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B&R News: Can Investors Drive Sustainability Along the Belt and Road?
10 May 2018

 

By Alison Hoare

Senior Research Fellow in Chatham House's Energy, Environment and Resources Programme

 

Chinese and Pakistani workers sit on an excavator as they leave a newly built tunnel in northern Pakistan. This Belt and Road initiative can help drive sustainable development in partner countries.

 

 

Photo: Aamir Qureshi/AFP/Getty Images

 

The Belt and Road Initiative is aimed at increasing links between China and the rest of the world, in large part through encouraging investment in transport, energy and communications infrastructure. This will create significant opportunities for trade and business, and some impacts have already been seen.

 

In 2017, for instance, China's trade with countries along the Belt and Road increased to over a quarter of the country's total foreign trade by value. One objective of the BRI is that it will “promote ecological progress in conducting investment and trade,” and given its scale and ambition, there is huge potential for this initiative to help drive more sustainable business practices in all BRI partner countries.

 

Integrating Sustainability

 

Ensuring that investments are made in sustainable infrastructure is key. Large-scale infrastructure projects bring the risk of significant negative environmental and social impacts, but they can also be an agent of positive change. Because of their scale, they are a major source of contracts and business opportunities, offering the potential to drive a shift toward more sustainable modes of life and business practices. For example, the construction sector uses an estimated 50 percent of the world's raw materials production and 80 percent of mineral raw materials production. Therefore, if only sustainable products are used to build infrastructure, this creates a huge market for these products and can result in significant changes to business practices across the sector. Similarly, if contractors and service providers are required to implement environmental-management systems, or if sustainable construction methods and technologies are used, significant demand for sustainable businesses is created.

 

The potential impact of integrating sustainability into the design and construction of infrastructure projects can be seen from some recent examples. For example, the 2012 London Olympics sought to be the “greenest games” to date, and a sustainable procurement strategy was developed to help achieve this. This resulted in a reduction in the water, energy and materials used for construction as well as improved environmental performance of the site, including high levels of energy efficiency. Furthermore, this had a long-term legacy for many of the sectors involved. For example, implementation of the policy to source 100 percent legal and sustainable timber resulted in several contractors of the games revising their own chain-of-custody systems and procurement policies. In addition, through working closely with industry and sending a clear signal that innovative and sustainable products were a priority for the games, a number of new, more sustainable products and processes (for example, concrete, lighting and plastics) were developed or brought to the market sooner than anticipated.

 

Another example comes from the Netherlands, where the government includes sustainability criteria in the tendering process for infrastructure projects as part of its efforts to reduce carbon emissions. This includes assessment of the sustainability performance of both the company as well as of the proposed project design. The use of this approach in tendering for the reconstruction of one motorway resulted in the selection of a design with expected energy consumption and carbon emissions reduced by 50 percent. This was achieved through ensuring the efficient use of construction materials and increasing their recycled content, as well as through adopting a design that reduced the forecast vehicle use of the motorway.

 

Realizing the Potential

 

These examples illustrate the potential for sustainable infrastructure projects to help shift businesses and the wider economy toward more sustainable practices. If ambitious sustainability targets could be implemented for BRI projects, the impact could be huge. There will be challenges to achieving this, however. Perhaps most important is the limited capacity in many of the BRI countries to develop or implement sustainable projects. This is where investors need to step in, particularly the multilateral development banks (MDBs) and China’s policy banks, as explained in a recent report from Chatham House. They should be doing far more, both to increase the level of ambition of governments and to encourage innovation from the private sector.

 

Exhibit: Procurement in Infrastructure Projects and the Role of Investors

 

 

 Source: Compiled by the author

 

One way this can be achieved is if the banks give greater priority to sustainable projects. Many of the banks have set up project preparation funds, and these play an important role in helping governments to develop bankable projects. However, the majority of these funds give little attention to sustainability. They should be prioritizing transformative projects or, at the very least, ensuring that sustainability issues are integrated into the project preparation process.

 

It is also important to increase the scale of capacity building both for governments and the private sector. The MDBs and, to a lesser extent, China's policy banks currently do provide advice as well as technical and financial support to borrowers. However, given the severely limited capacity in many countries, such activities need to be scaled up.

 

The banks also need to strengthen the sustainability targets for their entire investment portfolios. Considerable attention is being given to increasing the amount of green finance, which is very positive. However, the impact risks being undermined if further action is not taken by banks to ensure that all their investments are in line with the global climate agenda and the Sustainable Development Goals.

 

Increased cooperation between investors will be important to support progress in all these areas. This should include sharing best practice on sustainable procurement, agreeing on standards for sustainable infrastructure and developing methodologies to monitor the environmental footprint of investment portfolios. Perhaps most important of all is the need for far greater ambition from investors—only then will the BRI succeed in its goal of promoting ecological progress.

 

Source: brinknews