Sustainability must be at the heart of China’s Belt and Road Initiative (BRI) if it is to remain a major force in global infrastructure development, according to an influential new report, produced by the Economist Corporate Network in cooperation with Baker McKenzie.
Through multiple in-depth interviews with BRI participants, including those from the Asian Infrastructure Investment Bank, ABB, InfraCo and many others, as well as detailed project analysis, this research series was developed to provide a detailed picture of how the Belt and Road Initiative will be defined over the coming decade.
This latest ‘Partnerships’ report found that when sustainability was raised to the top of the BRI agenda there was a greater pool of finance available, increased political support from China and more receptive third party countries. With immediate term setbacks and delays due to the ongoing spread of Covid-19 around the world, the definition of BRI sustainability is also by necessity growing to encompass a focus on protecting the health of those involved in BRI projects, including both workers and the wider local populations where projects are underway.
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“It is absolutely inevitable that environmental, social and corporate governance (ESG) and sustainability will become increasingly important in BRI projects. Over the last ten years, ESG has grown in sophistication and importance. With China now being a leading voice driving this issue of sustainable finance, we can expect it to be a major area of focus for BRI activities. Chinese funders and investors are now becoming as focused on sustainability and ESG as any of their counterparts in the US or Western Europe,” said Wildu du Plessis, Africa Head, Baker McKenzie.
Climate change impacts on BRI
As climate change impacts are becoming clearer and nearer, there is also a major role to play for BRI investments to also help mitigate some of the effects through planning and building for hotter temperatures, higher sea levels and more extreme weather conditions.
The research concluded that there are five key areas with the highest potential for growth and private sector participation under the BRI in the 2020s:
- digital infrastructure
- renewables and clean energy
All can be viewed through a sustainability lens, with clean and renewable energy the most obvious area. And all are areas that will be able to attract a growing pool of sustainable finance sources.
According to the report, lenders and investors who fund infrastructure projects along the BRI are now rapidly reaching a consensus that green finance should be prioritised, and over the past year China has worked with the City of London Corporation’s Green Finance Initiative to create the Green Investment Principles (GIP) for the Belt and Road. This set of voluntary principles calls for lenders, investors and corporates that invest and operate along the BRI to ensure their projects are aligned with the requirements of environmental sustainability and the United Nations Paris Agreement.
The research also found the potential for influencing emerging market nations to focus on sustainable development was high, with Africa, Latin America and Central & Eastern Europe all fast developing major BRI project pipelines.
Many African nations, for example, are attempting to reduce their over-dependence on natural resources to boost economic growth. In keeping with this aim, China and Africa have agreed to work together on improving Africa’s capacity for green, low-carbon and sustainable development, and to roll-out more than 50 projects during 2019-2021 on clean energy, wildlife protection, environment-friendly agriculture and low-carbon development.
Ai Ai Wong, Asia Pacific Chair, Baker McKenzie, notes: “Sustainability is no longer a peripheral consideration for business leaders. To ensure long term success, businesses must plan for a world where a combination of societal, regulatory and internal pressure means substantive and ongoing cuts to the amount of waste and emissions they are able to produce. China is determined to be at the forefront of this change, with the announcement that plastic bags will be phased out in major cities by year end just the latest development. As the Belt and Road Initiative continues to evolve, expect sustainability to be a driving force for its growth and expansion in the decade ahead.”
For BRI participants to position themselves strategically for the long run, the research finds they should adhere to the following four pillars:
- Invest to strengthen internal collaboration and external partnerships;
- Embed teams in deeply rooted people-to-people networks;
- Develop an acute awareness of both the geopolitical and local market developments;
- Take an environmental, social and governance (ESG) perspective on all projects to ensure stakeholder support in the years to come