Guiding Chinese Investment: Government and NGO Collaboration Douglas Whitehead Global Environmental Institute Exchange on Development and Environmental Issues Summit Parkview, Yangon, March

Summary Go Out Strategy Chinese FDI and its Environmental Challenges Environmental Challenges Chinese Policies –International Guidelines –Domestic Policies and Guidelines GEI Case Study –IPP Program

Since early 2000s, guided by inst. like Exim bank US$40.65 of outbound Direct Investment Overseas Sectors: Timber, Hydropower, Plantations, Mining, Oil & Natural Gas Regions: SE Asia, Africa, Latin America China working to maintain Image as responsible super- power Challenge: How to ensure best environmental impact overseas? The “Go Out Strategy”

China’s FDI Overall Source: OECD By sectorBy Region (hydro) Source: GEI

Environmental and Social Impact Merowe Dam, Sudan China Int’l Water and Electric Sedimentation, evaporation, resettlement Nam Ngum 5, Laos Sinohydro Potential flooding damage to watershed communities (under-construction) Environmental –Effects on biodiversity –Deforestation and Watershed degradation –Soil Fertility –Pollution and waste Social –Community livelihoods –Cultural value Potential Blowback –Project related risks –Effects on bilateral/regional relations Loango Oil Field, Gabon Sinopec Threat to 67,000 hectares in National Park

What and Who is at Stake? Chinese Government and Enterprises –China’s ecological deficit (WWF-CCICED) –Managing environmental and social risks (growing concern) Host Countries –Governments: development priorities –Communities/indigenous peoples: livelihoods –Civil Society: Environmental/Social Welfare

International Guidelines Equator Principles –2008 MoU with SEPA –One Chinese Bank signatory UNEP: Finance Initiative (UNEP: FI) Principles for Responsible Investing –Growth in signatories from emerging market investors UN Global Compact –139 Chinese Members by 2009 IFC: Policy and Performance Standards –MoU with ExIm Bank, MEP –Support for China’s ‘Green Credit Policy OECD Guidelines for Multinational Enterprises –No emerging market signatories Global Reporting Initiative –Domestic Sustainability reporting in China Extractive Industries Transparency Initiative –No support yet from China and India

Domestic Policies: Greening Chinese Investment Sustainable Investment Policies –2002 Environmental Impact Assessment Law (NPC), among many –2008 Guidance on Centrally Owned Enterprises Fulfilling Social Responsibilities (SASAC) –Market based instruments (DPS, EPBs, tax incentives, green credit, green insurance) –ISO Certification Requirements FDI-Specific –2007 Nine Principles on Encouraging and Standardizing Foreign Investment(State Council) –2007 Guidelines on Sustainable Management of Overseas Forests by Chinese Enterprises (SFA, SEPA) –2008 Guide to Strengthen Regulation on Listed Companies (SASAC)

Policies: Green Finance Green Lending –2003 Observation of Equator Principles –2007 SEPA Notice on Risk Pollution Insurance –Guiding Opinions on Pollution Liability Insurance (SEPA) Banks –Export-Import Bank MoU with IFC on Performance Standards –China Development Bank CADF, includes EIAs –NGO Report:Environmental Report on Chinese Banks Green Watershed, Green Earth Volunteers GEI –High Performing banks Industrial Bank of China (EP) Bank of China (Green Credit) CCIC

‘Governance Gap’ Chinese Side: Local Laws as Default –Exim Bank 2007 Code of Conduct requires investors to comply with local law enforcement –Conflicting Instructions: Economic and Commercial Councils’ role in encouraging observance of host country law Weak Host Country Governance –Law or Policy may be good on paper, but poor in execution (Zambia, Namibia) –Legislation or Policy may be piecemeal or –non-existent Response: –Regional collaboration –Civil Society Support

Opportunities: GEI’s IPP Program IPP: Integrated Policy Package Stakeholders –Chinese Government Guidelines on Environmental Conduct Environmental Policies on Chinese FDI –Chinese Enterprises Sinohydro Community Development Project Nam Theun 2 Workshop Chinese Chamber of Commerce Workshop –Host Country Government Partnership NLMA of Lao PDR PES and REDD Workshops Further Pilots

Integrated Policy Package Policies: CCA, PES, EIA, CSR, REDD(?) –EIA: incorporated into legislative process of host countries –PES: Ecological services quantified, payments contributed through fund –CCA: Allocates how PES payments would go towards conservation; land use concessions; community involvement –CSR: Voluntary tool, mounting domestic pressure –REDD: carbon financed for reduced deforestation Advantages: –Designed to address multiple stakeholders –Community Development benefits –Enhances civil society participation

Model 2: Guarantee Fund for Community Development and Environmental Protection Model 1: Government- NGO- Enterprise Model

Guidelines and Research: Government Collaboration Guidelines –2008 Guide on Sustainable Overseas Silviculture by Chinese Enterprises (SFA, with GEI) –2009 Guide on Sustainable Overseas Forest Management and Utilization by Chinese Enterprises (SFA, MOFCOM, with GEI) –2011 Guidelines on Environmental Conduct by Overseas Chinese Enterprises (MEP, MOFCOM, with GEI) Research –Environmental Policies on Chinese FDI –Case Studies (Laos, Zambia…)

Enterprise Pilot: Sinohydro Sinohydro –MoU, GEI-Sinohydro –Environmental Institution Nam Ngum 5 Hydropower Station –Sinohydro—BOT –EIA performed by Earth Systems Community Development Upstream –Community Forestry –Cattle Breeding –Household Biogas: 40 digesters in Ban Chim Village

Engaging Chinese Enterprises: Building Capacity Workshop with Chinese Chamber of Commerce in Lao –Guidelines and Performance Standards –Environmental Risk Management –Incl. Chinee government (SFA, MEP, MOFCOM, MFA) and enterprises (ExIm Bank, Sinohydro, China Minmetals…) Best Practices in Hydropower Development: GEI-WB joint conference –Nam Theun 2 Cascade Dams –Dialogue on Hydropower –Informal Knowledge Sharing Network –Challenges in future developments

Host Country Partnership: Lao PDR MoU with National Land Management Authority (NLMA) –Sustainable, Market-based Land Management –Capacity and Institution Building –Incorporate policy tools (PES) in Lao National Assembly Trainings –PES –REDD Other Lao Partners –Water Resources and Environment Authority –Ministry of Energy and Mining –Ministry of Planning Investment

Conclusions Environmental Policies on Chinese FDI growing stronger, but gaps remain Stronger awareness of performance standards by enterprises Strengthening host country governance vital Government-Enterprise-NGO partnerships feasible and effective in enforcing responsible investment