This article is written in both English and Chinese.
China’s Belt and Road Initiative (BRI) is set to improve connectivity and cooperation on a transcontinental scale. By most estimates, the BRI, hailed as the “project of the century”, is already the world’s biggest investment program and could eventually mobilize trillions of dollars for a host of new multinational ventures, including dams, railways and ports. How can green leadership play a role in ensuring its success?
- As BRI projects move forward, with Chinese financial institutions already bankrolling US$440 billion worth of projects within participant countries, China is determined to push ESG (environmental, social and governance) considerations to an unprecedented level in a move displaying green leadership.
- Sustainable investing remains a niche sector but its growth trajectory indicates that a healthy appetite exists for such products. Green bonds raked in US$86 billion in the first half of 2019, a rise of 26% on the same period last year, Refinitiv data shows.
- We are optimistic of seeing a concerted effort from the world’s public and private sectors to ensure the BRI is a success for all stakeholders, in turn helping us to create a better world for posterity.
However, the BRI’s impact cannot be analyzed in a monetary context alone. Its immense scope is being realized amid urgent calls for governments to protect the planet’s endangered resources and act on climate change by displaying green leadership.
Those messages have resonated with the Chinese government, which has endorsed several ‘Green Investment Principles’ for the BRI to incorporate low-carbon and sustainable development practices. President Xi Jinping, who conceived and has championed the initiative, has also spoken of the need for the BRI to create green and sustainable infrastructure – a great example of green leadership.
Building a sustainable Silk Road
Launched in 2013, the initiative aims to boost trade, cooperation and integration along the proposed links, which span Europe, Africa and Asia, and help emerging markets around the world to be part of the global economic order. The ambitious initiative currently includes port projects in Europe, industrial parks in Africa and Central Asia, and transport links across Asia, to name a few. According to Refinitiv data, power & water and transportation-related projects account for more than two-thirds of the BRI projects in the works.
One critical issue, though, is that large-scale infrastructure and logistics plans have traditionally been at odds with environmental interests. According to the World Bank, approximately 70% of global greenhouse gas emissions come from infrastructure construction and operations.
The building of airports, roads and railways, which includes the use of heavy machinery and the production of harmful waste, can lead to the destruction of natural habitats and a loss of biodiversity. And because a bulk of the BRI projects are in these areas, sustainable finance has an especially significant role to play.
The Asian Development Bank estimates that US$26 trillion needs to be invested in infrastructure in Asia alone by 2030 to maintain economic expansion, eradicate poverty and respond to climate change. So in order to plug this massive funding gap – while complying with the Paris Agreement and UN Sustainable Development Goals – the growing consensus is that green finance should be prioritized in the international community.
As BRI projects move forward, with Chinese financial institutions already bankrolling US$440 billion worth of projects within participant countries, China is determined to push ESG (environmental, social and governance) considerations to an unprecedented level in a move displaying green leadership.
During the second Belt and Road Forum for International Cooperation held in Beijing in April, President Xi’s keynote speech highlighted how environmental concerns need to underpin the initiative “to protect the common home we live in” by adhering to open, green and clean approaches. To this end, China and the City of London Corporation’s Green Finance Initiative have worked together to create the Green Investment Principles (GIP) for the Belt and Road.
Thirty global institutions have so far signed up to the set of voluntary principles which advocate in-depth environmental and social due diligence, the exploration of environmental stress tests of investment decisions, and integrating ESG factors into supply chain management, among other points.
An example of green leadership
While such eco-friendly thinking is gaining traction in mainstream finance circles, this paradigm shift can present as many challenges as opportunities for stakeholders.
Sustainable investing remains a niche sector but its growth trajectory indicates that a healthy appetite exists for such products. Green bonds raked in US$86 billion in the first half of 2019, a rise of 26% on the same period last year, Refinitiv data shows. Meanwhile BRI-issued green bond sales (excluding China) hit US$23 billion as of August this year compared to just US$5.2 billion raised in the whole of 2015.
Corporations are joining the boom as well. Technology giant Apple, for instance, says it has completed US$2.5 billion worth of green bond allocations and contributed to 40 environmental initiatives around the world. In China, Refinitiv’s data indicates Chinese companies have issued nearly US$30 billion worth of green bonds, ranked top worldwide.
Global influencers are becoming increasingly aware of the social and economic costs of large carbon footprints and the fallout from rising sea levels, poor air and water quality, and wasteful production systems. Nowadays, there is also a distinction between ‘do no harm’ – for example, avoiding funding activities which result in deforestation or drilling in sensitive regions like the Arctic – and ‘do some good’ – such as actively supporting clean tech assets. For instance, also from the Refinitiv database, Chinese companies have invested in or acquired clean energy projects for more than $24.8billion since 2014.
As for portfolio performance, research proves that strengthening sustainability credentials presents a wide range of benefits for stakeholders. Beyond the ethical imperatives, ESG bonds offer stable and predictable returns, which attract investors with a ‘bigger picture’ perspective seeking diversification.
Furthermore, a commitment to green finance enhances public reputation and deepens the processes that encourage accountability and transparency – all vital in an age where activists and millennial consumers demand institutions put community wellbeing ahead of pure profits.
Emerging markets, in particular, have been spurred into action by the Paris Agreement as their populations are the most vulnerable to climate change and pollution risks. The International Finance Corporation (IFC) states that the landmark accord will help create nearly US$23 trillion in opportunities for climate-smart investments in emerging markets between now and 2030.
Given that the BRI primarily engages with developing markets, China can drive change and share its experiences to incentivize ESG policies. Sure enough, it’s doing so with programs such as the BRI Green Cooling Initiative, the BRI Green Lighting Initiative and the BRI Green GoingOut Initiative, which is focused on investments by Chinese companies abroad.
Recent findings reveal that China’s position as the world’s largest generator of solar power means the price of solar energy has become lower than grid-supplied electricity in hundreds of cities across the country. Scaling and accelerating the use of such technologies and expertise to BRI countries will certainly aid the green transformation, and lead to inclusive development.
Advancing ESG through partnerships
However, these advantages and opportunities are not without challenges. The key underlying problems in this sector revolve around insufficient or unreliable data, lack of standardized information and weak ESG disclosure guidelines.
Since the BRI covers a huge geographical scope and economies at different stages of development, it can be daunting and costly to carry out independent data mining, analysis and research. And understandably, investors hoping to tap into green bonds in Belt and Road locations may be reluctant to do so.
But, advances in fintech and the growing access to quality data – especially when it comes to securing reliable and transparent information in emerging markets – is seen driving momentum in sustainable finance. Solutions can also be found by leveraging partnerships with established financial research firms and agencies. For instance, ESG databases allow clients to screen a variety of economic indicators and create their own customized benchmarks and indices. Platforms such as these provide investors with ample information in a cost-effective manner to accurately gauge project funding needs, operational risks and geopolitical factors.
A clean and green future
At its heart, the Belt and Road Initiative is a project that has the potential to transform global trade and bring prosperity to everyone involved. While there are challenges in ensuring that the planet’s future is not compromised in the process, it’s heartening to see the progress being made in the right direction.
With support and encouragement from China and BRI host governments; rapid advancements in fintech; and, an increasing willingness among global corporations to put the planet first, we are optimistic of seeing a concerted effort from the world’s public and private sectors to ensure the BRI is a success for all stakeholders, in turn helping us create a better world for posterity.
Discover our ESG Index and Eikon BRI Connect app today.
对此中国政府高度重视并在积极响应：中国已经就 “一带一路”倡议确认了“绿色投资原则”，以将低碳和可持续发展理念纳入“一带一路”沿线投资项目中。作为“一带一路”倡议构思者和倡导者的中国国家主席习近平，就曾提到 “一带一路”项目要建立绿色和可持续基础设施的必要性。
亚洲开发银行估计，到2030年，仅在亚洲就需要投资26万亿美元用于基础设施建设，以维持经济增长、消除贫困和应对气候变化。为了填补这一巨大的资金缺口，同时遵守 “巴黎协定” 和联合国可持续发展目标，国际社会越来越多的人已经达成共识：即绿色金融将成为重中之重。
4月份在首都北京举行的第二届 “一带一路” 国际合作高峰论坛期间，习近平主席的主题演讲特别强调了如何通过秉持“开放、绿色和清洁的方法”，来支持 “保护我们所居住的共同家园” 的倡议，以应对环境问题。为此，中国与英国伦敦金融城公司合作，共同制定了 “一带一路” 制定绿色投资原则（GIP）。到目前为止，全球已有30家机构签署了一系列自愿原则，提倡进行深入的环境和社会尽职调查，就投资决策进行环境压力测试，以及将 ESG 因素纳入到供应链管理考量因素等等。
全球决策者都越来越意识到，大量的碳足迹以及海平面上升、空气和水质变差以及浪费资源的生产系统等都对社会和经济带来了巨大成本。现在， “不伤害”（do no harm）和 “做好事”（do some good）的观念开始逐渐被接受。“不伤害”指的是避免投资在森林砍伐或在北极等敏感地区钻探的资金活动；而“做好事”则是指积极支持清洁技术等投资项目。例如，路孚特的数据显示自2014年至今，中国对清洁能源的投资并购已经超过248亿美元。
由于人口最容易受到气候变化和污染的影响，新兴市场对于 “巴黎协定”的反应更加积极。而鉴于“一带一路” 倡议主要涉及发展中国家，中国可以在推动可持续发展并分享其 ESG 政策经验方面扮演更重要的角色。实际上，中国公司在海外的投资，将通过一系列的绿色倡议而逐一落实，包括：“一带一路” 高效制冷行动倡议，“一带一路” 绿色照明行动倡议及“一带一路” 绿色走出去倡议等。
由于“一带一路”倡议 覆盖了处于不同发展阶段、横跨多个地理环境且经济情况各异的国家和地区，要开展独立的数据挖掘、分析和研究是十分艰巨且成本高昂的。这也从一个方面解释了为什么投资者在目前这个阶段对于 “一带一路” 沿线国家的绿色债券接受度有限。
在中国和 “一带一路” 倡议沿线各国政府的支持和鼓励下，再加上金融科技的快速发展，以及国际企业越发重视环境、社会及公司治理（ESG），我们有理由保持乐观的态度，相信全球参与方将齐心协力确保 “一带一路”倡议 为所有利益相关者带来回报，为后代创造一个更好美好的未来。