Last week, the Chinese government issued a policy encouraging Chinese businesses to integrate green development throughout the whole process of overseas investment and cooperation. The document, titled Green Development Guidelines for Overseas Investment and Cooperation, was jointly issued by the Ministry of Commerce and the Ministry of Ecology and Environment. It is an excellent step, and we expect more good news on greening the Belt and Road Initiative (BRI) over the course of this year.
The guidelines require Chinese enterprises to “follow international green rules and standards” in overseas activities where local standards are insufficient. They are comprehensive, covering climate, biodiversity, and pollution. The guidelines emphasize:
- Adhering to the “green development concept” throughout the entire process of foreign direct investment and cooperation.
- Encouraging the practice of environmental impact assessments and due diligence in accordance with internationally accepted standards—a clear move away from the host country principle for green development.
- Applying high standards at the planning and design phases of infrastructure projects and strengthening contact with host country governments, media, local people, and environmental protection organizations.
- Supporting investment in solar energy, wind energy, nuclear energy, biomass energy, and other forms of clean energy.
The guidelines appear to be closely aligned with the recommendations of the Green Development Guidance for BRI Projects, which was issued in December 2020 and jointly conducted by the BRI International Green Development Coalition (BRIGC), World Resources Institute (WRI), and ClientEarth.
The guidelines also cover trade by requiring companies to speed up integration with the global green supply chain, carry out green procurement, and purchase environmentally friendly products and services. If implemented well, this could be a game-changer for biodiversity, as the production of commodities such as soy, beef, and palm oil has been identified as a key driver to tropical deforestation.
CCICED has made important contributions to greening the BRI. As early as 2015, policy recommendations sought to implement ecological civilization and green development in the BRI, pointing to green finance as a key instrument. That same year, the National Development Reform Commission (NDRC) and several ministries issued a “vision” for the BRI that clearly emphasizes green and low-carbon objectives as well as biodiversity. Since then, a lot of progress has been made in realizing this vision. The 2017 annual policy recommendations contained stronger language on greening the BRI, which received endorsement from President Xi Jinping. Since then, the BRIGC was established, and a series of Special Policy Studies on Greening the BRI were conducted in 2018, 2019, and 2020.
A few weeks ago, in June, BRIGC, ClientEarth, and the Beijing Institute for Finance and Sustainability conducted a two-day workshop on environmental and climate risk mitigation with the largest financial institutions in the BRI. At the interactive workshop, it quickly became clear how all participating financial institutions are actively working on going green. Although the process is not without difficulties, these institutions are developing key policies, such as categorization of projects based on environmental risk, requirements for environmental standards, impact assessments, third-party evaluation, information disclosure and public participation, grievance mechanisms, and even potential fossil fuel exclusion policies. They are also making rapid progress in developing green loans and bonds, backed by a strong push toward climate finance from China’s central bank.
The new guideline is soft law, so it cannot be enforced in court. However, it matters because so many of the key actors in the BRI are state-owned enterprises. The guideline is specifically addressed to the most important ones: China Development Bank, China Import-Export Bank, and Sinosure, China’s export credit agency. This policy gives a boost to their efforts to go green and helps to set their expectations that stricter measures are likely to follow.
We’re starting to see this play out in the real world. 2020 was the first year when renewable investments in the Belt and Road exceeded coal, and no new coal-fired power plants in the BRI had been announced with Chinese backing. In 2021, China announced the exit of planned coal projects in Bangladesh and pulled out financing from a huge coal plant in Zimbabwe. This shift away from climate-harming projects also makes economic sense, as electricity from new solar power is already up to five times cheaper than from new coal power. Nevertheless, this green shift and its speed should not be underappreciated: only a few years ago, international criticism of China’s overseas coal investments were ubiquitous—as were financial risks. Take, for example, the Lamu coal plant in Kenya, which was suspended by a court ruling in 2019 following a challenge to its environmental impact assessment, or the Tapanuli hydropower dam in Indonesia, which incurred major delays following allegations that it would harm the habitat of a unique sub-species of orangutans.
We expect this positive trend to continue, with China becoming more and more proactive in greening its overseas investments. The new guidelines allude to “relevant environmental protection requirements on overseas projects,” the content of which is not clear yet. This suggests that further requirements on greening overseas investment are in the making. And in the runup to the Glasgow climate Conference of the Parties, it is likely that China will announce further steps to make the BRI compatible with the Paris Agreement on climate change.
Check out the English version of the Green Development Guidelines for Overseas Investment and Cooperation published by ClientEarth.