Great Wall 19.jpg

Great Wall of China, China (Hanson Lu, 2019)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Ma Jun, Chief Economist, People’s Bank of China


Climate change is the battle of the century. According to a 2018 Intergovernmental Panel on Climate Change special report, the global temperature rise will likely 1.5°C as early as 2030. We may only have 12 years to act decisively in order to avoid catastrophic impacts on the planet and human beings.

The focus of most climate action today is on cutting greenhouse gas (GHG) emissions by current major emitters in advanced and middle-income countries. However, GHG emissions from lower-income, developing countries, which are still comparatively small today, will likely grow strongly in the coming decades as those countries embark on a trajectory of urbanization and industrialization, just as Europe and the UK head towards net zero emissions. According to a joint study by Tsinghua University and Vivid Economics, the 126 Belt and Road countries, excluding China, currently account for about 20% of global GHG emissions, but this ratio may rise to around two-thirds by 2050 if the carbon intensity of these economies only falls slowly (in line with the historical patterns displayed by developed countries).

 

The Belt and Road Initiative (BRI) was proposed by China in 2013 and is expected to mobilize tens of trillions of dollars for much-needed infrastructure development in emerging market economies. According to the World Bank, approximately 70% of global GHG emissions come from construction and operation of infrastructure (including power and transportation) and buildings. As the Belt and Road countries will host most of the world’s new infrastructure projects in the coming decades, it is critical that these projects are green and low-carbon, if the Paris Agreement goals are to be reached.

Image: Straits Times

Lenders and investors who finance infrastructure projects in the Belt and Road region should therefore bear a major responsibility for the climate future of our world. However, not every lender or investor is aware of the huge negative externalities that they are generating, and many of them are still financing “brown” projects. Part of the reason is that investing in polluting and high-carbon projects still makes profits due to a series of market failures, as carbon pricing mechanisms are not in place and GHG emissions are not regulated in most developing countries. But we do not have the time to wait for such market failures to be slowly fixed. Collective action among those who are motivated to drive green investment in the Belt and Road – a “coalition of the willing” – should lead the way for greening towards Belt and Road and inspire the rest of the global investment community, while seizing massive new sustainable investment opportunities, before more stringent carbon regulations kick in.

Launching the Green Investment Principles

It is against this backdrop that the Green Finance Committee, of China Society for Finance and Banking, and the City of London’s Green Finance Initiative jointly launched a set of voluntary principles, the Green Investment Principles for the Belt and Road (GIP), in November 2018. The World Economic Forum, UN-supported Principles for Responsible Investment network, the Belt and Road Bankers Roundtable, the Green Belt and Road Investor Alliance and the Paulson Institute were also major contributors to the drafting of these principles. The document calls for lenders, investors and corporates that invest and operate in the Belt and Road region to ensure their projects are aligned with the requirements of environmental sustainability and the Paris Agreement. The GIP suggested actions on incorporating ESG factors into corporate governance, measuring and disclosing environmental and climate information, utilizing green financial instruments and adopting green supply chain practices. Leaders of the GIP will meet at this year’s Annual Meeting of the New Champions in Dalian and have also come together in Davos. The Forum will continue to drive the GIP by providing strategic direction as a member of the GIP Steering Committee, and will build an advisory board to support the initiative. The Forum is also playing a key role in increasing the signatories to the GIP.

A signing ceremony of the GIP, attended by more than 20 large global lenders and investors, was held during the second Belt and Road Forum in Beijing two months ago. As of the end of June, 29 global institutions have signed up to the GIP. They include all major Chinese banks engaged in the BRI region and some of the largest financial institutions from the UK, France, Germany, Switzerland, Belgium, Japan, Singapore, Hong Kong, Pakistan, Kazakhstan, the Emirates and Mongolia. These signatories are (in alphabetical order):

Agricultural Bank of China, Agricultural Development Bank of China, Al Hilal Bank, Ant Financial, 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 Corporate and Investment Bank, DBS Bank, Deutsche Bank, Export-Import Bank of China, First Abu Dhabi Bank, Habib Bank of Pakistan, Hong Kong Exchanges and Clearing, HSBC, Industrial and Commercial Bank of China, Industrial Bank, Khan Bank, Luxembourg Stock Exchange, Mizuho Bank, Natixis Bank, Silk Road Fund, Standard Chartered, Trade and Development Bank of Mongolia and UBS Group.

(Signatories at the GIP ceremony of the Belt and Road Forum, 25 April 2019)

To facilitate the implementation of the principles and build capacity for green investment, a GIP Secretariat has been established, with one office in Beijing and one office in London. The Secretariat will organize knowledge-sharing of best practices, develop tools for managing environmental and climate risks, produce case studies on green investments and launch a green project database for the Belt and Road region. The database should help bridge the information gap between financiers and project owners, create business opportunities among signatories and other stakeholders, and improve the transparency of BRI investments.

By signing up to the GIP, the signatories are making a strong commitment to sustainability and demonstrating their social responsibility for the developing world. The GIP will also bring benefits to its signatories and supporters, by giving them better access to good practices in environmental/climate risk management, innovative green finance products and opportunities for co-financing green projects in the rapidly growing Belt and Road region. We urge more lenders, investors and corporates to join and support the GIP, a platform that will make a meaningful contribution to greening the Belt and Road and to the global climate agenda.