Aug

There’s a bank for that: What to know about development banks

We’ve all heard the saying: “money makes the world go round.” This particularly rings true as countries seek funding for a wide range of development projects, spanning from food security to renewable energy.

Embracing the Chinese adage “钱不是万能的，没有钱是万万不能的” which means that money does not solve everything, but that nothing exists without money, development banks serve an important role in facilitating international development. And now is a critical time to ensure that when money is spent, it’s spent in a ‘green’ way.

Since China’s “Going Out” policy in 2001, investment in projects abroad has increased rapidly. In fact, as of 2016, the total Outward Foreign Direct Investment (OFDI), was over 161 billion USD.

As evidenced by the ‘Belt and Road’ initiative, foreign investment is an important item on China’s economic and foreign policy agenda. But where does all this money come from? One source is development banks.

Improving Banks’ Policies

The challenge moving forward is to encourage more sustainable and environmentally-friendly overseas development by China. We have been working on this goal since the early 2000s, and now, development banks and the ‘Belt and Road’ initiative offer an exciting opportunity to ensure that more of the development meets high environmental standards at the planning stage.

In our upcoming report we compare the environmental social policies of China Development Bank and China’s Export-Import Bank (China EXIM Bank) with those of the World Bank, International Finance Corporation and the Japan Bank for International Cooperation.The report in this way comprehensively outlines the roles and responsibilities of the banks in terms of environmental and social concerns and suggests that there’s an opportunity to build off and strengthen the other banks’ practical and policy experience.

Here’s what we’ve found:

The current status of China’s development banks can be summarized as having increasingly comprehensive policies and more stringent punishments for violating terms of the agreement. One example is that there is a possibility that the implementer’s credit rating might be downgraded if they have an environmental violation.

The areas of improvement, in terms of environmental and social realms are as follows:

Inclusion of independent and stricter operational standards of environmental assessment;
Establishment of a dedicated environmental and social department that can assume the relevant responsibilities;
Stronger means of auditing and improving of the project’s environmental and social programs including field visits; and
Improved information disclosure system and two-way communication system.

So, what can you do?

While the public cannot play a direct role in development bank’s policies, being an informed public is always important. If you or your friends, family or colleagues work in these fields, talk about your vision of China abroad and the sustainable impression you hope China can make.

For more detailed findings, sit tight – our report is still on its way.

Overseas Investment, Research, Sustainability