Michelle Chan-Fishel
December 22, 2006
International banks are realising it is in their interests to adopt world-class environmental lending policies, argues Michelle Chan-Fishel. If Beijing is to secure international goodwill, Chinese financiers must do the same.
"If securing access to natural resources is a key priority for Beijing , then securing international goodwill and promoting a harmonious society will also be paramount."

Under Beijing ? ?o outward?policy, Chinese companies are actively purchasing timber, mineral assets, oil and gas around the globe. But since western companies have already acquired so many of the world? most lucrative and accessible natural resource concessions, Chinese companies have often been forced to seek out riskier opportunities in politically unstable or frontier areas. As a result, Chinese companies are now involved in developing some of the world? most environmentally and socially sensitive projects.

Chinese companies are quickly generating not only same kinds of environmental damage but also the community opposition that Western companies have spawned around the world. For instance, in Zambia ? recent elections, the leading opposition candidate ran on a platform that tapped local anger over unsafe working conditions in Chinese-owned mines.

Over the past several years, international NGOs have started to pressure not only companies, but also the banks that back them. As a result, international banks have developed environmental and social financing standards, particularly for large development projects such as dams, pipelines and oil projects. 

While these standards and their implementation are not as robust as they could be, they can be useful in many ways. Minimum standards can make it more difficult and expensive ?if not impossible ?for the most egregious projects to receive funding. They can also create a strong incentive for companies to be responsible by designing more socially and environmentally benign projects. Some bank standards may even require companies to listen to community concerns as a condition for receiving loans. For example, the Equator Principles, a set of project financing standards endorsed by over 40 banks, require companies to consult with affected communities before a project is built, and to establish grievance mechanisms afterwards to address the concerns of people who may be affected. 

While the Equator Principles have attracted a lot of support, they do not seem to have attracted the interest of Chinese financiers. Moreover, unlike some international banks, Chinese financiers currently lack standards on other issues such as mining, forests, and climate change.

Based on publicly available data, only one Chinese bank ?China Development Bank ?has adopted its own environmental financing standards. China Export-Import Bank (Chexim) reportedly has environmental policies, but they have not been made public. Only the Bank of Shanghai has endorsed the United Nations Environment Programme? Statement by Financial Institutions on Environment and Sustainable Development, and only Shanghai Pudong Bank has issued a corporate responsibility report. No Chinese banks have adopted the Equator Principles on project finance. 

But Chinese banks are still involved in environmentally risky deals. For example, Chexim, one of the country? biggest overseas lenders, has funded the Merowe dam in Sudan , which will relocate farmers from the fertile banks of the Nile to barren desert, displacing around 50,000 people. It is also funding the Nam Mang 3 dam in Laos , which will displace about 15,000. Chexim finances China Metallurgical Construction Company? Ramu nickel mine in Papua New Guinea , which employs the environmentally destructive practice of submarine tailings disposal. This technique relies on the ocean dumping of mining waste, which often contains heavy metals and can be harmful to human and environmental health. The mine been described by the New Guinean National Fisheries Authority as an ?nsustainable project socially, economically, and environmentally [that] cannot be allowed to proceed.?