THE Belt and Road Initiative (BRI), previously known as the One Belt One Road Initiative, consists primarily of the Silk Road Economic Belt and the 21st-century Maritime Silk Road.
The BRI is a grand and ambitious vision initiated by Chinese President Xi Jinping in 2013 aiming to improve regional cooperation and connectivity between Asia, Europe and Africa through a comprehensive network of ports, roads, railways and trading hubs – reviving ancient overland and maritime trade routes.
Currently, the BRI links China and some 65 other countries that account collectively for over 30% of global GDP, 62% of population and 75% of known energy reserves. However, along with some other Western countries, the United States has been sitting out of the BRI since the very beginning, criticising the BRI’s opaque financing practices, poor governance and disregard for internationally accepted norms and standards.
On April 25-27, China hosted the 2nd Belt and Road Forum for International Cooperation (BRF) in Beijing that was attended by almost 40 foreign leaders (including Malaysian Prime Minister Tun Dr Mahathir Mohamad) and as many as 5,000 representatives from 150 countries, though the United States was absent.
During the forum, Chinese President Xi pledged to make the BRI clean, green and financially sustainable so as to address international criticism. Easy to say, difficult to do.
To embrace the highest international standards, it may be wise for the BRI to comprehensively integrate environmental, social and governance (ESG) considerations into its business practices.
On one hand, Chinese companies participating in the BRI, no matter whether they are state-owned or private, should fulfil their corporate social responsibility in daily operational activities in all ESG aspects, with accountability, transparency, ethical behaviour, as well as respect for stakeholder interests, the rule of law, international norms of behaviour and human rights.
Those companies should adhere to the United Nations Global Compact’s 10 universal principles in the areas of human rights, labour, the environment and anti-corruption, and can follow the guidance on social responsibility of the International Organisation for Standardisation. (The UN Global Compact is a voluntary initiative based on CEO commitments to implement universal sustainability principles and to take steps to support UN goals.)
On the other hand, and more importantly, the BRI’s key loan and investment vehicles, especially the Asian Infrastructure Investment Bank founded in January 2016 and the Silk Road Fund established in December in 2014, can wisely adopt the socially responsible investing strategy, which seeks to consider both financial return and ESG good.
The BRI’s main activities, which are infrastructure developments, generally can cause serious negative impacts on both the environment and community. Moreover, infrastructure investments in developing countries usually involve corruption, pollution and human rights abuses. Therefore, the BRI’s success will not only rest on how many projects it can fund, but also how it funds.
The 70-year-old World Bank has accumulated some good practices, such as declining to fund controversial giant dam projects and blacklisting companies found guilty of collusion, corruption, fraud or coercion.
If the Asian Infrastructure Investment Bank and the Silk Road Fund want to do better, they have to be more innovative and decisive in integrating ESG facts. They may follow the UN-backed Principles for Responsible Investment Initiative, which provides six basic principles for international institutional investors to fulfil fiduciary responsibilities. And they may also refer to the Equator Principles to manage the environmental and social risks of its lending and investment activities.
Broadly speaking, the two funding institutions, together with their clients, should comprehensively identify, assess and manage ESG risks and impacts in a structured way, on an ongoing basis. Meanwhile, they should not provide project finance or project-related corporate loans to projects where the client will not, or is unable to, fulfil its ESG responsibilities.
In the environmental aspect, pollution should be avoided or minimised, and the importance of climate change and biodiversity should be recognised; in the social aspect, universal human and labour rights should be respected, local communities’ interests should be protected, and the same requirements should be extended to suppliers or contractors; and in the governance aspect, any form of corruption should be prohibited, and ethical, democratic and transparent business culture should be advocated.
The BRI can be viewed as a touchstone to test China’s global leadership. Its temporary popularity is not the conclusion but just the start of its long and tough journey. The Chinese model of infrastructure development has been widely criticised for ignoring ESG impacts (although it has certain merits, such as being pragmatic, fast and cost-effective).
Therefore, the key challenge is showing the sceptical Western world that this China-led BRI will run differently, professionally and responsibly, with ESG sustainability the key to its future success.
SUN XI and HERTA MONICA MONTESINO CUCOS
Note: Sun Xi is a China-born independent commentary writer based in Singapore; Herta Monica Montesino Cucos is a sustainability advocate from the EU