What good are China's green policies if its banks don't listen?

“Leader in sustainable finance and development. . .” “Exceeding Western institutions in establishing new models of green finance. . .” “The only country we’ve seen. . .” “Going above and beyond. . .” “Among the most progressive in the world. . .” “A cutting edge model. . .” “China’s chance to become the global leader in sustainable development. . .”

These are just a few of the encouraging remarks I’ve heard recently about China’s “Green Credit Directive” (GCD), a 2012 Chinese government banking regulation. What’s so special about it?

Paulina Garzon, from Ecuador’s Centre for Economic and Social Rights (CDES), told The Guardian that it’s the GCD’s requirement that banks consider social and environmental impacts before making a loan for a project and then rigorously monitor such impacts throughout the project’s life, as well as the way such loans are regulated.

“The public institution regulating the banks, the China Banking Regulatory Commission (CBRC), has agreed at national and international levels to evaluate, manage and supervise the social and environmental risks of loans given by Chinese state banks,” says Garzon, author of a manual recently published by CDES, in Spanish, on socio-environmental regulations for Chinese loans and investment abroad. “We haven’t seen that type of agreement from a bank regulatory body in any other country.”

According to Garzon, China, through the CBRC, has “acknowledged that the bank making the loan has social and environmental responsibilities, and that such responsibilities don’t end when the loan is made to the client – whether government or company – but continue throughout the implementation of the project until it closes.” She goes on:

The GCD clearly stipulates that banks are obliged to ensure that loans minimize the social and environmental impacts of the projects that they finance, and it even indicates that a loan can be suspended if social and environmental regulations aren’t met. Some multilateral banks have similar principles, but not national banks.

Garzon says the GCD has set a “very high bar” in terms of the “due diligence” activities that Chinese banks must carry out.

“This due diligence has to be “complete, exhaustive and detailed” and means that banks must do meticulous research on social and environmental impacts,” she says. “This type of language doesn’t exist in any of the environmental guidelines from any other national bank in BRICs countries.”

CDES’s recently-published manual lists the GCD as one of the seven most important regulations regarding Chinese state banks’ loans abroad, highlighting elements such as the responsibility to make on-site project visits and incorporate environmental conditions into loan contracts. In a recent article Garzon goes even further, describing the GCD as “probably China’s most important and useful social and environmental regulation, and one of the most advanced banking regulations at the global level.” According to Garzon:

The [GCD] establishes that Chinese banks must do social and environmental impact evaluations for all stages of a project. . . including: design, preparation, construction, implementation, operation and closure. This requirement is more exacting than national laws. In addition, [it] states that projects. . . especially those involving important social and environmental risks, must comply with best international social and environmental practices. . . It offers various instruments to evaluate and monitor the social and environmental impacts of every stage of a project.

Michelle Chan, from Friends of the Earth-USA, also speaks positively of the GCD, calling it a “prime example of Chinese sustainable finance policies.”

“That’s because it’s mandatory, it has specific financing consequences – i.e. suspension or termination of loans – for clients who don’t fulfill the required level of environmental and social obligations, and it includes overseas projects,” she says. “Few other, if any, countries have released policies that incorporate these points. It’s fair to say that Chinese sustainable finance policies, specifically the GCD, are indeed some of the most progressive in the world.”

Chan believes there is no equivalent green banking policy in the USA or Europe.

“There are the Equator Principles,” she says, “which, although important, are completely voluntary in adoption and implementation and no national regulation from specific countries to actually enforce them. On the other hand, the GCD is a top-down national regulation and required.”

But what if the GCD only exists on paper? Are Chinese banks paying attention? As I reported recently for chinadialogue, Ecuadorian NGOs and indigenous leaders have written to six Chinese banks – the Bank of China, the China Development Bank, China’s Export-Import Bank, the China Merchants Bank, the China Construction Bank, and the Industrial and Commercial Bank of China, as well as the CBRC – stating that a planned copper mine will “irreversibly devastate” the “fragile ecosystem” in the Cordillera del Condor region and violate indigenous peoples’ rights. They argue that funding the project contravenes the GCD, and ask to meet the banks to explain “why El Mirador is a poor choice as a development project for both China and Ecuador.”

The Mirador project – as it’s called, set to be an open-sky mine and involve almost 10,000 hectares – is joint-owned by a subsidiary of the Chinese state-controlled Tongling Nonferrous Metals Group Holding Company. The Ecuadorians have confirmed Tongling has received loans from the banks, although they couldn’t confirm if such loans were specifically for Mirador.

“We respectfully ask how [your Bank] is actively implementing the Green Credit Directive to resolve these problems [e.g. among local communities, “irreversibly” devastating the ecosystem, and violating indigenous peoples’ rights] in regards to your client, TNMG [Tongling], and how your institution has modified its environmental and social risk assessment to this project,” the Ecuadorians’ letters, dated 28 January, states.

The response? Nada. Two of the letters were returned, and the only indication that any of the other four banks had been reached was a telephone call from the Bank of China to one of the NGOs, Accion Ecologica.

“An employee from the Bank phoned – three times until he got hold of me – and said he needed a Spanish version of the letter,” says Accion Ecologica’s Gloria Chicaiza. “I emailed it to him in English and Spanish. I asked him his name and for a telephone number at the Bank, and he asked me to put that in an email and assured me he would reply. He called one more time to ask if I had sent the letter, and I said that I had done. After that, he didn’t call again, nor reply to me.”

Since the letters were posted, operations at Mirador have been advancing, according to Chicaiza, with forest cleared and the police arriving to restrict access.

“The problem with the GCD at the moment is the growing evidence that it isn’t being implemented by Chinese banks overseas, and this lack of implementation is being overlooked by Chinese banking regulators,” says Friends of the Earth-USA’s Chan. “From the cases we’ve looked at, there’s no evidence that Chinese companies or banks are taking it seriously, and there has been no discernible recognition or action from Chinese banks to implement it. It’s not even clear if Chinese banks and companies know it’s a requirement.”

“Unfortunately, to date, the existence of the GCD has not led to better social and environmental evaluation in the tens of projects with serious social and environmental impacts funded by Chinese banks,” CDES’s Garzon wrote in her recent article, “which are investing billions of dollars in mining and oil and gas, the construction of hydroelectric mega-projects, road and other transport projects, and industrial agriculture. . . The China Banking Regulatory Commission still doesn’t have a department responsible for ensuring that banks comply with the Green Credit Directive.”

Like the Ecuadorians, I didn’t hear back from the banks either, when I tried to contact for them for the chinadialogue article, but noted that pianist Lang Lang features on the front page of the China Merchants Bank’s (CMB) website as its “brand ambassador” alongside the slogan, “We are here just for you.”

“We are here just for you”? Try telling that to the Ecuadorians around Mirador.