Trade and Investment

How to build environmental protection into ‘New Silk Road’

Jin Jiaman of GEI tells chinadialogue how China can improve environmental protection abroad

G20 leaders called for “green finance” policies to be “scaled up” at their Hangzhou summit this month, and for more work to be done on coordinating national standards so that environmental risks are at the heart of infrastructure loan decisions.

China’s reputation as a major overseas investor and the credibility of its vast “One Belt One Road” infrastructure plan will suffer unless Chinese firms follow environmental policies, Jin Jiaman, executive director of the Global Environment Institute, tells chinadialogue. She also suggests practical measures China’s government can take to guide firms’ activities overseas.

The “One Belt, One Road” development strategy envisages a giant web of infrastructure crisscrossing more than 60 countries, weaving them more tightly together, and will affect China’s global reputation for decades.

chinadialogue (CD): How do you think One Belt, One Road countries view the strategy?

Jin Jiaman (JJM): Many countries hope China will help them develop economically. But there are also plenty of concerns. They worry they’ll end up – like China – paying a huge environmental price for economic development. The whole world knows about China’s air and water pollution. There’s also a negative impression created by some problems China has faced with earlier overseas investments. For example, Burma’s government halted the Myitsone hydropower project on the Irawadddy in 2011. Local people thought the dam would harm the environment, their livelihoods and their cultural heritage. The situation hasn’t been resolved and the project has had to be shelved. It’s become well known as an example of China’s overseas investments.

CD: What can Chinese companies investing overseas do to protect against environmental risks?

JJM: The risk is that Chinese companies will apply the lowest possible environmental standards to keep costs down, as their core business is always to make a profit. The environment comes second.

When Chinese firms invest in developed nations, there is a legal framework and environmental standards and governance are tougher than in China, so the risks are less. But in developing nations, Chinese companies can apply lower, local environmental standards and governance is weaker.

However, any problems will hurt China’s government, national image and inter-governmental projects.

CD: Is there scope for improved mechanisms? 

JJM: Previous overseas investment drives involved only the Ministry of Foreign Affairs, and later the Ministry of Commerce. Should the Ministry of Environmental Protection now be included? Should China set environmental standards for overseas investment to ensure companies know the rules? In other words, should we also be exporting our environmental standards?

China could draw up specific standards for investments in developing nations, or apply China’s own domestic standards. For example, wastewater – what standards should there be? At the very least it shouldn’t harm local people’s health. When problems arise someone should be held to account – the company, individuals or the environmental impact assessment providers. There should be standards to refer to. This is the only way to reduce the environmental risks of investment.

CD: What approach do China’s financial lenders take to environmental risks now? 

JJM: China’s leadership are already aware of the role financial bodies can play in economic development and environmental governance. “Green finance” was on the agenda for the first time at the G20 summit in Hangzhou on 4-5 September, and the G20 leaders’ communiqué supported more work being done. “Green finance” means financial authorities should be making environmental protection a fundamental goal, and a benchmark for funding decisions.

Even though top politicians are taking environmental protection seriously, there’s still a long way to go in practice.

We find financial sector staff still view environmental protection as a matter for the environmental authorities: they see financial bodies as responsible only for ensuring loan repayments.

Environmental protection still isn’t a factor in investment and in the decision-making processes for lending on overseas investments. If the company and the funder are going to take environmental protection seriously then environmental standards have to be part of the processes, a condition of approval. There should also be transparency of environmental information and measures, to facilitate oversight and accountability.

CD: What role can NGOs like yours play, and what has GEI done?

JJM: NGOs can do preliminary research, and when issues are identified they can gather stakeholders together and act as coordinators. Because NGOs are independent intermediaries, acting as a bridge between companies, communities and the government, they can help them discuss possible solutions when conflicts arise.

At an international conference in Moscow in 2005, GEI heard many countries complain about China’s excessive logging activities overseas. On returning to China, we discussed possible solutions with the State Forestry Administration. Two years later, with SFA leadership approval, GEI and the Ministry of Commerce published the Guidelines for Sustainable Forestry Management for Chinese Companies Overseas.

In 2007, there was international controversy over the environmental impact of China’s overseas investments in the resources sector, such as mining or hydropower. We spoke with the Ministry of Commerce and the Ministry of Environmental Protection about ways to standardize corporate environmental behaviour and avoid investment risks.

Chinese companies take on a lot of risk when they invest in an unfamiliar location, and they are keen to see NGOs provide information and warn of risks. We ran a corporate training session in Yunnan province that explained the policies and laws of host nations and using case studies to analyse the success or failure of earlier investments. It was aimed at helping Chinese companies to realise that responsible investment doesn’t just help the host nation – it reduces investment risk. NGOs have an essential role to play in overseas investments.

This article was first published by chinadialogue

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