“Banks need to take Belt and Road environmental risks seriously”, 30 January 2020

China’s Belt and Road Initiative (BRI) is intended to catalyse the economies of countries around the globe.

Yet BRI projects overlap some of the most ecologically fragile places on earth. The multi-trillion-dollar initiative… has its environmental impacts. These include air and water pollution, soil contamination and erosion, habitat and wildlife loss.

For project developers and funders, failure to address these impacts can translate into regulatory and reputational risks. So they need to take mitigation seriously.

Risks confronting developers can include penalties, legal action and backlash from communities causing project delays and even closures. According to a 2018 study, 14% of BRI projects in 66 countries have faced some kind of local pushback.

At the Myitsone dam in Myanmar, Chinese developers and investors faced the worst-case scenario, locking in funds indefinitely after the dam was suspended mid-construction on environmental grounds… The dam was shelved after sustained local and international opposition, leaving China Power Investment Corporation (CPI) and the investor China EXIM bank in limbo.

A dam in Indonesia’s Batang Toru rainforest funded by the Bank of China (BOC) was also met with significant local and international opposition and litigation as it threatened the only habitat of the rare and critically endangered Tapanuli orangutan. Cambodia’s proposed Sambor dam, dubbed an imminent environmental disaster for the Mekong river, faces similar problems.

Environmental risks can spill over to affect project financers. They may face loan defaults or find themselves forced to withdraw funding where they have failed to vet projects pre-emptively or to ensure risk management during implementation…

Six Chinese state-owned banks (CDB, CHEXIM, BOC, ICBC, ABC, CCB) have reportedly provided more than 90% of BRI’s financing, which puts them at disproportionate financial risk from BRI’s environmental impacts…

There is a clear case for the BRI’s financers to put in place robust risk-management frameworks incorporating environmental safeguards – something that multilateral development banks (MDBs) such as the World Bank have developed in response to similar risks…

China’s regulators and policymakers are now paying greater attention to the environmental aspects of risk management. For instance, in Article 21 of its 2012 Green Credit Guidelines the Chinese Banking Regulatory Commission (CBRC) has called on China’s banks to ensure their clients align with international good practice when operating overseas…