China
Development Bank (CDB) has an opportunity to become the world’s most important
climate bank, driving the transition to the low-carbon economy.
CDB supports Chinese investments globally, often in heavily emitting sectors.
Some 70% of global CO2 emissions come from the buildings, transport
and energy sectors, which are all strongly linked to infrastructure investment.
The rules applied by development finance institutions like CBD when making
funding decisions on infrastructure projects can therefore set the framework
for cutting carbon emissions.
CDB is a major financer of China’s Belt and Road Initiative, the world’s most
ambitious infrastructure scheme. It is the biggest policy bank in the world
with approximately US$2.3 trillion in assets – more than the $1.5 trillion of all the other development banks
combined.
Partly as a consequence of its size, CDB is also the biggest green project
financer of the major development banks, deploying US$137.2 billion in climate finance in 2017; almost
ten times more than the World Bank.
This huge investment in climate-friendly projects is overshadowed by the bank’s
continued investment in coal. In 2016 and 2017, it invested about three times
more in coal projects than in clean energy.
The bank’s
scale makes its promotion of green projects particularly significant. Moreover,
it has committed to align with the Paris Agreement as part of the International Development Finance
Club. It is also
part of the initiative developing Green Investment Principles along the BRI.
This progress is laudable but CDB must act quickly if it is to meet the Chinese
government’s official vision of a sustainable BRI and align itself with the Paris
target of limiting global average temperature rise to 2C.
What does best
practice look like?
In its latest report, the climate change think-tank E3G
has identified several areas where CDB could improve, with transparency high on
the list.
The report assesses the alignment of six Asian development finance institutions
with the Paris Agreement. Some are shifting away from fossil fuels. The ADB
(Asian Development Bank) has excluded development finance for oil exploration
and has not financed a coal project since 2013, while the AIIB (Asian
Infrastructure Investment Bank) has stated it has no coal projects in its
direct finance pipeline. The World Bank has excluded all upstream oil and gas
financing.
In contrast, CDB’s policies on financing fossil fuel projects remain opaque. A
commitment to end all coal finance would signal the bank is taking steps to
align its financing activities with President Xi Jinping’s high-profile pledge
that the BRI would be “open, green and clean”, made at the second Belt and Road Forum in Beijing in April 2019.
CDB should also detail how its “green growth” vision will translate into
operational decisions. Producing a climate-change strategy would set out how
the bank’s sectoral strategies will align with its core value of green growth.
CDB already accounts for emissions from projects financed by green bonds. It
should extend this practice to all financing activities. The major development
banks have already developed a harmonised approach to account for greenhouse gas
emissions, which could be a starting point for CDB.
Lastly, CDB should integrate climate risks into lending activities and country
risk analysis.
One of the key functions of development finance institutions is to mobilise
private finance. CDB has been successful in this respect, for example providing
long-term capital to develop the domestic solar industry. This was one of the main drivers lowering solar costs by 80% between 2009-2015.
However, the extent to which CDB has been successful in mobilising capital outside China has been more limited; in 2017,
almost 98% of net loans were on the Chinese mainland. If CDB can repeat its
success in mobilising capital into green industries in BRI countries, it will
play a key role in driving the zero-carbon and resilient transition.
From our partner chinadialogue.net
