, integrate ESG (environment, social and governance) into operations and investment decisions, and institute information-sharing and conflict-resolution mechanisms to maintain good communication with stakeholders and resolve disputes with employees and communities in a timely manner.Secondly, “greening” investment and business operations in the Belt and Road will only happen through joint efforts from investors and recipients. Host countries must, therefore, create a conducive and stable environment for green investment. This requires countries along the Belt and Road to “green” their fiscal, regulatory and financial systems, including making fiscal and taxation policy friendly to green business, addressing information asymmetry by regulatory measures, utilizing green financial instruments such as green bonds and green indices, and encouraging accounting for the entire lifecycle in the supply chain.Thirdly, underlining all of the above is the ability to design systems and develop instruments in government departments, financial institutions and corporations. This is an area where collective action is needed. Multilateral organizations, especially the UN system, need to set up – or support others to set up – platforms for stakeholders to share knowledge and experience. A good example of this type of capacity-building platform is the Global Green Finance Leadership Programme, championed by the Centre for Finance and Development of Tsinghua University in collaboration with the IFC-supported Sustainable Banking Network (SBN) and China Council for International Cooperation on Environment and Development (CCICED). At its launch event in May 2018, more than 120 government regulators and financial executives from 35 countries in the Belt and Road participated in a week of knowledge-sharing workshops in China.
If we do well with the above, we believe the BRI will be a win-win solution for development and that China could make a contribution to the green transition to sustainability in the countries along the ancient Silk Road.