Abstract
Since the Belt and Road Initiative (BRI) was put forward eight years ago, it has achieved fruitful results and far-reaching influence. Adhering to the principle of extensive consultation, joint contribution, and shared benefits, and pursuing green, open and clean development, BRI has injected strong impetus into the process of globalization that has been challenged since the global financial crisis in 2008 by means of policy coordination, infrastructure connectivity, unimpeded trade, financial integration, and people-to-people bond. It is a well-recognized global public product provided by China to the world and creates new opportunities for BRI participating countries to develop together and share prosperity.
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1 Introduction
Since the Belt and Road Initiative (BRI) was put forward eight years ago, it has achieved fruitful results and far-reaching influence. Adhering to the principle of extensive consultation, joint contribution, and shared benefits, and pursuing green, open and clean development, BRI has injected strong impetus into the process of globalization that has been challenged since the global financial crisis in 2008 by means of policy coordination, infrastructure connectivity, unimpeded trade, financial integration, and people-to-people bond. It is a well-recognized global public product provided by China to the world and creates new opportunities for BRI participating countries to develop together and share prosperity.
1.1 Promote BRI Towards High-Quality Development
In the past eight years, BRI has evolved into a mutually beneficial and win–win road that connects the development prospects of BRI participating countries, and has had a far-reaching impact on promoting the development of a community with a shared future for mankind. As of February 2020, China has signed more than 200 BRI cooperation documents with 140 countries and 31 international organizations.Footnote 1 BRI and its core concepts have been incorporated into relevant documents of the United Nations, G20, APEC and other regional organizations.Footnote 2 Focusing on the main framework of “six corridors and six channels serving multiple countries and ports”, and relying on a number of BRI landmark cooperation projects that proceed smoothly in the fields of ports, railways, highways, electric power, aviation and communications, the infrastructure in BRI participating countries has been improved substantially, and trade and investment potential has been effectively released. By the end of 2019, China had invested a total of USD 35 billion in cooperation zones built by countries along the BRI, paid more than USD 3 billion of taxes and fees to host countries, and created 320,000 jobs for the locality.Footnote 3 In addition, according to the estimation of the World Bank, the decline in trade costs brought about by the BRI infrastructure development will increase global real income, and BRI-related investment can help 7.6 million people get rid of extreme poverty and lift 32 million people out of moderate poverty.Footnote 4
Although the COVID-19 once brought global development to a standstill, the BRI showed great resilience and vitality and became a bright color in the haze of the pandemic. In the first three quarters of 2020, China’s cumulative imports and exports to countries along the BRI increased by 1.5% year-on-yearFootnote 5; and its non-financial direct investment in countries along the BRI increased by 29.7% year-on-year.Footnote 6 With the tightening of pandemic prevention measures in various countries and the obstruction of shipping and air transportation, China–Europe Express gives full play to the advantages of cross-border railway freight service and helps BRI participating countries overcome the impacts of pandemic and other unfavorable factors, provides strong support to expedite the development of a green logistics network, to stabilize international supply chain, and to underpin the global war against the pandemic.Footnote 7
The outbreak of pandemic shows once again that humanity is a community with shared weal and woe. In the post-pandemic era, green recovery will contribute new development opportunities to the BRI. Green is the bright background of the BRI. In the process of promoting high-quality development of the BRI, building the Green Silk Road will make much more positive and promising contributions. The 14th Five-Year Plan for National Economic and Social Development of the People’s Republic of China and the Outline of the Long-Range Objectives Through the Year 2035 (the 14th Five-Year Plan) points out that China will continue to strengthen the alignment of development strategies and policies, promote the interconnectivity and interoperability of infrastructure, deepen pragmatic economic, trade, and investment cooperation, and build a bridge for mutual learning among civilizations. The document further proposes to “strengthen exchanges and cooperation in climate change response, marine cooperation, wildlife protection, desertification prevention and control, and promote the construction of the Green Silk Road”.Footnote 8 At the Boao Forum for Asia Annual Conference held in April 2021, President Xi Jinping announced that “China will continue to work with other parties in high-quality Belt and Road cooperation… in a bid to make Belt and Road cooperation high-standard, people-centered and sustainable.” Besides, China will “build a closer partnership for green development”. It will “strengthen cooperation on green infrastructure, green energy and green finance, and improve the BRI International Green Development Coalition, the Green Investment Principles for the BRI, and other multilateral cooperation platforms to make green a defining feature of Belt and Road cooperation”.Footnote 9 At the Asia and Pacific High-level Conference on Belt and Road Cooperation held in June 2021, China and other 28 countries jointly put forth the Initiative for Belt and Road Partnership on Green Development, calling for “internationally collaborative efforts to achieve green and sustainable recovery, and foster a low-carbon, resilient and inclusive post-pandemic growth”.Footnote 10
1.2 The Green Silk Road Provides New Impetus for the Implementation of 2030 Sustainable Development Goals
Eco-environmental cooperation is an important part of the BRI. It is the initial intention and vision of the Chinese government to build the BRI into a green road of development, and is also a key action to build a community of shared future for mankind. In the past eight years, while strengthening the construction of its own ecological civilization, China has actively worked with the BRI participating countries to build the Green Silk Road, and injected new impetus into the implementation of the 2030 Sustainable Development Goals (SDGs) based on bilateral, multilateral, regional and sub-regional ecological and environmental cooperation.
Underpinned by multilateral cooperation mechanisms such as the BRI International Green Development Coalition (BRIGC), the BRI Green Development Institute and the BRI Environmental Big Data Platform, the building of Green Silk Road has witnessed the constant improvement of the platform for policy dialogue, knowledge sharing and technology exchange, continuous deepening of cooperation on environmental governance, biodiversity conservation and climate change among BRI participating countries, and steady enhancing of international consensus on green development.
Relying on the Belt and Road South-South Cooperation Initiative on Climate Change, China helps vulnerable countries to enhance their ability to cope with climate change. It has been cooperating with Laos, Cambodia and Seychelles in the development of low-carbon demonstration zones and donated facilities for tackling climate change to Pakistan, Bangladesh, Iran, Chile, Uruguay, Cuba, Botswana, Egypt and other countries. With the implementation of the Green Silk Road Envoys Programme, China has provided training opportunities for more than 3000 people from over 120 countries, which is therefore praised by the United Nations Environment Programme as a “Model of South-South Cooperation”.
1.3 BRI Investment Features the Growth of Scale and Green-Oriented Growth
The BRI is not only the road of economic prosperity, but also the road of green development. In the past eight years, the economic and trade cooperation between China and the BRI participating countries has been continuously deepened, and the investment vitality has constantly enhanced, which has facilitated the industrialization process and provided new opportunities for green development in BRI participating countries and regions along the BRI.
First, regional economic and trade cooperation is highly active, with continuous increase of total foreign direct investment. According to the statistics of the Ministry of Commerce and the State Administration of Foreign Exchange of China, from 2013 to 2019, China’s cumulative direct investment in countries along the BRI was USD 117.31 billion, with an average annual growth rate of 6.7%, which was 2.6% points higher than the China’s average in the same period. Regardless of the drop in 2016 that was affected by the significant increase in total foreign direct investment in that year, the proportion of direct investment in the BRI countries continued to grow (Fig. 7.1).
Source Statistical Bulletin of China’s Outward Foreign Direct Investment, Report on China’s Foreign Investments and Economic Cooperation, and reports from the official website of the Ministry of Commerce of the People’s Republic of China
China’s outward FDI in countries along BRI, 2013–2019.
Second, climate change has triggered regional consensus, and the proportion of renewable energy investment has been increasing. The BRI has not only spurred the economic growth and social development of the participant countries, but also made positive efforts to cope with climate change across the globe. In September 2020, China put forward the vision of reaching its carbon emissions peak before 2030 and achieving carbon neutrality by 2060, which further enriched the connotation of green investment under BRI. In the infrastructure investment of the BRI, the proportion of renewable energy investment is also increasing. By the first half of 2020, China’s investment in renewable energy in BRI related countries surpassed investment in fossil energy for the first time,Footnote 11 forming an all-round international cooperation system for clean energy covering equipment manufacturing, joint research and development, engineering design and construction, and project investment and operation.
China’s Investment in the Belt and Road Initiative (BRI) in 2020 released by the IIGF Green BRI Center also shows that the energy sector is still the focus of the BRI investment in 2020, ranking first in all industries in terms of investment amount and the number of projects, while the renewable energy investments (solar, wind, hydro) increased from 35% in 2017 to 56% in 2020 and became the majority of China’s overseas energy investments.Footnote 12
Third, investment fields and subjects are becoming increasingly diversified, and the third-party market cooperation mode is gradually emerging. In the early stage, BRI investment was focused on the infrastructure such as energy, transportation, communication and water conservancy, and main investors were mostly state-owned enterprises. In recent years, the industries of direct investment in countries and regions along the BRI have become increasingly diversified, distributed in manufacturing, leasing and business services, wholesale and retail, building and construction, mining, finance, power production and heat supply, agriculture, forestry, animal husbandry and fishery, etc.Footnote 13 More and more private enterprises and foreign-funded enterprises are joining the BRI investment. The model of third-party market cooperation is gaining popularity.Footnote 14 Third-party market cooperation is based on “complementary advantages”, and adopts the concept of “equal consultation”. It aims at “win–win results among three parties” through “enterprise-led” cooperation. It is highly consistent with the spirit of “extensive consultation, joint contribution, and shared benefits” advocated by the BRI. As a new mode of international economic cooperation, the third-party market cooperation has been widely concerned and welcomed by relevant enterprises in developed countries and countries and regions along the BRI. Since 2015, China has successively signed joint statements or documents on third-party market cooperation with 14 countries,Footnote 15 which is characterized by diversified modes and large-scale projects. International, bilateral and multilateral financial institutions are also strengthening financing support and constantly exploring ways to expand cooperation in third-party markets.
1.4 Motives and the Goals of Environment Management for BRI Projects
The Chinese government attaches great importance to the eco-environmental protection in BRI projects. With the continuous improvement of China’s green finance system and the wide spread of the concept of sustainable investment worldwide, BRI investment and financing environment management has become the key in the green and high-quality development in BRI. The Chinese government has issued more than 30 policy documents focusing on areas such as foreign economic and trade cooperation, building green Silk Road, and green finance, with a series of management level requirements, guiding opinions and supporting policies on eco-environmental protection pertinent to China’s “outward investment”. These documents have provided clear policy guidelines for the participants of BRI projects to carry out environmental management in their investment and financing activities.
In 2013, the Ministry of Commerce and the former Ministry of Environmental Protection jointly issued the “Guidelines for Environmental Protection in Foreign Investment and Cooperation”, which encourages enterprises to foster the awareness of environmental protection, fulfill environmental responsibilities according to the laws, abide by environmental protection laws and regulations of the host countries, and fulfill their duties and obligations in environmental impact assessment (EIA), emission standards, environmental emergency management and etc. In 2017, the “Guidance on Promoting Green Belt and Road” was issued jointly by the Ministry of Ecology and Environment, Ministry of Foreign Affairs, National Development and Reform Commission and the Ministry of Commerce, while the “Belt and Road Ecological and Environmental Cooperation Plan” was also released by the Ministry of Ecology and Environment. Both documents have articulated clear requirements on the environmental management of BRI investments and projects. In July 2021, the Ministry of Commerce and the Ministry of Ecology and Environment jointly issued the “Green Development Guidelines for Overseas Investment and Cooperation”, which further notes to “encourage enterprises to conduct ecological and environmental risk prevention measures and improve the capacity of ecological and environmental management” and that Chinese enterprises shall “take reasonable and necessary measures to reduce or mitigate adverse environmental impacts”. In addition, “Catalogue of Green Bond Support Projects (2021 Edition)” released in April 2021 also excluded high-carbon projects such as fossil energy projects, with funding skewed toward green finance to support climate change responses. It is foreseeable that the afore-mentioned new regulations will raise higher requirements for the green practice of BRI investment and financing, and underscore the importance of environmental management for BRI investments to BRI green development, which will speed up the thorough alignment of green BRI with the 2030 Agenda for Sustainable Development.
Thus, the Special Policy Study (SPS) of 2021 places its focus on improving relevant entities’ environmental management capacities for overseas investments, and puts forward targeted policy recommendations on establishing a green management system for BRI projects by a comprehensive analysis of Chinese and international environmental management policies, methods, practices, and practical experience, with the aim to secure and power green and high-quality development of BRI. Section 7.2 reviews China’s environmental management system for overseas projects and the corresponding progress. Section 7.3 first examines the environment management practices of development finance institutions such as the World Bank, and then analyzes the official development assistance (ODA) practices of Japan and South Korea, the second largest economies and most important investors in East Asia, to summarize implications of environmental management in ODA to China’s environmental management in overseas projects. Based on the above analysis, Sect. 7.4 puts forward policy recommendations on promoting the full alignment of green BRI and the 2030 Agenda for Sustainable Development, including 4 key areas for BRI investment and financing to support sustainable development at strategic level, 4 policy suggestions to guide non-governmental entities to carry out environment management from the public governance perspective; and 5 key pillars to enhance full life cycle management of the BRI’s overseas projects in practice.
2 Environmental Management System for China Overseas Investment
Given the involvement of multiple stakeholders in the environmental management of overseas projects, enterprises, governments, financial institutions, professional and technical entities such as third-parties need to collaborate with each other. Among them, enterprises are the subject of decision-making, execution and responsibility in environmental management. Factors such as administrative management, policies and regulations, financial support, as well as professional and technical tools will serve as the guarantees for enterprises to practice full life cycle environmental management, providing indispensable external constraints and fundamental support. Besides, demands and feedbacks from the host countries are of equal importance for the project environmental management. This section will focus on China’s environmental management legislative framework for overseas investments and the corresponding progress in building such framework.
2.1 Environmental Management Policies for China Overseas Investment
Based on the collected materials that are available through public channels, this research has identified 32 policy documents issued by Chinese governments at all levels (Tables 7.1, 7.2 and 7.3), which are applicable to the environmental management of BRI overseas investment. Within the framework outlined by the above policy documents, there is no specific document on the environmental management of BRI overseas investment. However, in such policy areas as foreign trade and economic cooperation, building the Green Silk Road, eco-environmental protection, and green finance, the Chinese government has put forward a series of management requirements, guiding opinions and supporting policies on ecological and environmental protection of “outbound investment”. In particular, in July 2021, MOFCOM and the Ministry of Ecology and Environment (MEE) jointly released the “Green Development Guidelines for Overseas Investment and Cooperation”, which clearly encourages Chinese enterprises to conduct “eco-environmental management” and “eco-environmental risk prevention” in overseas investment, and comply with international requirements, including the United Nations Framework Convention on Climate Change (UNFCCC), the Convention on Biological Diversity (CBD), the 2030 Sustainable Development Goals (SDGs), Green Investment Principles for BRI (GIP), etc.
2.2 Features of Environmental Management Legislative Framework for China Oversea Investment
2.2.1 Policy Coverage Areas
The above policies cover three main areas: foreign economic cooperation (overseas investment and foreign contracted projects) management, green finance, and Green Silk Road development. These areas can be further divided into the following sub-categories: (1) Specific items related to investment philosophy, behavior, risk management, direction, project selection, compliance rules of foreign investment subjects, foreign investment credit system development and punishment for dishonesty. (2) Specific items related to financial institutions’ capital investment flow, investment green level, investment project environmental and social risk management. (3) Specific items related to general principles, production capacity distribution and the green behavior guidelines for enterprises in the building of Green Silk Road, as well as the environmental management and eco-environmental risk prevention for overseas investment. However, there is still no policy document especially designed as guidance and basis for the environmental management of the BRI overseas investment.
2.2.2 Policy Content
According to specific contents, existing policy portfolio mainly regulates and guides enterprises’ environmental protection behavior in overseas investment (including the BRI overseas investment) from three aspects. First, it encourages enterprises to establish environmental protection concepts, to fulfill social responsibility for environmental protection, to respect religious beliefs and customs of the host country, to protect the legitimate rights and interests of workers, and to achieve “win–win” situation between their own profits and environmental protection. Second, enterprises are required to abide by the environmental protection laws and regulations of the host country, and investment cooperation projects are required to obtain environmental permission from local government according to law, and to fulfill legal obligations for environmental protection such as environmental impact assessment (EIA), emission compliance, and environmental emergency management. Third, enterprises are encouraged to follow international standards, and refer to environmental protection principles, standards and practices adopted by international organizations and multilateral financial institutions.
In 2015, China’s National Development and Reform Commission, Ministry of Foreign Affairs and Ministry of Commerce jointly issued the first government white paper on the BRI, which is also a planning document on the BRI, Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road, for the first time setting clear environmental management requirements for the BRI overseas investment. It puts forward the concrete requirements of “highlighting the concept of ecological civilization in investment and trade, strengthening cooperation on ecological environment, biodiversity and climate change, and building a green Silk Road together”, and encourages enterprises to take the initiative to assume social responsibility and strictly protect biodiversity and ecological environment.
2.2.3 The Level of Policy Effectiveness
According to the principle that “the level of effectiveness depends on the level of formulation subject” embodied in the Legislative Law of China, to analyze the effectiveness stages of the above policies, it is necessary to divide them into four categories from the perspective of the level of formulation subject: (1) Policy documents formulated or issued by the State Council (3 pieces): 1 piece of administrative regulation and 2 pieces of normative documents; (2) Policy documents formulated or issued by various ministries and commissions of the State Council (18 pieces): 3 pieces of departmental regulations, 10 pieces of departmental normative documents, and 4 pieces of departmental working documents; (3) Policy documents formulated and issued by local governments (10 pieces): 10 pieces of normative documents of local governments in Beijing, Tianjin, Shandong, Hunan, Sichuan, Chongqing, Jiangxi, Gansu and Guangdong; (4) Inner-party documents: 1 piece of inner-party regulation.
The ministries and commissions of the State Council are the main bodies of policy making under the current policy framework, among which the Ministry of Commerce in charge of foreign trade and investment leads the most intensive issuance (leading issuance of 9 pieces of documents). Since 2013, competent department of ecological environment has participated in the policy formulation in this field, and jointly issued the “Guidelines for Environmental Protection in Foreign Investment and Cooperation” and the “Green Development Guidelines for Overseas Investment and Cooperation” with the Ministry of Commerce, which is of symbolic significance for environmental management of China’s foreign investment. Subsequently, in the field of building a green Silk Road, it took the lead in formulating and issuing special documents such as “Guiding Opinions on Promoting the Development of a Green Belt and Road Initiative” and “Notice on Printing and Distributing the Belt and Road Environmental Protection Cooperation Plan”.
2.2.4 The Effectiveness of Policy Constraints
According to the binding effect of the policy content, among the above 32 documents: (1) 17 policy documents put forward specific requirements that investors should comply with laws and regulations, abide by the laws and regulations of China and the investment recipient localities, fulfill their social responsibilities, strengthen the development of public relations with all sectors of society in the country (region) where they invest, and restrict the development of overseas investment projects that do not meet the environmental protection standards of the host country, which need to be implemented, followed or referred to by investors, with corresponding punishment mechanisms. (2) The other 15 documents encourage investors to abide by the laws and regulations of investment recipient localities, respect local customs and habits, do a good job in environmental protection, and fulfill social responsibilities. However, there is no mandatory requirement on the behavior of investors, and the policy binding force is weak.
2.3 Summary
The BRI overseas investment is an important part of China’s foreign investment. Therefore, the environmental management of BRI overseas investment should be conducted under the existing administrative system and policy framework. The Chinese government has long been attaching great importance to the protection of ecological environment in the process of carrying out outbound investment, requiring investors to act in accordance with the laws and regulations of the recipient countries, fulfill corporate social responsibilities, and protect the environment as well as the workers. The existing foreign investment management policies are “green” in essence.
To enhance the regulation and guidance of the environmental management of BRI overseas investment, governments at all levels in China have issued 32 policy documents concerning this topic, incorporating the concept and specific requirements of green and sustainable development from the perspectives of foreign investment, green finance, and building a green Silk Road. These policies provide clear policy regulation, initiative, and guidance for overseas investors to fulfill their main responsibility of environmental management, to abide by the laws and regulations of China and host countries and to fulfill their social responsibilities.
However, with the continuous growth of BRI overseas investment, the increase in the number of host countries of the BRI overseas construction projects, and further aggravation of the impact of climate crisis on the BRI participating countries, the goal of building the BRI with high quality puts forward higher requirements for the environmental management of relevant projects. Meanwhile, since 2017, the concept and market of green finance have risen rapidly. As a feedback mechanism to force investors to pay attention to environmental impact and optimize investment decisions by adjusting capital supply, the effective and efficient operation of green financial system needs to be based on massive high-quality environmental information, and needs to promote the implementation of environmental management procedures including environmental risk assessment and environmental benefit assessment, and further improve the refined environmental management by investors.
Considering the two aspects mentioned above, the existing policies are facing with realistic challenges of relatively low legal hierarchy, weak binding force, and regulatory requirements that are not specific enough for practical implementation. Thus, stronger policy guidance and administration measures are needed to support the existing practice.
3 Experiences of Environmental Management in International DFI and ODA
3.1 International DFI Experiences for ESRM
Two reinforcing trends have dominated the development of environmental management practices among international development finance institutions (DFIs) in the last decade: internally, they have developed more robust and comprehensive oversight mechanisms, and externally, they have given greater emphasis on understanding and supporting the country systems of borrowers. While these two trends may appear to indicate movement in opposite directions, they are complementary in practice. As banks have come to better understand the environmental and reputational risks intrinsic to international development finance, they have bolstered their own project screening and oversight processes, while simultaneously working to better understand and support borrowers’ own capacities to manage project portfolios.
3.1.1 Choice of DFIs Examined Here
This section attempts to examine in depth a representative sample of 8 DFIs from more than 450 DFIs that exist globally, which together manage over USD 11 trillion in assets. The DFIs studied here include as wide as possible of an array of these institutions that work internationally, with levels of activity that can be considered comparable to China’s.
Firstly, they represent the three most common geographic scopes: (i) the World Bank (WB) and International Finance Corporation (IFC) are global; (ii) the Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), and Development Bank of Latin America (CAF) are regional; and (iii) the Development Bank of Southern Africa (DBSA), Japan International Cooperation Agency (JICA), and Japan Bank for International Cooperation (JBIC) are bilateral in nature. Furthermore, the Multilateral Development Banks (MDBs) chosen for this study consist of MDBs with significant participation of high-income countries, including the WB, IFC, and ADB, as well as regional south-south partnership organizations, such as the AIIB and CAF. The three bilateral institutions also represent three different types of relationships: the DBSA extends South African development finance to countries within its regionFootnote 16; JICA is Japan’s development bank that operates overseas; and JBIC is its export credit agency (ECA).
Overall, DFI internal practices have become more comprehensive, incorporating a broader range of environmental concerns and incorporating them more fully into their project evaluation and oversight. As Table 3.3 shows, the DFIs such as WB, IFC, DBSA and AIIB share a commonality of recent revisions and reforms in their environmental screening practices. The frameworks without recent revisions—at the ADB and JICA—are also the most rudimentary. Greenhouse gas emissions are evaluated in project screening by all DFIs examined here except JICA, and ecosystem services are incorporated in policy, operations, or both, by all DFIs except the ADB. This trend reflects a growing recognition of the importance of several aspects of environmental risks.
On the borrower side, DFIs have incorporated the understanding that international finance necessitates a shared oversight between lender and borrower. While lenders can protect themselves from unnecessary environmental and reputational risk through internal risk management systems, to be effective, they must also recognize and encourage the management efforts of borrowing countries. This borrower engagement begins long before projects are proposed. Each of the DFIs studied here is also active in “upstream” project strategy and preparation, assisting borrowers in developing their priorities into specific finance proposals. During project implementation, these DFIs also engage carefully with the environmental management systems of borrowing countries.
This approach often requires lenders to understand those local systems well, to know when it is appropriate to rely on them. For example, although the ADB has the oldest environmental management framework studied here, it has simultaneously developed a thorough process of not only evaluating borrower country systems for the purpose of using them where possible, but also evaluating and collaborating on strengthening borrower institutional capacity for enforcing local management policies. In addition, the World Bank, ADB, and DBSA all have provisions for evaluating country systems and using them where possible in project screening. During implementation, nearly all DFIs studied here assist with borrower transparency, facilitating the publication of borrower-produced project documentation. Finally, all but JICA and JBIC rely on third-party monitors.
In sum, the trend over the last few decades shows that DFIs have grown in their understanding that building their own environmental management systems and recognizing those of borrowing countries are complementary goals. As many scholars have noted, lenders have come to recognize that environmental management is most effective when approached as a partnership that recognizes borrower priorities, gives policy space to local authorities to carry out their own policies where possible, and strengthens local institutions so that they can better carry out their own missions alongside lenders.
Finally, as Table 7.4 shows, this selection includes DFIs that primarily lend to sovereign governments, those that primarily lend to private-sector commercial borrowers, and one that works amply in both arenas.
Box 7.1 DFIs’ Motivation for Independent Environmental Management Systems
Borrower governments face a host of conflicts of interest between project facilitation and regulation, which can leave potentially important gaps. An Inter-American Development Bank study of 200 infrastructure-related social conflicts over 40 years in Latin America found that in 86% of conflicts, national governments exacerbated the problems by underestimating risks or not sufficiently planning to mitigate those risks [1]. Unruh et al. [2] find that in East Africa, while international DFIs or donors often mandate common practices such as ESIAs and resettlement plants, government capacity and political will to effectively oversee and carry out the necessary ESRM steps vary widely among host countries. Warford [3], studying infrastructure development in East Asia and the Pacific, finds that these inconsistencies can often be linked to a lack of integration between short-term, project-specific governance measures (such as ESIAs) and longer-term government goals for overall growth and development. When tensions arise between the two, it creates conflicts of interests for policy makers, which can result in a lack of follow-through on governance commitments made to international lenders or investors.
While Warford [3] studied Asia specifically, other authors find that these phenomena are common to developing countries worldwide. For example, Ebeke and Ölçer [4] find that low-income countries’ election cycles influence their governments’ appetites for spending, particularly for highly-visible infrastructure projects. Such spending peaks before elections and declines thereafter, once policy-makers are no longer under pressure to produce immediate tangible results for their constituents. Furthermore, as Ray et al. [5] find in a series of infrastructure case studies in South America, these political considerations frequently result in governments’ declaring of particularly visible projects as “strategic,” thereby exempting them from comprehensive environmental and social risk management in order to expedite them, often resulting in highly-visible project-related failures, delays, and/or conflicts. Finally, [6], also studying Latin America, find that all of the above factors are further complicated by global commodity super-cycles. When global prices fall after a commodity boom, developing countries that depend on commodity exports for foreign exchange tend to relax the regulatory framework for new inbound international investment, in the hopes of attracting fresh infusions of hard currency. Ultimately, as Ray et al. [7] find, these lapses can leave foreign investors and lenders committed to projects that have received insufficient planning and oversight from their local governments, opening the door for reputational damage for the international partner, environmental damage to local ecosystems, and social conflict in the surrounding communities.
For all of the reasons listed above, DFIs have established corporate practices to shield their portfolios from these conflicts of interest. Such protections need not interfere in borrowers’ domestic policy, but simply protect DFIs from participation in projects that will become ensnared in technical, environmental, or social complications.
3.1.2 Upstream Engagement of DFIs
Before projects are proposed, each of these DFIs collaborates with borrowers to create sectoral and regional strategies and generate project proposals that are both financially and environmentally sustainable. They do so through three main avenues: strategic, technical, and financial. First, strategic cooperation produces long-term plans for project development. This can take place through cross-sector country development strategies, more specific plans for selected sectors or themes such as transportation or green energy transitions, or at the regional level through the creation of transnational, harmonized networks of projects. Second, technical cooperation shares the DFI’s knowledge base with borrowers, to assist in turning ideas into specific projects. Finally, they offer financial assistance, through grants or concessional financing, for the generation of the studies necessary to present a proposal for DFI support (Table 7.5).
A few examples merit particular mentions. The ADB is active in all of strategic engagement approaches discussed here. Its Country Partnership Strategies lay out general directions for given borrowers, while its Energy Sector Strategy and Climate Strategy do so on the sector and thematic bases. Regionally, its Central Asia Regional Economic Cooperation Transport Strategy envisions linked networks across regional partners. A recent ADB internal evaluation found that this type of upstream engagement is an important driver of new project development.Footnote 17 The AIIB, the newest of the DFIs profiled here, has developed and adopted a “Sustainable Energy for Asia” strategic approach to collaborative planning for interconnected, green energy networks.
Collaboration on project development can take technical or financial approaches. For example, the DBSA offers infrastructure planning solutions for municipalities, to assist lower-capacity local governments with project identification support. On the financial side, CAF’s Public Transport Improvement Program and Regional Logistics Development Program offer pre-investment financial support for developing new projects in specific sectors. JBIC takes a broader, trans-sectoral approach, with its Global Facility to Promote Quality Infrastructure Investment for Environmental Preservation and Sustainable Growth.
3.1.3 Project Screening
Table 7.6 explores DFIs approach to 13 common environmental aspects of proposed project. As the table shows, DFIs have significant agreement on covering pollution-based concerns in their operations, often with reference in high-level policy to reinforce the primacy of these considerations. Notably, most DFIs’ approach climate change mitigation in this category, through technical requirements akin to those covering pest management or hazardous materials. The only DFI without an institutional application of pollution concerns is JICA, which does not address resource efficiency or greenhouse gas emissions, either in policy or operations.
It is also noteworthy that CAF and DBSA—two purely south-south DFIs—have widespread operational incorporation of all but one of the concerns here. This finding reinforces the compatibility between developing country interests and mainstreaming environmental concerns in project evaluation.
Table 7.7 delves more deeply into the specific tasks and mechanisms employed by each DFI during the process of screening project proposals. Here it becomes clear that MDBs tend to have significantly greater coverage of these technical requirements than do the bilateral institutions covered here, though CAF also has a more limited application of these measures.
Almost every DFI studied here classifies projects into one of several risk categories, based on factors such as sector and location, which then determines the level of scrutiny that the project proposal will receive before being considered for approval. The World Bank and IFC have a dynamic approach to these risk factors, adjusting them during project implementation based on performance, which then influences future oversight during project execution.
Another very commonly used institutional mechanism to screen out the highest-risk projects is the use of exclusion lists or divestment commitments. Almost all DFIs studied here have either a formal or informal commitment to refrain from supporting certain activities with particularly high environmental or social risks. Other, more informal divestment pledges have begun to appear, in which DFIs agree to align their lending activities with climate change mitigation goals, often by eliminating coal finance from their portfolios. For example, the World Bank does not have a formal exclusion list but eliminated nearly all financing for coal. Japan has tightened its lending rules on coal, but to such a minor extent (only extending coal financing to countries that have instituted decarbonization plans) that it does not merit inclusion here as an exclusion list.
It is also noteworthy that lender-based safeguards are not wholly incompatible with reliance on country systems. Indeed, several of the largest DFIs studied here (AIIB, ADB, and the World Bank) rely on them under specific conditions, depending on the strength of those local standards.
Box 7.2 Coal: A Special Case in Lending Exclusion
Exclusion lists are an important tool for DFI risk management, and perhaps no sector has garnered as much international attention in this regard as coal. DFIs have increasingly distanced themselves from coal finance, with some instituting formal commitments in this regard. Notably, this has included Japan, the top source of coal finance for newly operating plants in recent years. Since 2013, no global or regional DFI studied here has directly financed coal projects, and some are actively embracing their role in supporting green energy transitions (see for example [9, 10]).
In 2013 the World Bank ushered in a new era by limiting its support for coal to “rare circumstances” [11]. It has not directly financed any coal-fired power plants in the last decade [10, 11]. It has also begun to proactively support countries with long histories of coal development in their strategies for a “just transition” (shifting away from coal without harming coal-dependent communities and livelihoods) through programs such as the Platform Imitative in Support of Coal Regions in Transition [12].
The IFC has also not explicitly banned all coal support, but has enacted a “30 by 30” policy to increase climate-related lending to 30% of its portfolio and reduce coal support to zero or near-zero by 2030 [13]. It has also enacted restrictions on the use of its investments in financial intermediary institutions: they must “ringfence” IFC support to ensure that it does not support coal activities.
The ADB is the only one of the regional DFIs studied here to adopt a formal policy against coal-related finance [14], though none of these regional DFIs have actively supported coal plants since 2013. Finally, while CAF does not have a formal prohibition on coal projects, recent annual reports show no record of coal finance in the last 20 years [9].
The bilateral institutions show a variety of approaches. In March 2021, JBIC became the first of these to announce it would no longer accept applications for coal projects, although its peer JICA has not yet made any such a commitment, and is currently supporting the Matarbari coal-fired power plant in Bangladesh [15, 16]. The DBSA recognizes the historically important role that coal has played in Southern Africa but makes no reference in recent annual reports to coal support, and has instead begun new initiatives to support just transitions. In fact, it has financed more regional renewable energy projects (33) than any other DFI [17, 18].
3.1.4 Implementation and Monitoring
Once a proposal has been approved, international DFIs continue to provide oversight and support, through monitoring, assistance in information disclosure, and independent accountability mechanisms to resolve problems that may arise in the course of project construction and operations. Where borrowing countries find themselves with unsustainable debt burdens, international DFIs have also participated in sustainability-enhancing debt renegotiations, including debt swaps for conservation or climate change mitigation or adaptation projects. Newly emerging instruments such as nature-linked bonds have open even more avenues for environmental management in development finance for the future.
Table 7.8 shows a wide variety of institutional mechanisms for oversight of projects already approved. As above, JBIC, JICA, and CAF have the sparsest coverage, having adopted only two or three of the requirements. The project management mechanisms detailed in Table 7.8 show the variety of approaches to the co-governance of projects with local governments, who oversee the day-to-day details of project construction and operation. One of the most common approaches is to empower local communities to communicate directly with the DFI in the planning as well as implementation stages. During the planning stages, access to information and stakeholder consultation processes can expose project risks that may not have been immediately clear in feasibility studies and ESIAs. Once projects are underway, complaint and grievance mechanisms can expose harm before it becomes a danger to the project itself or surrounding communities.
Box 7.3 Transparency Plus: Special Considerations with Regard to Gender and Ethnicity
In addition to the general requirements described in Tables 3.3 and 3.4, many DFIs have come to recognize the importance of targeted outreach to heavily affected communities and segments of communities. In particular, stakeholders may be affected differently by environmental harm along their ethnic and gender divisions.
As described in detail in the 2020 CCICED Special Policy Study on the Green BRI and 2030 Agenda for Sustainable Development [19], many agricultural communities divide daily tasks by gender, meaning that men and women interact differently with their natural environments. Women are often tasked with household food production while men are employed for pay, so that women’s tasks are more directly impacted by damage to water or soil, for example. That gendered division of labor means that damage to biodiversity often impacts women to a greater extent than men, with a cascading impact on household food security and the community as a whole. However, societies with gendered divisions of labor often also have gendered divisions in community gatherings and discussions, so that women’s concerns may not be heard in community-wide meetings. For this reason, many DFIs now recognize the importance of taking gender into account in the transparency requirements shown in Table 3.4. For example, the Convention on Biological Diversity’s 2015–2020 Gender Action Plan calls for calculating project costs and benefits separately for men and women in stakeholder communities. A 2019 inter-DFI report—with participation from the ADB, AIIB and World Bank, among others—recommends incorporating gender in transparency and accountability mechanisms.
Environmental impacts are also experienced differently across ethnic lines, particularly among indigenous communities. While these communities have tremendous diversity among themselves, two common attributes are the continued use of traditional livelihoods that depend on intact ecosystems (such as hunting, fishing, and gathering) and incomplete property rights (such that the lands and waters that have traditionally supported them may not be legally recognized as theirs). For this reason, many DFIs have enacted special provisions to ensure that their needs are taken into account in project preparation and oversight. All of the global and regional DFIs profiled here have specific policies for incorporating indigenous input in project planning and accountability, minimizing or mitigating environmental harm that impacts them, and compensates them for any unavoidable loss or displacement.
3.1.5 Sustainability-Enhancing Debt Renegotiation
In cases where borrower debt levels become unsustainable, DFIs have actively participated in sustainability-enhancing debt renegotiation. These may take several forms, but generally include collaboration between borrower and lender to convert existing debt repayment commitments into conservation or climate projects. Crucially, this type of arrangement does not involve imposing conditionality on debt restructuring or forgiveness, but requires debtor nation leadership, usually over a period of years, to plan for the structure and management of the new funds.
When implemented well, debt-for-nature swaps can allow chronically indebted countries an alternative to environmentally-damaging activities to pay down debt. They can also create an institutional structure to oversee the establishment of definitions of sustainable economic activities appropriate for the newly protected areas, and the fiscal space to ensure that the new protections are well-managed, with adequate participation from local communities to ensure enforcement. However, these swaps are not quick fixes for debt crises, nor can they bring a sudden stop to ongoing ecological disasters. Establishing the conservation areas is a process of multiple years. Thus, rather than being used as a last resort or rescue option for disaster scenarios, it is best considered as a long-term, pro-active approach to conservation. In this regard, they are well-suited to the needs of borrowers currently planning sustainable recoveries from the COVID-19 pandemic.
As countries face the challenge of rebuilding from the COVID-19 pandemic amidst debt overhangs, bilateral sustainability-enhancing debt renegotiation is likely to play an important role. In addition to traditional swap mechanisms, new instruments such as nature-linked bonds may be particularly useful in the current context. These instruments link repayment terms to borrowers’ progress toward sustainability goals, but the funds are not linked to specific projects. Thus, borrowers may use them to fund immediate humanitarian efforts while their overall sustainability goals also become more affordable. They may be particularly attractive for bilateral creditors, who can easily convert existing debt to such bonds, and may even choose to denominate them in their own currencies. While these new instruments may be particularly well-suited for bilateral creditors, they are drawing attention from multilateral lenders as well. They have received attention from multilateral creditors such as the ADB and the World.
3.2 Environmental Management Mechanisms for ODA of Japan and South Korea
China, Japan, and South Korea are the three major economies in East Asia and the signatories to the Regional Comprehensive Economic Partnership (RCEP). Their total GDP accounts for more than one fifth of the global GDP, which enables them to play a significant role in the global economy. Among them, Japan and South Korea used to be the key components of the ancient Silk Road, and now the major participants of global outbound investment activities. In 2019, Japan and South Korea ranked the 1st and the 11th among all countries in terms of foreign investment amount, which became the 3rd and the 10th in 2020.Footnote 18 Thus, this section focuses on Japan and South Korea to review the environmental management mechanisms in their Official Development Assistance (ODA), including the system design, policy making, specific practice, and experience gained, which can serve as useful references for BRI projects to carry out environmental management.
3.2.1 Environmental Management in ODA of Japan
3.2.1.1 Management Mechanisms
In 1988, Japan became the biggest ODA provider in the world. However, as its ODA recipient countries failed to mitigate damages to the local environment in their process of development, Japan’s ODA received persistent criticism from the world. In response to such criticism, Japan began to explore approaches to providing ODA in a way that assist other countries to develop and at the same time urge them to consider environmental protection. In other words, Japan aimed to extend the original ODA to “green ODA”. Thus, the following management mechanisms have been put into place:
Firstly, specialized agencies were set up to formulate guidelines for environmental protection. In 1986, the Japanese Ministry of Environment held a seminar on environmental conservation for ODA projects. In 1988, it established an environmental research institute under JICA. Built on the research results of the institute, environmental guidelines were formulated by JICA and Overseas Economic Cooperation Fund (OECF) and then incorporated into the Outline of Japan’s ODA Activity after being approved at the cabinet members meeting in 1992, stipulating that environmental protection and economic development are equally important.
Secondly, environmental and social standards and principles for overseas investments have been developed. In order to reduce the environmental impacts of overseas investment projects, JICA and JBIC formulated environmental guidelines respectively such as Guidelines for Environmental and Social Considerations and JBIC Guidelines for Confirmation of Environmental and Social Considerations, so as to implement the projects according to environmental guidelines with full consideration of their social and environmental impact to the region (Fig. 7.2).
“Procedure for confirmation of environmental considerations” prior to funding decisions in JBIC. Source The Role and Function of the Japan Bank for International Cooperation. JBIC. https://www.jbic.go.jp/ja/
Thirdly, multiple agents including the government and non-governmental organizations have been working together to boost environmental protection efforts in ODA. Citizen leagues and civic groups have been monitoring and criticizing environmental issues in ODA practice via media, which forced Ministry of Foreign Affairs to focus on the quality of ODA operations, and especially the formulation of related environmental policies and guidelines.
3.2.1.2 Good Practice
Firstly, a clear and green foreign investment strategy has been put in place. Japan has actively bid for the 8th Meeting of Conference of Parties (COP 8) to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), and joined the International Environmental Technology Center (IETC) under the United Nations Environment Programme (UNEP). By so doing, Japan has put environmental issues on the government’s agenda and gradually formed a consensus on environment within the government. As a result, green measures for ODA are implemented from top to bottom. From 1986 to 1996, the proportion of ODA directed at environmental issues increased from 4 to 27%.
Secondly, special agencies have been established to formulate and implement environmental guidelines. Japan guides its domestic enterprises to participate in overseas aid and investment projects through JICA and JBIC, and reduces the project impacts on the environment of recipient countries by formulating a series of environmental planning guidelines and application procedures. In the process of implementation, JICA and JBIC are responsible for whole life cycle evaluation and monitoring of these projects. Once the implementation is confirmed to be in violation of environmental regulations, punitive measures will be adopted to rein in or even stop loans.
Thirdly, the Japanese government has accelerated the overseas layout of its green industries in the process of assisting host countries to solve environmental pollution and develop green industries with technical support. Besides enhancing the green level of environmental management for ODA and overseas investment projects, Japan also makes active use of advanced environmental protection technologies to enhance host countries’ capacity to deal with its environmental pollution, and “transfer” green industries to the host countries. On one hand, Japan creates new opportunities for the development of green industries in the host countries, and helps to satisfy local residents’ needs for employment and economic development; on the other hand, it assists Japanese enterprises to cooperate with host countries in a more positive way while enhancing its national visibility and soft power, thus promoting domestic economic growth.
3.2.2 Environmental Management in ODA of South Korea
3.2.2.1 Management Mechanisms
South Korea’s ODA history can be divided into two stages—before and after joining the OECD in 1996. After joining the OECD, especially since its entry into Development Assistance Committee (DAC) of OECD in 2009, South Korea has gradually formed a systematic and well-established ODA system.
In January 2006, South Korea set up the Committee for International Development Cooperation (CIDC) directly under the Prime Minister’s jurisdiction in order to strengthen unified management of ODA policy implementation. The Committee has had two parallel organizations, Korea International Cooperation Agency (KOICA) and Economic Development Cooperation Fund (EDCF), chaired by South Korea’s Ministry of Foreign Affairs (MOFA) and Ministry of Strategy and Finance (MOSF) respectively. The CIDC, as an institution under the Prime Minister’s Office, is chaired by the Prime Minister of South Korea. The responsibilities of the Committee are to deliberate on the plans and reports formulated by MOSF and MOFA for concessional loans and grant aids, and to conduct evaluation.
By establishing KOICA under the Ministry of Foreign Affairs and EDCF under the Ministry of Strategy and Finance, South Korea has built a mature ODA management system which can realize unified management with two sub-organizations each responsible for one sector, thus ensuring both a clear division of labor and a unified strategy. KOICA is mainly responsible for the formulation and implementation of grant aids, covering main areas such as material supplies, emergency relief, development investigation, application for graduate students, overseas volunteer activities, cooperation with international institutions, and implementation of grant aids projects. The organization is also responsible for the formulation of basic plans and annual implementation plans in various fields as well as the evaluation of project implementation. By contrast, EDCF, operated by the Export–Import Bank of Korea, is mainly responsible for the formulation of basic plans of concessional loans and implementation plans of the current year, collection and use of foreign aid funds, as well as direct provision of funds or provision of loans through international financial institutions to recipient countries (Fig. 7.3).
Organizational structure of ODA management in South Korea.
3.2.2.2 Good Practice
Firstly, a well-structured legal system for overseas investment has been established and due attention been paid to sustainable development. On December 26, 1986, South Korea enacted its first law on foreign investment, Korea Economic Development Cooperation Fund Act, which came into force on April 23, 1987. “Sustainable development and humanitarianism” is defined as one of the five major principles in the Act. The Act provides a legal basis for the establishment of EDCF, which stipulates that EDCF is under the jurisdiction of the Ministry of Strategy and Finance, and sets up a fund operation committee to operate and manage the fund. This Act, together with other relevant basic laws related to KOICA promulgated in 1991, constitutes the early regulatory system of South Korea’s foreign investment policy. In order to further prioritize foreign investment from institutional level, South Korea promulgated the Framework Act on International Development Cooperation in January 2010, which came into effect in the same year. The law has clarified the purpose and definition of development assistance, explained the basic concepts and principles of foreign investment policy, stipulated the mechanism and mode for the implementation of the policy, and ensured the continuity of South Korea’s foreign investment policy.
Secondly, a planning and implementation system to achieve UN’s sustainable development goals has been finalized. Under relevant laws and regulations, South Korea plans to deploy its overseas investment based on planning. The top-level plan is the five-year Strategic Plan for International Development Cooperation (referred to as the Plan) which serves as a strategic document for South Korea’s bilateral cooperation (grants and loans) and multilateral cooperation. The Plan points out the basic direction, scale and implementation method of policies on international development cooperation with clear planning for medium-and long-term investment plans for major countries of cooperation. With the promulgation of the Plan, South Korea’s foreign investment policy is elevated to the level of national strategy.
At present, the Plan has been updated for three times, with sustainable development, environmental protection, and green development as an integral part. Safe Guards are also specified in the evaluation system of The Third Strategic Plan for International Development Cooperation (2021–2025) of South Korea. These Safe Guards regard minimum impact on the environment, society and human rights during the whole life cycle of project implementation as the basic obligation.
Thirdly, a full-cycle and multi-faceted evaluation mechanism is implemented. As an important part of policy implementation, the evaluation mechanism for South Korea’s ODA can well serve its role in improving policy preparation, guiding policy implementation, and correcting mistakes in policy implementation. The evaluation mechanism runs through the whole life cycle of investment, including early feasibility study, mid-term evaluation and post assessment. On this basis, South Korea also evaluates the implementation of investment projects based on “self-assessment, assessment by evaluation committees, peer review among OECD countries and third-party assessment by non-governmental organizations”. It adopts a set of evaluation standards that derive from OECD’s evaluation standards with major principles including moderation, efficiency, effectiveness, impact, and sustainability (Fig. 7.4).
Implementation system for ODA management in South Korea.
3.3 Summary
As this section has demonstrated, DFIs have undergone significant convergence on their management of environmental risks in their lending portfolio. DFI risk management systems with the most recent reforms also have the most comprehensive set of considerations covered by their systems, showing a growing understanding of the importance of this work. Furthermore, several components of risk management have gained near-universal adoption, indicating that these practices are essential for any DFI interested in adequately addressing environmental concerns.
First, a sound environmental risk management system begins with upstream engagement, working with borrowers to develop portfolios of projects that are both environmentally and financially sustainable. This process puts the lender’s expertise at the service of borrowing countries, to develop their priorities into specific high-quality project proposals. While DFIs’ approach to this upstream engagement varies, it coalesces around three categories of work: strategic project planning, technical project preparation, and financial assistance for pre-investment studies.
Once borrower submits project proposals, high-quality environmental management systems apply screening steps to protect the reputational and financial interests of the lender. One common element of screening steps includes the use of exclusion of certain sectors or corporations that have been deemed too risky, such as coal financing or contractors with poor track records. Additional risk screening considerations include a given project’s expected impact on pollution, greenhouse gas emissions, biodiversity, and ecosystem services.
During project construction and operation, the proactive DFIs shifts focus from estimating the likely risks and toward monitoring the implementation to ensure that the developers’ plans and promises are met. To ensure a full understanding of project performance, DFIs prioritize and rely on independent third parties for project monitoring. They also regularly assist with the publication of project-related documents, so that any stakeholder may bring performance issues to the attention of the lender or developer. Finally, a world-class environmental risk management system is completed with an independent accountability mechanism to receive and consider grievances from the public.
As members of OECD-DAC, Japan and South Korea have similar practices in ODA environmental management with those of DFIs. At same time, their practices fully demonstrate the positive role of the “sovereign subjects” in developing policy systems and management mechanisms. Their successful experience can be further summarized as follows:
Firstly, it is important to fully consider the demands of host countries, pay close attention to the challenges faced by them in response to climate change and environmental protection, explore the full process of integrating high-quality, sustainable, risk-resisting, affordable and inclusive goals into project construction, and earnestly improve the environmental protection capacity of BRI countries. Meanwhile, efforts should be made to increase green investment into host countries, and facilitate green and low-carbon transformation and upgrading of traditional polluting industries in host countries by utilizing investors’ advantages in green technologies and industrial development.
Secondly, it is necessary to set up a full-cycle, multi-faceted evaluation mechanism for investment projects. A full-cycle evaluation mechanism should be adopted for foreign investment projects. At the early stage, feasibility reports and EIA reports should be mandatory. In the process of implementation, effective monitoring and inspection are crucial to guarantee the compliance in implementation. When the project is completed, continuous evaluation and feedback of project operation is recommended to summarize experiences which can be referred to and learnt by future investments of the same kind.
Thirdly, the role expatriate agencies should be emphasized. It is important to enhance the professional staffing for expatriate agencies in key investment industries and ecological and environmental sectors. The government needs to help enterprises gain a deeper understanding of laws, regulations, customs, and values of host countries, and adopt more effective localization strategies. Moreover, effective mitigation and reduction of environmental and social impacts on the project site and its surrounding region plays a critical role in advancing the cooperation in relevant sectors. For instance, expatriate agencies can cooperate with host countries to jointly investigate regional ecological environment. They can set up localized communication channels to guarantee adequate communication with local governments, enterprises, residents and NGOs in host countries during the whole life cycle of the project, so as to ensure smooth project implementation and effectively minimize environmental and social impacts of the project.
4 Policy Recommendations
Based on the above studies, this section puts forward targeted policy recommendations on promoting the full alignment of Green BRI with 2030 Sustainable Development Agenda, with particular focus on the environmental management for BRI investment and financing. At the strategic level, the recommendations outline 4 priority areas for BRI green investment and financing to support sustainable development. At the public governance level, there are 4 policy recommendations on guiding non-governmental entities to practice environmental management. At the level of practical implementation, 5 pillars are proposed to enhance whole life cycle environmental management for BRI investment and financing projects. These recommendations aim to establish an environmental management system for BRI investment and financing, as well as guide and support BRI green development.
4.1 Priority Areas for Boosting Sustainable Development in Overseas BRI Projects
4.1.1 Broaden the Scope of BRI Alignment to Specifically Incorporate SDGs
Global climate change has become one of the major challenges for human survival and development in the twenty-first century.Footnote 19 The intensity and total amount of carbon dioxide emission of some BRI participating countries are not outstanding due to their economic development model and level. However, BRI has gathered many emerging economies with the most growth potential and vitality. Considering the potential of economic growth and sensitivity to climate change of BRI participating countries, incorporating the goals to deal with climate crisis and conserve biodiversity into the development of green Silk Road and cooperation with overseas BRI projects, fostering synergy among SDGs, and facilitating cooperation in areas such as green infrastructure, green energy and green finance, will be vital for BRI participating countries to achieve sustainable development and realize green and low-carbon recovery in the post-pandemic era.
4.1.2 Promote a Common Understanding of the Definition of Green Investment Among BRI Participating Countries
With the communication and dissemination of the concepts of ecological civilization and green development, and the deepening global understanding of the importance of the 2030 Agenda for Sustainable Development, green investment has been widely accepted and welcomed by countries all over the world as a new field of sustainable investment. It is thus recommended that China develop a catalogue or taxonomy to clarify the scope and standards of green BRI investment and further engage in the formulation of green investment standards in the host countries and those at international level. This would facilitate the benchmarking and convergence of green investment standards in China, BRI participating countries, and the international ones, assist public and private sectors to identify green projects efficiently, and enhance the funding for sustainable development of the BRI.
4.1.3 Increase the Support and Guidance from Public Sector for BRI Green Financing
Investment and financing has a particularly important role in guiding positive actions and facilitating positive changes. Public sector participation is an indispensable supporting force for green financing development. It is suggested making coordinated use of public sector resources such as preferential policies, financial support and ODA to direct and encourage international investors, and investors from both public and private sectors in BRI participating countries to the environmental, social and governance (ESG) responsible investment with ownership. Based on the projects’ demand for green investment and financing management, it is recommended to explore and establish a BRI green investment and financing evaluation system and give full play to the guiding role of investment and financing in the construction of a green Silk Road. It is necessary to develop a green performance evaluation methodology according to internationally accepted green certification standards, bring in third-party evaluation institutions in the evaluation practice, develop standardized and differentiated green assessment tools, summarize green management experience, incorporate evaluation results into foreign economic cooperation credit records, and put in place incentive and accountability mechanisms as appropriate.
4.1.4 Strengthen International Cooperation, Communication, and Capacity Building
It is recommended to promote communication and regulatory cooperation in key areas such as top-level/upstream planning, pollution prevention, environmental governance, biodiversity conservation, climate change response, as well as green and low-carbon transition. It is necessary to enhance cooperation with development financial institutions as well as bilateral, multilateral and regional financial institutions in environmental management, and facilitate the green and low-carbon transformation of the economic systems in the BRI participating countries through joint efforts from relevant countries. Such programs as Belt and Road South-South Cooperation Initiative on Climate Change and the Green Silk Road Envoys Programme should be well used for capacity building to assist BRI participating countries to establish and improve their green finance system and environmental management systems for investment and financing. Make good use of existing multilateral cooperation mechanisms such as the Belt and Road Initiative International Green Development Coalition (BRIGC), the Belt and Road Ecological Big Data Service Platform, and the BRI Green Investment Principle (GIP) to strengthen information and experience sharing among BRI participating countries, and disseminate best practices in environmental and climate management by BRI projects, so as to improve the green reputation of the BRI projects, and attract the participation of global responsible investors.
4.2 Policy Recommendations for Non-governmental Entities to Practice Environmental Management for BRI Investment and Financing
4.2.1 Financial Institutions: Facilitate the Improvement of a Hierarchical Classification and Management System for BRI Projects
It is recommended to further improve the Green Development Guidance for BRI Projects and strengthen the risk identification, risk quantification and risk exposure management of industries with prominent environmental and climate risks. Based on such eco-environmental protection and climate goals as pollution prevention, biodiversity conservation, efficient energy use, and climate change mitigation and adaptation, establish the positive/negative list of green investment, project classification standards, and technical guidelines for green projects, and practice green investment identification accordingly. Facilitate the construction of sub-platforms including the BRI green project library and the environmental risk management module for BRI investments under the Belt and Road Ecological Big Data Service Platform.
4.2.2 Project Sponsors and Owners: Build an Environmental and Climate Risk Screening and Impact Assessment Framework for Projects
To promote the effective practice of green management in BRI projects at the implementation level, it is necessary to set up a framework for environmental and climate risk screening and impact assessment in the whole lifecycle of the project from the project planning stage. (1) At the project selection stage, it is necessary to examine the risk management ability and practice of the project contractor, and complete the preliminary screening of project risks and impacts. (2) At the stages of project planning and scheme design, a more detailed environmental impact and climate risk assessment should be carried out, with review of management qualification of the selected contractor. (3) Policy compliance review should be carried out under the framework of the host country’s foreign investment, environmental management and corporate social responsibility rules. (4) At the project implementation stage, continuous project reporting, monitoring and evaluation should be conducted. Self-monitoring by the contractor and independent monitoring and evaluation are required according to the project contract content, the agreement with the project investor and the regulatory requirements of the host country and the countries where project stakeholders are located. Corresponding information should be made public at major project milestones on the timeline.
In addition, the framework should pay special attention to gender equality elements, and identify possible impacts of the project on women’s rights and interests in their communities, and the contribution of the project in improving women’s employment and protecting women’s development rights and interests in local communities, so as to inform subsequent projects as reference.
4.2.3 Market Entities: Enhance the Mainstreaming Level of Environmental and Climate Management
It is suggested that various market players involved in BRI investment and financing should formulate comprehensive sustainable development strategies, closely align enterprise development with green BRI development and UN’s Sustainable Development Agenda, and regard environmental protection and climate change response as an important part of fulfilling their corporate social responsibilities. It is suggested that market entities should set up special environment and climate mainstreaming management departments or working groups in their management organizations and empower project staff with sustainable development knowledge and concepts to raise their environmental awareness. The departments or working group will also be responsible for providing management training and technical guidance related to environmental and climate risks for key position managers (risk business managers of risk management departments, etc.), project contractors and other relevant parties. In this process, it is necessary to ensure that women can equally undertake management tasks and have equal access to training opportunities.
4.2.4 The Third Party Engagement: Develop Green Management Toolkit for the BRI Overseas Investment
The standard system represented by Green Industry Guidance Catalogue and Catalogue of Green Bond Support Projects provides a clear basis for investors to identify the green investment direction. Information tools, such as the Whole Process Green Assessment Framework for BRI Projects, the Environmental Risk Screening Tool (ERST), the Climate and Environment Risk Assessment Toolbox (CERAT), and the Belt and Road Ecological Big Data Service Platform, have substantially improved the accessibility of environmental and climate risk and impact assessment. The above-mentioned “tools” have expanded the applicable scope and users of green management for BRI overseas investment, and at the same time improved management efficiency and operability.
It is suggested that management tools such as information system, standardized method, evaluation index system and technical specifications should be developed around key directions of target project screening, project risk identification, risk and impact assessment, classification management, gender mainstreaming, knowledge sharing and capacity building, stakeholder communication and information disclosure, and a green management toolkit for foreign investment be formed for all stakeholders to use.
4.3 Five Key Pillars for Full Lifecycle Environmental Management in BRI Projects
4.3.1 Build a Green Investment Governance System Applicable to All Phases of BRI Projects
Expedite the greening process of foreign investment and financing by enhancing environment management for the whole lifecycle of the projects. The lifecycle of investment projects can be divided into project screening and evaluation, project monitoring and control, reporting and information disclosure, according to the Chinese practices and international norms. Engaged stakeholders should take responsibilities to enhance the green development of project throughout the lifecycle. This should be governed and administered with participation of regulatory authorities and supporting mechanisms such as the accountability mechanism.
4.3.2 Create Exclusionary Lists
A number of global regulators and financial institutions have developed Exclusion Lists of environmentally harmful projects that shall not be funded. Projects on the Exclusion Lists include those that have severe and irreversible negative impacts on the achievement of climate, environmental, and ecological goals without feasible solutions for mitigation. It is recommended that the Guidelines on the Evaluation and Classification of BRI Projects (“Classification Guidelines” for short) be promulgated on the basis of the Green Development Guidance for BRI Projects. Based on the previous analysis of the policies and standards of other countries and development financial institutions, projects that may result in the deterioration of ecosystems—for example, coal mining, and coal-fired power plants—should be added in the “exclusion list” and phased out of overseas investment.
4.3.3 Environmental Impact Assessment
Project sponsors/owners would screen projects pertaining to environmental and social risks and impacts. For those projects deemed to have potential environmental and social impacts, the approval and management authorities for BRI projects shall determine the scope, granularity, and management requirements of subsequent Environmental Impact Assessment (EIA) for each project based on project type and features. It is recommended that low-risk projects conduct EIA at least in accordance with the local standards in the host country; and that medium- and high-risk projects shall follow more stringent standards in the EIA, e.g. in accordance with the prevailing standards of international organizations and multilateral institutions, the Chinese standards, or other best practice.
4.3.4 Environment and Social Management System
It is recommended that all project sponsors/owners of medium- and high-risk projects shall be required to implement an Environment and Social Management System (ESM) which includes environmental and social risk responses, management plans, and monitoring plans. These sponsors/owners shall also be obliged to report regularly to the administering authorities, regulatory bodies or other stakeholders on ESM progress.
4.3.5 Information Reporting and Disclosure
It is recommended that project sponsors/owners shall report and disclose information related to emissions, pollution, biodiversity targets and impact, risk management, strategy and governance in accordance with required standards or prevailing international standards, where the disclosed information shall be available in Chinese and the major languages of the host countries. It is necessary for the project sponsors/owners to provide a set of easy-to-access and transparent grievance redress mechanisms, set up liaison offices, and make contact methods (phone number and e-mail address) readily available for stakeholders to express concerns. It is suggested that all stakeholders, including project sponsors/owners, host country governments, financial institutions, etc. should further enhance collaboration to share environmental data and best practices and enhance global data repositories on climate and biodiversity. For example, the Equator Principles encourage financial institutions to share biodiversity data of their projects that are not commercially sensitive with Global Biodiversity Information Facility (BGIF) and relevant national and global data repositories.
Notes
- 1.
The list of countries that have signed BRI cooperation documents with China, Belt and Road Portal, 12 March 2021, https://www.yidaiyilu.gov.cn/gbjg/gbgk/77073.htm.
- 2.
Ambassador Cong Peiwu publishes a signed article on Belt and Road Initiative on CCBC's website, the official website of the Embassy of the People’s Republic of China in Canada, 23 June 2021, http://ca.china-embassy.org/eng/sgxw/t1885976.htm.
- 3.
Ministry of Commerce of the People’s Republic of China, Report on Development of China’s Outward Investment and Economic Cooperation, December 2020, http://images.mofcom.gov.cn/fec/202102/20210202162924888.pdf.
- 4.
China Ushers in a New Stage of High-Quality Development in BRI Cooperation in the 14th FYP, China Pictorial, 9 December 2020, http://www.rmhb.com.cn/zt/ydyl/202012/t20201209_800229530.html.
- 5.
China's General Administration of Customs: In the First Three Quarters of 2020, China's Cumulative Import and Export to Countries Along the BRI Increased by 1.5% Year-On-Year, Ministry of Commerce of the People’s Republic of China, 14 October 2020, http://www.mofcom.gov.cn/article/i/jyjl/j/202010/20201003007782.shtml.
- 6.
Ministry of Commerce of the People’s Republic of China: China's Non-Financial Direct Investment in Countries Along the BRI Increased by 29.7% Year-On-Year in the First Three Quarters, People’s Network, 19 October 2020, http://finance.people.com.cn/n1/2020/1019/c1004-31896412.html.
- 7.
COVID-19 Presents Both Risks and Opportunities for BRI Development, China Today, 18 May 2020, http://www.chinatoday.com.cn/zw2018/sp/202005/t20200518_800204786.html.
- 8.
The 14th Five-Year Plan for National Economic and Social Development of the People's Republic of China and the Outline of the Long-Range Objectives Through the Year 2035, XinhuaNet, 13 March 2021, http://www.xinhuanet.com/2021-03/13/c_1127205564_13.htm.
- 9.
Xi Jinping’s Keynote Speech at the Opening Ceremony of Boao Forum for Asia Annual Conference 2021, XinhuaNet, 20 April 2021, http://www.xinhuanet.com/politics/leaders/2021-04/20/c_1127350811.htm.
- 10.
The Initiative for Belt and Road Partnership on Green Development, Ministry of Foreign Affairs of the People’s Republic of China, 24 June 2021, https://www.fmprc.gov.cn/web/ziliao_674904/1179_674909/t1886384.shtml.
- 11.
Zhou Yamin. Transformation and Upgrading of China’s Industrial Chains Fueled by the Duel Goals of Carbon Emissions Peak and Carbon Neutrality. China Development Observation. 2021(Z1): 56–58.
- 12.
China’s Investment in the Belt and Road Initiative (BRI) in 2020. Green BRI Center, International Institute of Green Finance (IIGF) under Central University of Finance and Economics. 2020.
- 13.
Ministry of Commerce of P.R.C., Report on Development of China’s Outward Investment and Economic Cooperation, December 2020, http://images.mofcom.gov.cn/fec/202102/20210202162924888.pdf.
- 14.
Third-party market cooperation refers to the market cooperation between Chinese enterprises and multinational enterprises in developed countries in professional fields such as foreign direct investment, infrastructure construction, financial product supply, capacity utilization, foreign aid and etc. in the third-party market with high trade complementarity for the two sides.
- 15.
The 14 countries are France, South Korea, Canada, Portugal, Australia, Japan, Italy, the Netherlands, Belgium, Spain, Austria, Singapore, Switzerland and the United Kingdom, which are sorted by the author according to the official websites of the Ministry of Commerce and the Ministry of Foreign Affairs of China and relevant reports from the People's Daily.
- 16.
It is worth mentioning that, while the Development Bank of Southern Africa lends regionally, it is owned and managed by South Africa.
- 17.
ADB. 2020. Sector-wide Evaluation: ADB Energy Policy and Program, 2009–2019.
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Source: World Investment Report, https://unctad.org/topic/investment/world-investment-report.
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IPCC AR5. Intergovernmental panel on climate change fifth assessment report (AR5) [R]. London: Cambridge University Press, 2013.
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China Council for International Cooperation on Environment and Development (CCICED) Secretariat. (2023). Enhancing Environmental Management for BRI Projects to Boost Green BRI and 2030 Agenda for Sustainable Development. In: Green Recovery with Resilience and High Quality Development. Springer, Singapore. https://doi.org/10.1007/978-981-19-9470-8_7
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