A sustainable Belt and Road - in good times and bad
A sustainable Belt and Road - in good times and bad
As this article was written, the COVID-19 pandemic was continuing to spread around the world. Not only had the virus brought the global economy to a grinding halt, but it had also exposed its vulnerability to systemic shocks.
Among global economic and social concerns, the pandemic has raised questions around the future of the Belt and Road initiative (BRI), including investments in sustainability. China’s ongoing commitment to BRI – with deals being sealed since the outbreak for a business park in Myanmar and a large solar energy farm in Laos – seems evident. With this commitment and given that BRI projects underpin major infractructure plans for many participating economies, the initiative must remain on track in the long term.
As part of COVID-19 recovery efforts, in the short term, individual governments are expected to prioritise addressing medical needs and looking after the most vulnerable sections of the economy. But a longer-term recovery needs a combined effort by governments and businesses to ensure job creation, definitive climate change, an end to the poverty cycle and to build more inclusive societies. These sustainable recovery efforts would also apply to BRI, including the embedding of sustainable practices across the financing and development of BRI projectsand protecting the health of workers involved in these projects and the wider local populations.
A sustainable recovery
Notwithstanding the COVID-19 pandemic, China had already been making progress in greening the BRI.
In April 2019, China’s President Xi Jinping had formally committed to sustainable environment and financial practices for BRI projects. In a speech at the second Belt and Road Forum in Beijing, President Xi pledged to build “high-quality, sustainable, risk-resistant, reasonably priced, and inclusive infrastructure.”
The need to improve the green credentials of Belt and Road – by investing in renewable energy, green construction practices and implementing stricter project environmental-impact assessments – has been acknowledged for some time. The Chinese government had issued guidance on “Promoting the Green Belt and Road” back in 2017 and made sustainability a core part of the official Guiding Principles of Belt and Road Financing in the same year.
Yet as the initiative becomes increasingly international, China alone cannot be responsible for ‘greening’ it. The 131 participating countries account for almost 30 per cent of global emissions, but on their current trajectory, that could rise to 66 per cent by 2050 – particularly if many of the countries involved continue to follow carbon-intensive growth patterns.
“Infrastructure is a key driver of growth and job creation, but it can come at a cost, with World-Bank estimates suggesting that infrastructure construction and operations account for 70 per cent of global greenhouse emissions,” said Daniel Hanna, Head of Sustainable Finance at Standard Chartered. “The USD26 trillion in infrastructure investment that is required within developing Asia alone is both a risk and an opportunity.”
Clearly more work needs to be done, especially considering the COVID-19 effect. However, there are already signs that Belt and Road is taking firm steps in a more sustainable direction. And this doesn’t just mean addressing environmental challenges. A truly sustainable Belt and Road will encompass multiple aspects – from financing to water management to education and training to improving public health systems.
While China’s headways in green policy and finance are expected to be reflected across BRI projects, it’s important to remember that the initiative’s financing landscape is diversifying, with increasing involvement from multilateral and private-sector lenders. Many of these financiers already adhere to strict environmental, social and corporate governance (ESG) principles – so as they become even more involved, the environmental governance throughout the Belt and Road will naturally strengthen.
On the environmental side, global banks are steadily greening their finance and many, including Standard Chartered, have committed to stop financing coal. And both banks and multilateral bodies are increasingly applying green principles to their lending activities on the Belt and Road.
The Asia Infrastructure Investment Bank (AIIB) – one of Belt and Road’s major multilateral financing institutions – has been leading the charge in many respects. For example, it has set up a USD75 million lending facility in India to finance renewable energy and water projects, and another USD100 million green infrastructure loan vehicle for solar and wind projects in the country.
As well as multilateral lenders like the AIIB, private financiers are also giving cause for optimism, with increasing formalisation of B&R green investment principles. For example, at the second Belt and Road Forum, 27 financial institutions – including Standard Chartered – signed the Green Investment Principles for Belt and Road. This set of voluntary guidelines was developed by the Green Finance Committee of China Society for Finance & Banking and the City of London Corporation’s Green Finance Initiative.
The formalisation of such principles marks an important step towards a sustainable Belt and Road. Yet for the Belt and Road to become truly sustainable (economically, environmentally and socially), the widening adoption of green investment principles needs to be integrated into a holistic approach to development. Such an approach must marry green energy and green finance with better management of water and waste, circular principles of economic growth, and grassroots initiatives to bolster employment and education.
COVID-19 has demonstrated that sustainable development initiatives must build capacity in economies and societies to both endure and recover from external shocks. For Belt and Road, this will require governments and businesses to work together to identify and invest in projects that deliver multiple benefits to society over the long run. Moreover, growing support from international banks and investors could help to reduce the financial and ESG risks of BRI projects and cement a more sustainable future for all BRI stakeholders.
Source: Nikkei Asian Review, 2 April 2020
Source: Belt and Road beyond 2020. Partnership for Progress and Sustainability along Belt and Road.
Source: BRINK: China’s Belt and Road is Opening up to Foreign Companies 3 March 2020.
Produced in partnership with Bloomberg Media Studios
This material has been prepared by one or more members of SC Group, where “SC Group” refers to Standard Chartered Bank and each of its holding companies, subsidiaries, related corporations, affiliates, representative and branch offices in any jurisdiction, and their respective directors, officers, employees and/or any persons connected with them. Standard Chartered Bank is authorised by the United Kingdom’s Prudential Regulation Authority and regulated by the United Kingdom’s Financial Conduct Authority and Prudential Regulation Authority.
This material has been produced for reference and information purposes only, is not independent research or a research recommendation and should therefore not be relied upon as such, and does not constitute an invitation, recommendation or offer to subscribe for or purchase any of the products or services mentioned or to enter into any transaction.
Some of the information herein may have been obtained from public sources and while SC Group believes such information to be reliable, SC Group has not independently verified the information. Information contained herein is subject to change at any time without notice. Any opinions or views of third parties expressed in this material are those of the third parties identified, and not of SC Group. While all reasonable care has been taken in preparing this material, SC Group makes no representation or warranty as to its accuracy or completeness, and no responsibility or liability is accepted for any errors of fact, omission or for any opinion expressed herein. The members of SC Group may not have the necessary licences to provide services or offer products in all countries, and/or such provision of services or offer of products may be subject to the regulatory requirements of each jurisdiction. Any comments on investment, accounting, legal, regulatory or tax matters contained in this material should not be relied on or used as a basis to ascertain the various results or implications arising from the matters contained herein, and you are advised to exercise your own independent judgement (with the advice of your investment, accounting, legal, regulatory, tax and other professional advisers as necessary) with respect to the risks and consequences of any matter contained herein. SC Group expressly disclaims any liability and responsibility whether arising in tort or contract or otherwise for any damage or losses you may suffer from your use or reliance of the information contained herein.
You may wish to refer to the incorporation details of Standard Chartered PLC, Standard Chartered Bank and its subsidiaries at http://www.sc.com/en/incorporation-details.html.
© Copyright 2021 Standard Chartered Bank. All rights reserved. Copyright in third party materials is acknowledged and is used under licence. You may not reproduce or adapt any part of these materials for any purposes unless with express written approval from a member of SC Group.