"How China’s new complaints procedures can prevent ‘green’ ESG investments from harming local communities" 16 June 2022

On June 1, Beijing issued green finance guidelines for Chinese financial institutions. Notably, Chinese banks and insurers are asked, for the first time, to establish grievance mechanisms to manage clients’ environmental, social and corporate governance (ESG) risks.

This comes amid a global backlash against ESG investors, who are under fire for making hollow commitments amid increased regulatory and public pressure.

Increasingly, investors are adopting grievance mechanisms to help them understand the impact and prevent harm, as a response to the pressure to show ESG integrity, and because certain industry standards now require them.

The green finance guidelines issued by the China Banking and Insurance Regulatory Commission (CBIRC) are the latest to require grievance mechanisms that offer a channel for communities to be heard, and for investors to effectively address risks.

Most international development finance institutions have such mechanisms in place; 113 financial institutions receiving money from the Green Climate Fund are required to have them, and multiple impact management and measurement standards herald the importance of these mechanisms.

Recently, ANZ became the first commercial bank to set up a grievance mechanism for communities, after long and costly disputes arising from a project it financed in Cambodia.

While Chinese financial institutions do not have such mechanisms in place yet, the guidelines promise to put China ahead of the field in that no other state requires all its financial institutions, even those engaged in impact investment, to have grievance processes.

Grievance mechanisms are increasingly seen as a way to address unintentional environmental and social harm resulting from investments labelled as “green.” Of the more than 1,600 complaints filed through grievance mechanisms of development finance institutions, 506 alleged some type of environmental harm, and 53 claimed harm from investments specifically aimed at environmental protection. [...]