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China Moves Toward Accountability for Overseas Financing

 
 

As the U.S. government retreats from leadership on climate, the Chinese are stepping up, both with new “green” policies and a leading role in finance, at home and abroad. This shift has notable implications for the millions of people affected by Chinese overseas investment in dams, mines, and pipelines. Externalities from these projects can include forced displacement of indigenous groups without compensation, drinking water contamination, and deforestation. For the local people and environments that will be impacted by China’s trillion dollar Belt and Road Initiative (BRI), the shift to better environmental policies may bring increased accountability for negative impacts. China’s environmental policy commitments mean that Chinese investment may come with greater opportunities for communities to raise grievances and have them addressed.

Investors recognize the importance of social and environmental standards to govern project finance, and the need to have spaces for affected people to raise concerns when these standards are not followed. The World Bank created the very first community-driven accountability office, the Inspection Panel, in 1993. Now, there are dozens of accountability offices at various international banks, where project-affected people who have been harmed by an investment can file complaints and report violations of institutional policies. Those complaints result in public investigation reports and dispute resolution to address grievances. Accountability offices, while not perfect, do allow people to be heard. They can remedy and prevent harm even where courts do not. So it is good that Chinese-led institutions are starting to advance accountability frameworks – and even take a leading role as the business case makes these systems imperative.

Chinese leadership on accountability is especially important now that Chinese institutions provide as much in development finance as the top six multilateral development banks combined. The Belt and Road Initiative, which will see huge infrastructure investment along ancient trade routes in Central and East Asia, will only increase the interaction of Chinese banks and communities impacted along the way. Currently, the Chinese-led Asian Infrastructure Investment Bank (AIIB) is creating its own accountability office.

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Among the evidence of progress is a workshop held in Beijing in late 2017 with all major Chinese commercial and policy banks to discuss the role of accountability offices as China spends a trillion dollars in dozens of countries for the BRI. This was a crucial moment in my 20 years as an advocate for communities harmed by internationally financed projects, marking the first time Chinese banks are taking steps to create their own accountability offices. The implications for the billions of people touched by Chinese overseas investment are staggering.

Why would Chinese banks and institutions open themselves up to complaints from people where they finance projects? From an institutional perspective, there are three compelling reasons.

First, the complaints are already there; any project dealing with land, labor, or natural resources, especially where rule of law is weak, risks harmful impacts. Accountability offices can help an institution hear about those complaints early before they escalate, ensure a professional and organized response, facilitate redress, and then feed lessons into future practice. This is a common sense way to reduce risk from complex projects.

Second, there is a reputational risk in not having an accountability office. As China positions itself as an environmental leader, it faces damage to its global brand if it is not accountable to its own environmental policies. Yet, civil society groups and affected people have struggled contact Chinese investors when problems arise. In Lamu, Kenya, where we have supported local people to meet with the African Development Bank about a potential risk guarantee for a coal-fired power plant, Chinese funders have been nearly impossible to reach. It leaves the impression that Chinese investors are uninterested in the project’s impacts.

The World Bank’s Inspection Panel in particular, provides a third compelling reason – investments can fail entirely or experience delays as a consequence of poor execution of social and environmental policies. Accountability offices can prevent this. For example, where projects stop due to a labor dispute or grievance over land – perhaps a sit-in is blocking the main access road – an accountability office may be the only forum where a negotiated solution allows an otherwise stranded asset to function again.

To complete China’s shift toward accountability for overseas investments transparency, information sharing and consultation are key. This will require a changed approach from what civil society typically experiences from Chinese institutions, but that change is possible, and from what I saw in Beijing it is happening. As Chinese banks continue to invest all over the world, it is heartening to see regulators embracing accountability offices and acknowledging them as necessary. Should Chinese banks succeed in establishing accountability systems that are robust – and not just window dressing – both they and the people impacted by their projects stand will benefit.

Natalie Bridgeman Fields is executive director of Accountability Counsel, a global legal organization.

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