Building a green Belt and Road

To date, more than 130 countries have pledged to achieve carbon neutrality by the middle of this century. However, strong action is needed to decarbonize more than $12 trillion in expected infrastructure investment in the countries involved in the Belt and Road Initiative to ensure that the Paris Agreement climate goals are met, says a study by the Center for Finance and Development of Tsinghua University, Vivid Economics and ClimateWorks Foundation.

Chinese companies' green investment in countries and regions involved in the Belt and Road Initiative has substantially mitigated their capital shortage and greatly promoted the green, low-carbon transformation of their economies and energy systems. According to Refinitiv data, of the approximately 1,350 Belt and Road projects worth $1.7 trillion started from 2013 to 2019, around 100 are clean energy-related projects worth $104.95 billion, covering such areas as natural gas pipelines, wind power, hydropower, nuclear power, wastewater treatment and green infrastructure projects.

In the meantime, development-oriented financial institutions such as the Asian Infrastructure Investment Bank, Silk Road Fund and the BRICS New Development Bank, as well as Chinese policy banks are vigorously promoting green finance related to the initiative. To date, 39 global financial institutions－including Chinese State-owned commercial banks and policy banks, as well as Standard Charter and Deutsche Bank, whose assets under management total $48 trillion－have signed up for the Belt and Road Initiative's Green Investment Principles.

However, green investment under the framework of the Belt and Road Initiative still faces a number of challenges.

Investment target countries involved in the initiative are mostly developing countries with a relatively weak economic foundation and poor ecological and environmental protection capabilities. They are burdened with gargantuan economic development tasks and do not realize the significance and urgency of green investment and developing a green economy.

The transition from traditional energy to green, clean energy sources requires vast amounts of investment. In these countries, coal power holds a significant portion of the energy mix, and energy-intensive and high-investment traditional industries still account for the bulk of their economies. When turning to renewable energy sources and nuclear power, they often feel great pressure, as they may be faced up with a tremendous waste of previous investment in coal power projects and power shortages.

Most of these countries boast abundant fossil energy resources and energy exports are an important source of their foreign exchange and fiscal income. Their common concern is that accelerating the growth of green energy will deal a heavy blow to their oil and gas industries and the broader economy at large.

Also, they have great political, religious and cultural differences, and relatively high risk of political turmoil and social instability. If a new government in any of these countries does not acknowledge investment projects approved by the previous government, the parties concerned will face default risks.

Therefore, for better conducting investments, Chinese companies may help the host country government and businesses raise awareness of green development, choose practical low-carbon development pathways, and ensure that the investment projects will not only improve the living conditions of local people, but also effectively protect the local ecological environment.

Chinese businesses can vigorously promote green production and management, build green supply chains, carry out green procurement, adopt green design and manufacturing techniques, enhance the recycling efficiency of raw materials and energy resources, and reduce their discharge of pollutants.

For instance, the garment manufacturing factory of Guangdong Esquel Textiles Co in Vietnam is constantly upgrading equipment and introducing more advanced technologies. By using green supply chain management measures such as collecting rainwater to flush toilets, increasing the natural lighting of warehouses with translucent roof panels, and installing heavy curtains in workshops to reduce air conditioner use, the factory has not only reduced water and energy use, increased resource utilization efficiency and lowered costs, but also fulfilled corporate social responsibility in environmental protection.

Chinese companies can also set examples in formulating green development strategies, strengthening green management and evaluation over production and operation, scaling up green capital investment, improving the green compliance system, and selecting green projects suited to local development conditions, especially those smaller-scale environmental projects that require less investment, bear fruit soon and deliver good returns.

A solar-powered milling plant project in Zambia, for example, plans to build 1,583 solar-powered milling plants and eight production service stations in regions that have no access to electricity. The plants will end the practice of local residents milling maize by hand, and ease problems such as rising maize meal prices and inconvenience in using other hammer milling plants, thus greatly improving local people's lives and mitigating the country's tight food supply. Therefore, the project is a top priority project for the Zambian government.

Importantly, Chinese companies should have proper due diligence and formulate risk assessment standards and instructions for political, social and environmental risks, to provide quantitative criteria for identifying, assessing and managing risks related to investment projects. They need to draw lessons from the Myitsone dam project in Myanmar, which has been shelved for years, paying high attention to risks in overseas investments, especially in the early warning system and management of social and environmental risks. In the meantime, China should encourage green insurance agencies to play a greater role in risk prevention for investment projects in countries involved in the Belt and Road Initiative, improve the compensation mechanism for environmental and social risks, and lower the investment risks for businesses.

The author is a research fellow of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn