Last month, Chinese President Xi Jinping announced a goal of carbon neutrality for his country by 2060. The move has been met with scepticism from experts, given that Chinese creditors have committed billions of dollars to fossil fuel projects around the world through the country’s Belt and Road Initiative (BRI).
The bold climate pledge was made by the Chinese leader via a video call during the UN General Assembly in New York. Xi was reported as saying: “We aim to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060.” He also called on all countries to achieve a green recovery for the world economy post-pandemic.
But given China’s high reliance on fossil fuels – it is the world’s biggest source of carbon dioxide, responsible for around 28% of global emissions – it remains unclear how the country would become carbon neutral.
Chinese entities are also a major source of finance for fossil fuel projects around the world, including in developing countries. According to the International Energy Agency’s (IEA) coal unit, more than 70% of all coal plants built today are reliant on Chinese funding. Under the BRI, China has committed over US$50bn in state finance to building 26.8 gigawatts of overseas coal facilities across 152 countries since its launch in 2013.
In fact, China’s support for fossil fuels projects through its export credit agencies (ECAs) China Export Credit Insurance Corporation (Sinosure) and the Export-Import Bank of China (Cexim) makes it one of the world’s biggest financiers of fossil fuels annually, finds a report published earlier this year by US-based NGO Oil Change International.
“Japan and China are the worst offenders, providing US$7.8bn and US$7.7bn annually to fossil fuels, followed by Korea and Canada with US$5.3bn and US$4.3bn, respectively,” the report reads.
China appears to be attempting to change its course on climate change. In April 2019, Xi delivered a keynote speech at the opening ceremony of the second Belt and Road Forum in Beijing, revealing that the BRI plans to become more sustainable – a move that has led to the moniker “BRI 2.0”.
Infrastructure projects built under BRI 2.0 should be high-standard, livelihood-improving and achieve sustainable development, reports state-owned media company China Daily.
Despite a more sustainable so-called BRI 2.0 now in the making, a survey by global research company Acuris and TianTong Law firm finds that the international community does not believe that China will deliver on its sustainability promises. Published last month, the survey quizzed 500 senior executives from both Chinese and international entities involved in BRI projects.
It finds that respondents outside of China are considerably more likely than those surveyed in China to think that sustainability and environmental considerations will not be given greater importance in the planning and completion of future BRI projects than in previous projects. According to the report, only 2% of international respondents strongly agree that they will, with 33% moderately agreeing, while 84% of those surveyed in China either strongly or moderately agree that sustainability will be top of mind for new BRI projects.
“Sustainability and environmental, social and corporate governance (ESG) issues are important parts of BRI 2.0. But they have not always featured in past projects, and they are still far from uniform across BRI. This has been a problem for some non-Chinese participants,” reads the report.
Many participants also believe that social issues have not been given enough attention. One insurer quoted in the report from the Central and Eastern European (CEE) region says that “the benefits of these projects have not been maximised to suit local requirements”.
Other respondents agreed that the disregard of ESG issues has created disputes with local communities. An Australian infrastructure operator was quoted in the report as saying: “Social problems were not addressed soon enough, which led to disputes between employees and locals.” The report adds that a “significant” number of those interviewed in the survey had been involved in disputes where projects had fallen foul of local environmental rules.
Transparency is also another area where there is a clear clash of opinions between international and Chinese executives. The vast majority of Chinese respondents (83%) expect BRI 2.0 projects to be more transparent than they have been in the past, with only 9% believing they will not be. Meanwhile, only 15% of international respondents expect the ‘new’ BRI to be more transparent, while 59% think it will not be.
This is not a new issue; analysts have questioned the legitimacy and transparency of the BRI since its inception, as the scheme’s numerical targets, KPIs and formal membership protocols are not clearly defined.
At its current trajectory, China’s BRI could prove the weak link for global emissions targets. In fact, a failure to improve environmental standards and reduce emissions in key BRI countries would cause a global warming of well above 2C – the upper limit of the 2015 Paris Agreement’s temperature increase target, finds a September 2019 report by Beijing-based Tsinghua Center for Finance and Development, consultancy firm Vivid Economics and non-profit the ClimateWorks Foundation.
Some disagree and believe that China is leading the way globally in its approach to sustainability. A blog published the same month by the World Economic Forum (WEF) reads: “It is easy to lose sight of important signs of progress,” adding, “China’s sustainability strategy is an example of global leadership that the rest of the world should consider very carefully. In the rush to demonise China over trade, the West has missed this point altogether.”
Others say a lack of unified green financing standards is holding back sustainable BRI efforts. “A huge hurdle facing the BRI in terms of ESG, particularly when it comes to the success of green financing, is that investors do not have a single set of principles which defines a green investment. Different standards being applied in different BRI recipient countries create huge risks for companies seeking investments, as it could lead to further funds being denied during the project’s lifecycle,” reads a report by law firm Baker McKenzie published in late 2019.
It adds: “It is clear that China is determined to use the BRI to push ESG considerations to an unprecedented level, in a move displaying green leadership.”