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25 Jul 2015

Lowell Chow & Annabel Short, Business & Human Rights Resource Centre (on South China Morning Post)

Intense scrutiny on AIIB should spur it to fulfil its social and environmental mission

Delegates from the 57 founding member states of the new China-led Asian Infrastructure Investment Bank (AIIB) recently gathered in Beijing for the bank's signing ceremony. The US was not among them.

Earlier, its National Security Council expressed concerns whether the bank "will meet high standards, particularly related to governance, and environmental and social safeguards". Jin Liqun , who has been nominated president of the bank, played down such concerns by pledging that the US$50 billion bank would be "lean, clean and green".

While it may be too early to comment on the bank's actual social and environmental impact, it is important to note that the track record of the US-led World Bank is not perfectly clean, either. Groups such as Human Rights Watch and even UN Human Rights Council experts have criticised the World Bank for its failure to adhere to its own promises to protect the world's most vulnerable people.

In April, the International Consortium of Investigative Journalists found that World Bank-funded projects have evicted an estimated 3.4 million people or damaged their livelihoods over the past decade. Among these projects were some graded the highest risk for "irreversible or unprecedented" social or environmental impacts.

In contrast, the concerns associated with the AIIB, that Chinese investment might be "less ethical" in terms of its impact on the environment and communities, echo oft-heard attitudes towards the operations of Chinese companies overseas. Protests against the operations of Chinese extractive firms have arisen from Myanmar to Zambia. Hundreds of such reports and articles about alleged abuses have been consolidated on the portal of our "Chinese investment overseas" website at the Business & Human Rights Resource Centre.

A shift is under way, however. Companies and the Chinese government are showing signs of commitment, and civil society groups are identifying new strategies to engage them on those commitments.

The Chinese government and business organisations have issued much guidance on how to avoid social and environmental abuses. These include the "Green Credit Guidelines" for financial institutions and the "Guidelines for Social Responsibility in Outbound Mining Investments". The idea behind these involves moving beyond common notions of "corporate social responsibility" in China - which have a strong philanthropic basis and involve building local roads, schools and hospitals to generate goodwill from local populations - towards continuous direct assessment of the social impact of a project, such as working conditions, compensation for displaced communities, and pollution.

Many civil society groups are already shifting towards engagement by identifying practical ways to hold Chinese firms to these standards. An Ecuadorian institute has developed a manual on the standards for use by civil society groups in Latin America impacted by Chinese companies' operations. The extent to which these guidelines have been used, however, is questionable.

In early July, the UN independent expert on the effects of foreign debt on human rights, Juan Pablo Bohoslavsky, conducted an eight-day visit to China. In his statement at the end, he welcomed the guidelines but added: "There is an implementation gap in operational practice in effectively implementing international and national [human rights] norms relating to international lending and investment."

When Friends of the Earth examined seven projects funded by Chinese banks for their report "Going Out but Going Green?", they found that six fall short of the "Green Credit Guidelines", but were not punished for their violations.

On the company side, policy commitments do not always translate into better social and environmental performance, either. A recent report by International Rivers said among the seven Chinese hydropower companies operating overseas, two - Sinohydro and Gezhouba - scored well on project performance, but the others scored lower on.

Another common concern from civil society is the lack of public access to Chinese banks. At the resource centre, we have found that Chinese banks, a key actor in the outward loans from China, are generally less responsive or approachable when we invite them to respond to specific allegations related to their investments.

Regardless of where the companies are located, there is always a spectrum of how well they perform in terms of their social and environmental impact. A knee-jerk presumption that investment from the AIIB or China will come without social and environmental safeguards fails to acknowledge that investments by other international financial institutions are also guilty of human rights abuses.

China and the other founding states of the AIIB must steer the bank towards better social and environmental performance. The new bank needs to demonstrate adherence to international human rights standards.

Besides just putting in place the "usual" social and environmental safeguards, if it wants to stand out from its competitors, it needs to ensure that grievance mechanisms and accessible remedies [in accordance with the UN Guiding Principles on business & human rights] are available to those who may be adversely impacted by a business or project.

The political context behind the AIIB means scrutiny of its social licence to operate will be intense. There is a dire need for improved infrastructure in Asia, but instead of focusing narrowly on the economic benefits the bank can bring to the region, the one biggest factor that will determine the bank's legitimacy and reputation will rest on its social and environmental performance.

Done right, investments by the AIIB have the potential to generate work, improve social and economic opportunities, as well as to win respect for China and the other founding member states.

Part of the following timelines

Commentaries on potential human rights & environmental impacts by China-led Asian Infrastructure Investment Bank (AIIB)

China: Intense scrutiny on AIIB should spur it to fulfil its social and environmental mission

Asian Infrastructure Investment Bank (AIIB) holds consultations on its environmental & social framework, NGOs say process is "grossly inadequate"