China encourages green financing in Malaysia through BRI

THE prevalence of green financing in Asia has increased substantially over the years, following the region’s pledge to commit to net-zero goals since the launch of the Paris Agreement in 2015.

At the recent COP26 summit, countries reached an agreement to prevent worsening and irreversible climate change impacts. According to the United Nations Economic and Social Commission for Asia and the Pacific (Unescap), Asia and the Pacific region requires an estimated US$1.5 trillion (RM6.34 tirllion) per year to achieve the United Nations Agenda for Sustainable Development Goals (SDGs) by 2030.

Much of this needs to be green investments. Within the region, a significant portion of Asia’s green finance is driven by China and Japan. China’s green bond issuance totalled up to US$25.06bil (RM106bil) in Q3 2021, with a total of US$63.16bil (RM267bil) in the first nine months of this year, according to Climate Bonds Initiative.

China’s commitment to go green is encouraging other nations in Asia to follow suit. As announced by President Xi Jinping, China plans to speed up reductions in carbon dioxide emissions by 2030 and reach carbon neutrality by 2060.

Ever since the announcement of the plan, there has been rapid development of China’s green finance activities, with an ardent need for financial institutions to transition towards green banking as soon as possible.

The Belt and Road Initiative (BRI) is a China-led initiative which aims to cultivate economic development and inter-regional connectivity between the Asian, European and African continents.

The BRI is associated with large investments, particularly in infrastructure development for transportation, power plants and telecommunications networks. Nevertheless, such large-scale development bears significant environmental risks.

If environmental requirements are not integrated within the project plans, many countries may not be able to meet their targets under the SDGs. The BRI emphasises going greener to tackle this, which paves the way for other countries to participate in long-term green and sustainable development.

The BRI International Green Development Coalition (BRIGC) established in April 2019 is in line with the SDGs. Though in its infancy, the aim is to mobilise capital to finance green projects through international multilateral and bilateral cooperation.

Together with other Asean counterparts, Malaysia is also signalling urgencies in tackling the impact of global warming. Fulfilling the pledge towards mitigating the effects of climate change, Prime Minister Datuk Seri Ismail Sabri Yaakob has announced that Malaysia intends to reduce greenhouse gas (GHG) emission intensity by 45% across the economy by 2030.

Green financing is also steadily gaining traction. Based on the 12th Malaysia Plan, the financial system will provide impetus towards the transformation into a low-carbon economy.

In efforts to strengthen its position as a leading Islamic financial marketplace, introducing the green Sukuk bond is considered a step towards demonstrating interest in green finance. The Central Bank of Malaysia released guidance on climate change and its impact on businesses, which aims to empower the financial sector to drive green financing, to keep abreast with the need for a conducive and coherent ecosystem.

According to the Climate Risk Disclosure (CRD) Barometer by Ernst & Young, 60% of 100 public listed companies surveyed in Malaysia have reported their commitment to tackle climate change. Petronas announced that they aspire to be carbon neutral by 2050, making it the first oil company in Asia to set a net-zero target.

Efforts include stepping up disclosures on climate related risks, strategy, and risk management.

Through investment and collaboration, BRI coalitions provide the impetus for Malaysia to join hands in accelerating green financing efforts and eventually mitigate climate change, protect biodiversity and improve livelihoods.

Since 2013, Malaysia has been the largest recipient of Chinese-linked contracts and investment among South-East Asian countries, according to China Global Investment Tracker.

Some of the prominent flagship BRI infrastructure projects are East Coast Rail Link (ECRL), Malaysia-China Kuantan Industrial Park (MCKIP), and Bandar Malaysia. Though many of the projects are currently at a standstill following the Covid-19 pandemic and Malaysia’s recent political turmoil, some are expected to be reinstated after intensive renegotiations eventually.

Chinese banks such as the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) involved in funding BRI projects incorporate the green concept in their investments.

These banks contribute by creating their own environmental guidelines, as well as promoting development finance cooperation and stakeholder coordination.

Given the focus on realising the SDGs, spillovers are expected in BRI participating countries, including Malaysia. China needs to deliver its Green Silk Road narrative which was promoted by the government to ensure that all projects under the BRI are green, low-carbon, circular and sustainable.

In reality, there are significant financing gaps of green infrastructure among BRI countries. To tackle this issue, multilateral cooperation between banks should be encouraged to develop innovative green financial instruments and financing models such as green credit, green bonds and green funds for BRI projects.

Malaysia is at a nascent stage in pursuing a green revolution. Network and resource sharing undertakings can provide the impetus for Malaysia to intensify climate change initiatives.

For that, China should lead by actively participating in joint action plans of sustainable infrastructure standards, capacity-building and green financing ventures. The goal is to ensure that the BRI brings long-term green and sustainable development to all countries involved.

Dr Sonia Kumari Selvarajan is Senior Lecturer at the Development Studies Department, Faculty of Business and Economics, Universiti Malaya. The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the Southeast Asia Research Centre for Humanities (SEARCH) and the Centre of Business and Policy Research, Tunku Abdul Rahman University College (TAR UC), and co-organised by the Association of Belt and Road Malaysia.

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