Guiding Chinese Investment: Government and NGO Collaboration

Douglas WhiteheadGlobal Environmental Institute

Exchange on Development and Environmental IssuesSummit Parkview, Yangon, March 28 2011

Summary

• Go Out Strategy• Chinese FDI and its Environmental Challenges• Environmental Challenges• Chinese Policies

– International Guidelines– Domestic Policies and Guidelines

• GEI Case Study– IPP Program

• Since early 2000s, guided byinst. like Exim bank

• US$40.65 of outbound Direct Investment Overseas

• Sectors: Timber, Hydropower, Plantations, Mining, Oil & Natural Gas

• Regions: SE Asia, Africa, Latin America

• China working to maintainImage as responsible super-power

• Challenge: How to ensure best environmental impactoverseas?

The “Go Out Strategy”

China’s FDI

OverallSource: OECD

By sector By Region (hydro) Source: GEI

Environmental and Social ImpactMerowe Dam, SudanChina Int’l Water and ElectricSedimentation, evaporation, resettlement

Nam Ngum 5, LaosSinohydroPotential flooding damage to watershedcommunities(under-construction)

• Environmental– Effects on biodiversity– Deforestation and Watershed

degradation– Soil Fertility– Pollution and waste

• Social– Community livelihoods– Cultural value

• Potential Blowback– Project related risks– Effects on bilateral/regional

relations

Loango Oil Field, GabonSinopecThreat to 67,000 hectares in National Park

What and Who is at Stake?• Chinese Government and

Enterprises– China’s ecological deficit

(WWF-CCICED)– Managing environmental and

social risks (growing concern)• Host Countries

– Governments: development priorities

– Communities/indigenous peoples: livelihoods

– Civil Society: Environmental/Social Welfare

International Guidelines• Equator Principles

– 2008 MoU with SEPA– One Chinese Bank signatory

• UNEP: Finance Initiative (UNEP: FI) Principles for Responsible Investing

– Growth in signatories from emerging marketinvestors

• UN Global Compact– 139 Chinese Members by 2009

• IFC: Policy and Performance Standards– MoU with ExIm Bank, MEP– Support for China’s ‘Green Credit Policy

• OECD Guidelines for Multinational Enterprises

– No emerging market signatories• Global Reporting Initiative

– Domestic Sustainability reporting in China• Extractive Industries Transparency Initiative

– No support yet from China and India

Domestic Policies: Greening Chinese Investment

• Sustainable Investment Policies– 2002 Environmental Impact Assessment

Law (NPC), among many– 2008 Guidance on Centrally Owned

Enterprises Fulfilling SocialResponsibilities (SASAC)

– Market based instruments (DPS, EPBs, tax incentives, green credit, green insurance)

– ISO 14001 Certification Requirements• FDI-Specific

– 2007 Nine Principles on Encouraging and Standardizing Foreign Investment(State Council)

– 2007 Guidelines on Sustainable Management of Overseas Forests by Chinese Enterprises (SFA, SEPA)

– 2008 Guide to Strengthen Regulation on Listed Companies (SASAC)

Policies: Green Finance• Green Lending

– 2003 Observation of Equator Principles – 2007 SEPA Notice on Risk Pollution

• Insurance– Guiding Opinions on Pollution Liability

Insurance (SEPA)• Banks

– Export-Import Bank• MoU with IFC on • Performance Standards

– China Development Bank• CADF, includes EIAs

– NGO Report:Environmental Report on Chinese Banks

• Green Watershed, Green Earth VolunteersGEI

– High Performing banks• Industrial Bank of China (EP)• Bank of China (Green Credit)• CCIC

‘Governance Gap’• Chinese Side: Local Laws as Default

– Exim Bank 2007 Code of Conductrequires investors to comply with local law enforcement

– Conflicting Instructions:Economic and Commercial Councils’role in encouraging observance of host country law

• Weak Host Country Governance– Law or Policy may be good on paper, but

poor in execution (Zambia, Namibia)– Legislation or Policy may be piecemeal or – non-existent

• Response:– Regional collaboration– Civil Society Support

Opportunities: GEI’s IPP Program• IPP: Integrated Policy Package• Stakeholders

– Chinese GovernmentGuidelines on Environmental ConductEnvironmental Policies on Chinese FDI

– Chinese EnterprisesSinohydro Community Development ProjectNam Theun 2 WorkshopChinese Chamber of Commerce Workshop

– Host Country GovernmentPartnership NLMA of Lao PDRPES and REDD Workshops

• Further Pilots

Integrated Policy Package• Policies: CCA, PES, EIA, CSR, REDD(?)

– EIA: incorporated into legislative process of host countries– PES: Ecological services quantified, payments contributed

through fund– CCA: Allocates how PES payments would go towards

conservation; land use concessions; community involvement– CSR: Voluntary tool, mounting domestic pressure– REDD: carbon financed for reduced deforestation

• Advantages:– Designed to address multiple stakeholders– Community Development benefits– Enhances civil society participation

Model 2: Guarantee Fund for

Community Development and

Environmental Protection

Model 1:Government-NGO-Enterprise Model

Guidelines and Research: Government Collaboration

• Guidelines– 2008 Guide on Sustainable Overseas

Silviculture by Chinese Enterprises (SFA, with GEI)

– 2009 Guide on Sustainable Overseas Forest Management and Utilization by Chinese Enterprises(SFA, MOFCOM, with GEI)

– 2011 Guidelines on Environmental Conduct by Overseas Chinese Enterprises(MEP, MOFCOM, with GEI)

• Research– Environmental Policies on Chinese FDI– Case Studies (Laos, Zambia…)

Enterprise Pilot: Sinohydro• Sinohydro

– MoU, GEI-Sinohydro– Environmental Institution

• Nam Ngum 5 Hydropower Station– Sinohydro—BOT– EIA performed by Earth Systems

• Community Development Upstream– Community Forestry– Cattle Breeding– Household Biogas: 40 digesters

in Ban Chim Village

Engaging Chinese Enterprises: Building Capacity

• Workshop with Chinese Chamber of Commerce in Lao

– Guidelines and Performance Standards– Environmental Risk Management– Incl. Chinee government (SFA, MEP,

MOFCOM, MFA) and enterprises (ExIm Bank, Sinohydro, China Minmetals…)

• Best Practices in Hydropower Development: GEI-WB joint conference

– Nam Theun 2 Cascade Dams– Dialogue on Hydropower – Informal Knowledge Sharing Network– Challenges in future developments

Host Country Partnership: Lao PDR• MoU with National Land

Management Authority (NLMA)– Sustainable, Market-based

Land Management– Capacity and Institution

Building– Incorporate policy tools (PES)

in Lao National Assembly• Trainings

– PES– REDD

• Other Lao Partners– Water Resources and Environment

Authority– Ministry of Energy and Mining– Ministry of Planning Investment

Conclusions

• Environmental Policies on Chinese FDI growing stronger, but gaps remain

• Stronger awareness of performance standards by enterprises

• Strengthening host country governance vital• Government-Enterprise-NGO partnerships

feasible and effective in enforcing responsible investment