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Deutsche Bank: China’s BRI is fundamental for sustainable finance

Deutsche Bank: China’s BRI is fundamental for sustainable finance

In a report released today, Deutsche Bank responds to client demand for a guide to the Silk Road, otherwise known as China’s Belt and Road Initiative (BRI) and the opportunities it presents to incorporate sustainable development and low-carbon practices.

Deutsche Bank’s ‘China’s Belt and Road Initiative: A guide to market participation’ highlights how the BRI has become one of the most transformational trade policies, connecting 137 countries since inception in 2013.

In September 2019, China’s National Development and Reform Commission (NDRC) outlined its strategy to support foreign countries in leveraging the BRI and expanding market cooperation for the benefit of economic feasibility and sustainability of projects.

However, a significant number of countries along the BRI have an unattractive risk profile for foreign FIs, scoring high for corruption and political instability and therefore, difficult to handle from a compliance perspective.

In order to mitigate these risks, 27 banks announced in April that they had signed up to what is being referred to as the Green Investment Principles (GIP) to promote green investment along the BRI and has since received backing from the financial services industry.

The GIP will incorporate sustainable development and low-carbon practices to BRI-related projects by aligning with the UN SDGs and the Paris Agreement. The seven core principles are:

  1. Embedding sustainability into corporate governance;
  2. Understanding environmental, social and governance risks;
  3. Disclosing environmental information;
  4. Enhancing communication with stakeholders;
  5. Utilising green financing instruments;
  6. Adopting green supply chain management;
  7. Building capacity through collective action.

Hunter Xiong, head of Belt and Road Initiative Office at the German bank says that the BRI will enforce cooperation in trade, investment, infrastructure construction and sustainable development - as well as making a significant contribution to the UN’s 2030 agenda for the SDGs - “if projects are financed and implemented in a viable manner.”

Debt sustainability in host countries and the creation of future burdens continue to be a concern. In April of this year, former IMF MD Christine Lagarde stated that investment should not establish debt that could increase issues in the future.

“I have said before that, to be fully successful, the BRI should only go where it is needed. I would add today that it should only go where it is sustainable, in all aspects,” Lagarde said in a forum.

Feng Gao, chief country officer, China at Deutsche Bank adds: “Project sustainability needs to be at the heart of the BRI, focusing on the provision of high-quality infrastructure and services that borrowers can pay for within the projected timelines.

“The Chinese government’s debt sustainability framework is a positive step in this respect - encouraging financiers to conduct debt sustainability analyses and manage debt risks accordingly. This will help direct financing to the most productive developments.”

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