Thursday 25 April 2019 (Beijing) – It was announced today that 27 global institutions have signed up to a set of voluntary principles – the Green Investment Principles (GIP) for the Belt and Road -- to promote green investment in the Belt &Road region.

 

The announcement was made at the GIP signing ceremony as part of the Financial Connectivity Forum organized by the People’s Bank of China (the Central Bank) and the Ministry of Finance in Beijing during the second Belt and Road High-level Forum. Deputy Governor Chen Yulu from the People’s Bank of China attended the GIP signing ceremony.

 

 

Chen Yulu, Deputy Governor of the People’s Bank of China

 

As a mandate from the China-UK Economic and Financial Dialogue in 2017, the Green Finance Committee of China Society for Finance and Banking and the City of London Corporation’s Green Finance Initiative led the initiative to develop the GIP, which was first published in London in November 2018. The World Economic Forum, UNPRI, Belt & Road Bankers Roundtable, the Green Belt and Road Investor Alliance and the Paulson Institute are also part of the drafting group. A full list of the principles is provided at the bottom of this release.

 

Building on existing responsible and ESG investment initiatives, the GIP aims to incorporate low-carbon and sustainable development practices into investment projects in Belt and Road countries, which will host the majority of the world’s infrastructure investments in coming decades.

 

Since its launch five months ago, the GIP has received strong backing from the global financial industry, including commercial banks, development banks, institutional investors, stock exchanges and other stakeholders that invest or help mobilize investment in the Belt and Road. As of April 25, 2019, twenty-seven institutions have signed up to the GIP. These institutions include (in alphabetical order):

 

Agricultural Bank of China, Agricultural Development Bank of China, Al Hilal Bank, Astana International Exchange, Bank of China, Bank of East Asia, China Construction Bank, China Development Bank, China International Contractors Association, China International Capital Corporation, Crédit Agricole-CIB, DBS Bank, Deutsche Bank, Export-Import Bank of China, First Abu Dhabi Bank, Habib Bank of Pakistan, Hong Kong Exchanges and Clearing, Industrial and Commercial Bank of China, Industrial Bank, Khan Bank, Luxembourg Stock Exchange, Mizuho Bank, Natixis Bank, Silk Road Fund, Standard Chartered Bank, Trade and Development Bank of Mongolia and UBS Group.

 

These signatories include all major banks from China that invest in the Belt & Road region and some of the largest financial institutions from (in alphabetical order) France, Germany, Hong Kong, Japan, Kazakhstan, Luxembourg, Mongolia, Pakistan, Singapore, Switzerland, United Arab Emirates and the United Kingdom. Several service providers, including Deloitte, Ernst & Young, KPMG and PWC, have also expressed their support for the GIP.

 

Ma Jun, Chairman of China’s Green Finance Committee, announced at the GIP signing ceremony that a Secretariat would be established to support future work of the GIP. The GIP Secretariat will work on expanding the membership, the development of implementation tools and case studies, a green project database for the Belt & Road, as well as compiling the progress report.

 

Chen Yulu, Deputy Governor of the People’s Bank of China, said at the signing ceremony: “The financial institutions represented here today are the leading institutions of green investment for the Belt and Road. I hope that all signatories can seize the great opportunity of the BRI, and actively promote the GIP and enhance their capacity for green investment.”

 

Dr. Ma Jun said: “The majority of global infrastructure investment in the coming decades will be in the Belt and Road region and they will have a significant impact on the implementation of the Paris Agreement and UN Sustainable Development Goals. The aim of the GIP is to ensure that environmental friendliness, climate resilience, and social inclusiveness are built into new investment projects in the Belt and Road.”

 

Ma Jun, Chairman of China Green Finance Committee

 

Catherine McGuinness, Chair of Policy at City of London Corporation commented: “While there is some way to go to ensuring the Belt and Road is truly green, today’s announcement is another step in the right direction, and a powerful statement of intent from financial firms in China, the UK and across the world.”

 

Catherine McGuinness, Chair of Policy at City of London Corporation 

 

Family photo of major GIP Signatories

 

David Aikman, Chief Representative Officer of China and Member of the Executive Committee, World Economic Forum, addressed the importance of making GIP an opportunity for green transformation in the region and said: “It will be a shared opportunity for inter-connectivity, environmental friendliness and economic development through green investment in many countries around the world.”

 

Signatories also expressed their commitment to greening their investment practices with the implementation of GIP. “Business and economic ties between China, Europe, and BRI countries continue to strengthen”, said Werner Steinmueller, Deutsche Bank Management Board Member and Chief Executive Officer for Asia Pacific. “We are one of the most active foreign banks participating in BRI with full corporate and investment banking offerings along the route. By committing to the GIP, we are pledging that we will not only help steer BRI’s open collaboration across countries from China to Europe, but also strive to ensure these projects are as sustainable as possible.”

 

Gu Shu, President of Industrial and Commercial Bank of China, commented: “Green investments play a critical role in addressing environmental and climate challenges along the Belt and Road. ICBC has participated actively in the drafting of the GIP. We have also invited BRBR members to sign up to the GIP and integrate environmental factors into the BRI-related financing decisions, operations, product development and risk management.”

 

Gu Shu, President of Industrial and Commercial Bank of China

 

Bill Winters, Group Chief Executive of Standard Chartered PLC, stated: “We have been supporting our clients in managing their environmental and social risks for decades and are committed to working with all parties to implement the Green Investment Principles and contribute to commerce and prosperity across the Belt and Road markets.”

 

Benjamin Hung Pi Cheng, Regional CEO of Greater China & North Asia, Standard Chartered

 

Philippe Brassac, CEO of Crédit Agricole S.A and the Chairman of Crédit Agricole CIB, said: “Today, we reaffirm our ambition to be your long-term banking partner for your energy transition projects. A partner that is both realistic and demanding concerning the climate.”

 

 “As China’s development finance institution and its major bank for the Belt and Road, the China Development Bank will stay committed to green finance, implement green investment principles, increase the provision of green finance, and grow the capacity for green development, to contribute to sustainable economic and social development along the Belt and Road”, said Hu Zhirong, Director of International Finance Bureau of China Development Bank.

 

Huang Liangbo, Vice President of Export-Import Bank of China, said: “To cater to the needs of the BRI participating parties to conserve resources, protect the environment and cope with climate change, the Export-Import Bank of China has been diversifying its financial products and services related to green projects, and played a major role in investing and financing green infrastructures.”

 

Lin Jingzhen, Vice President of Bank of China, said: “By signing up to the GIPs, it marks a milestone for Bank of China to integrate green development strategy into our efforts of supporting the construction of the Belt and Road ‘financial artery’. We look forward to working with international counterparts to foster the green and sustainable development along the Belt and Road.”

 

Qian Wenhui, President of Agricultural Development Bank of China, said: “Agricultural Development Bank of China will gather forces from all sides and assist domestic agriculture-related enterprise and projects to participate in the Belt and Road green investments.”

 

Tao Yiping, President of Industrial Bank, commented: “By proactively supporting the low-carbon, green and sustainable development of countries along the Belt and Road, GIP will support global financial institutions to establish more extensive and intensive corporations within multilateral frameworks and to increase environmental and social risk management ability.”

 

Xie Duo, Chairman of the Silk Road Fund, commented: “The Silk Road Fund, being a medium to long-term development and investment fund to support the BRI, is committed to implementing and promoting green investment philosophy, and dedicated to building a green Silk Road.”

 

Muhammad Aurangzeb, President and CEO of Habib Bank of Pakistan, said: “It is a great initiative taken by China Green Finance Committee and City of London for this GIP signing. As Pakistan’s largest Bank, and the largest executor of CPEC related financing in Pakistan, HBL is positioned to play an integral role towards a greener CPEC, with the ultimate goal of a greener BRI.”

 

Tim Bennett, CEO of Astana International Exchange, said: “The sign up to the GIP emphasizes the regional perspective of AIX to support infrastructure and economic development in Kazakhstan and in the region in accordance with environmentally and socially friendly international practices.”

 

Abdulhamid Saeed, Group Chief Executive Officer of First Abu Dhabi Bank, stated: “By becoming one of the first signatories to the GIP, we intend to take a more active role in the Belt and Road Initiative and in supporting global efforts to promote green investments within the UAE and beyond.”

 

For more information, please contact:

 

CHENG Lin

China Coordinator of the GIP, China Green Finance Committee

Tel: +86 (10) 8302 1702

Email: lin.cheng@greenfinance.org.cn

 

Simon Horner

Head of Policy and Innovation, City of London

Tel: +44 (0) 7721 977119

Email: simon.horner@cityoflondon.gov.uk

 

 

ANNEX: GREEN INVESTMENT PRINCIPLES FOR THE BELT AND ROAD

 

Principle 1: Embedding sustainability into corporate governance

 

We will embed sustainability into our corporate strategy and organisational culture. Our boards and senior management will exercise oversight of sustainability-related risks and opportunities, set up robust systems, designate competent personnel, and maintain acute awareness of potential impacts of our investments and operations on climate, environment and society in the B&R region.

 

Principle 2: Understanding Environmental, Social and Governance Risks

 

We will strive to better understand the environmental laws, regulations, and standards of the business sectors in which we operate as well as the cultural and social norms of our host countries. We will incorporate environmental, social and governance (ESG) risk factors into our decision-making processes, conduct in-depth environmental and social due diligence, and develop risk mitigation and management plans, with the help of independent third-party service providers, when appropriate.

 

Principle 3: Disclosing environmental information

 

We will conduct analysis of the environmental impact of our investments and operations, which should cover energy consumption, greenhouse gas (GHG) emissions, pollutants discharge, water use and deforestation, and explore ways to conduct environmental stress test of investment decisions. We will continually improve our environmental/ climate information disclosure and do our best to practice the recommendations of the Task Force on climate-related Financial Disclosure.

 

Principle 4: Enhancing communication with stakeholders

 

We will institute stakeholder information sharing mechanism to improve communication with stakeholders, such as government departments, environmental protection organizations, the media, affected communities and civil society organizations, and set up conflict resolution mechanism to resolve disputes with communities, suppliers and clients in a timely and appropriate manner.

 

Principle 5: Utilizing green financial instruments

 

We will more actively utilize green financial instruments, such as green bonds, green asset backed securities (ABS), Yield Co, emission rights based financing, and green investment funds, in financing green projects. We will also actively explore the utilisation of green insurance, such as environmental liability insurance and catastrophe insurance, to mitigate environmental risks in our operations.

 

Principle 6: Adopting green supply chain management

 

We will integrate ESG factors into supply chain management and utilize international best practices such as life cycle accounting on GHG emissions and water use, supplier whitelists, performance indices, information disclosure and data sharing, in our investment, procurement and operations.

 

Principle 7: Building capacity through collective action

 

We will allocate funds and designate personnel to proactively work with multilateral organizations, research institutions, and think tanks to develop our organizational capacity in policy implementation, system design, instruments development and other areas covered in these principles.

 

What does the ‘Belt and Road Initiative’ mean for Australia?

As is readily apparent from any of the maps depicting the ‘Belt and Road’, Australia isn’t on it. Nonetheless, as President Xi Jinping said in his address to the Australian Parliament in November 2014, “Oceania is a natural extension of the ancient maritime Silk Road, and China welcomes Australia's participation in the 21st century maritime Silk Road”.

The ‘Belt and Road Initiative’ is thus of considerable potential interest to Australia, from a number of perspectives, including opportunities for Australian businesses arising from infrastructure and other projects in countries which are formally on the ‘Belt’ or the ‘Road’, and Chinese involvement in infrastructure projects in Australia which may complement various aspects of the ‘Belt and Road’ initiative.

Australian firms have considerable expertise in areas such as the design, construction, financing, and management of infrastructure projects and operations for which there are likely to be profitable opportunities arising from ‘Belt and Road’ projects in Asia and Europe. Education and training in the skills required for these areas may be another area of opportunities for Australian institutions and businesses.

Opportunities for Australian firms to participate in ‘Belt and Road’ related projects in China itself should in some cases be enhanced by the market-opening provisions of the China-Australia Free Trade Agreement. However, both within China and especially in other ‘Belt and Road’ countries where Australian firms do not have any significant established presence, opportunities for Australian firms are more likely to be enhanced by more formal collaboration with Chinese firms.

The other important dimension of the ‘Belt and Road Initiative’ from an Australian perspective is the extent to which it may incorporate infrastructure projects within Australia. Australia needs to invest a lot in infrastructure, both to make up for past under-investment, especially in urban transport, or mis-directed investment, especially in energy; to capitalize on emerging new technologies; and to facilitate new opportunities for international trade, including with China.

As a capital-intensive economy with a relatively small population spread across a very large geographical area, Australia has been partially reliant on foreign capital to meet its investment requirements ever since the commencement of European settlement. What has changed over time is the origin of that capital – from Britain and other European countries until the 1960s, then from the United States and Japan, and more recently from other Asian countries, including China, and the Middle East. According to the Australian Bureau of Statistics, Chinese investment into Australia totalled A$87.3bn at the end of 2016, of which almost $42bn was direct investment (as opposed to portfolio investment in shares and bonds)17. Data compiled by KPMG and the University of Sydney puts the cumulative value of Chinese direct investment between 2007 and 2016 into Australia at US$89bn18 – equivalent to almost A$120bn at current exchange rates. An increasing proportion of this investment – 28% in 2016 – has been in infrastructure (in particular, seaports).

Infrastructure investment raises particular political sensitivities in Australia because, although Australia has always been a predominantly capitalist economy, the provision of transport and energy infrastructure has historically been undertaken by government departments or state owned enterprises (as is also the case in China). The movement towards greater involvement of private enterprises and investors, whether Australian or foreign, in the provision and operation of infrastructure assets, has not been without numerous difficulties: many Australians feel, rightly or wrongly, that the result of ‘privatization’ has been higher prices and inferior standards of service, the opposite of what had been promised19. Many Australians resent the fact that investors from countries which don’t permit foreigners to purchase land, businesses or other assets are nonetheless allowed to do so in Australia20. The fact that these differences in foreign investment policy may reflect different political systems, or a polar opposite balance between domestic saving and investment, does not usually persuade Australians who hold these views to a different opinion.

These and other sensitivities have to be borne in mind when evaluating Australia’s response to the ‘Belt and Road Initiative’ – just as Australia has had to be mindful of, for example, Chinese sensitivities when pursuing greater access to Chinese markets during negotiations over the China-Australia Free Trade Agreement.

In particular, Australia’s response should not be influenced by fear – either of China’s purposes in promoting the ‘Belt and Road’ Initiative, or ‘fear of missing out’ (FOMO) on business opportunities in China, and Chinese investment in Australia.
 
There would seem to be little reason for concern if Australia were to sign a ‘memorandum of understanding’ similar to the one agreed between China and New Zealand earlier this year.

That Memorandum provides for both sides to “respect each other’s interests and major concerns to deepen mutual trust”, to “maintain and enhance existing bilateral co-operation and multilateral mechanisms”, and to “promote practical co-operation in areas of mutual concern”.

It provides that China and New Zealand will “carry out senior-level dialogue and promote communication” on macro policies and development strategies”, including as to “how they will best support the Belt and Road Initiative in line with [their] comparative advantages”; it includes a numerical target for the value of two-way trade by 2020 and a commitment to “conduct mutually beneficial co-operation” in a number of fields, including infrastructure, agricultural technologies and clean energy; it provides for “cultural exchanges”, including specifically in film and television”; and it commits both countries to “enhanced cooperation” in various multilateral fora including APEC, the AIIB and the Pacific Islands Forum”. The agreement is effective for five years, and will be renewable automatically every five years thereafter, subject to three months’ notice of termination by either country.

A similar understanding between Australia and China would likely be beneficial for both countries. From the standpoint of Australian businesses, it would serve to indicate that their participation in ‘Belt and Road’ projects has the formal endorsement of the Australian Government, and it would be a signal to Chinese businesses that participation by Australian partners in such projects is welcomed by the Chinese Government. That is likely to be helpful in pursuing business and investment opportunities.

However, more specific commitments – in particular, the designation of any specific projects in Australia as part of the ‘Belt and Road’ – would need to demonstrate ‘win-win’ characteristics that would be readily evident to both sides. They should be negotiated on a case-by-case basis, with sufficient time for the claimed benefits to be properly evaluated and any costs to be assessed.

In that context, it would probably assist in enhancing mutual understanding if Australia were to make clearer the criteria by which decisions regarding foreign investment are made – both in advance, and in explaining the reasons for particular decisions. As an Australian citizen, I am not satisfied by a mere declaration that a particular foreign investment proposal is ‘contrary to the national interest’, without at least some attempt being made to explain why – and I would imagine that foreign investors would feel much the same.

The ‘Belt and Road’ Initiative has the potential to be a major influence on the economic, political, social and cultural evolution of not just Asia, but a large part of the world, over at least the next three decades. Australia should want to be part of it – but for that to be sustainable it needs to be on terms that recognize and advance Australia’s own interests, and which resonate with the Australian people.

Please click to read the full report.

By Saul Eslake, Independent Economist, and Vice-Chancellor’s Fellow, University of Tasmania