9 Replies Latest reply: Dec 14, 2017 7:37 AM by 1533420 RSS

    The Belt and Road Initiative - greening infrastructure finance

    1533420 C4D Enthusiast

      I have really been thinking a lot about how we could green the financing of infrastructure, given the amount of investments in infrastructure that will be flowing in via : ADB, World Bank, AIIB and NDB. One of the ideas I had was actually linking sustainability criteria with procurement, greening sources of finance and ensuring infrastructure was climate resilient.

      I wanted to know whether you all had chanced upon any practical examples of this?

      Also the attached document highlights some ways the Belt Road Initiative is leading in the green finance space. Interesting read- wondering whether this uses legitimate green finance instruments or a green wash. Keen to know your thoughts.

       

      UPDATES as of 14.12.2017

       

      Here are some interesting updates :

      Forbes published an article evaluating the 'green' belt road initiative - excerpt from the article - https://www.forbes.com/sites/energyinnovation/2017/12/04/the-china-belt-and-road-initiative-could-help-or-hurt-clean-ene…

      "China’s Belt and Road Initiative, the broad infrastructure and market-building initiative of the world’s second-largest economy, has a different feel than trade agreements initiated in the West – and it could have major implications for the future of energy across many parts of the world.That’s partly because unimpeded trade and financial integration are just two of five pillars of China’s ambitious plan for international collaboration.  The other pillars are policy coordination, infrastructure connectivity, and people-to-people bonds.  And in this program, the Chinese central government has issued guidance on promoting “Green Belt and Road,” to highlight how to incorporate the principles of resource efficiency and environmental awareness into the whole program, touting the need to “develop global energy interconnection and achieve green and low-carbon development.”  The question is: Are the environmental protections real?"This question largely remains unanswered - however an interesting statement - China intends to spend more than $360 billion through 2020 on domestic solar and wind power, but given the current policy and market framework in China, energy from these new resources is often crowded out on the grid by coal-fired generation, despite being less expensive on a marginal cost basis. Another similar message :A report published this month by the Global Environment Institute (GEI) showed China is involved in 240 coal-fired projects totalling 251GW across the “belt and road” countries. That figure includes 52 in planning stages and 51 under construction, as well as those built since 2001.

       

      Some notable actions/ proposals to see the green strategy materialize ;

      1. proposal to establish “an international coalition for green development”, support adaptation to the impacts of climate change and boost science cooperation. Source

      2. To support the innovation agenda, China will set up 50 joint laboratories, train 5,000 foreign scientists and fund 2,500 short-term research visits to China from abroad. Specifically on ecological and environmental protection, Xi promised “a big data service platform”.Source

      3. Launched inaugural One Belt One Road (OBOR) Green Climate Bond that also carries Climate Bonds Certification.The bond will be listed on the Luxembourg Green Exchange (LGX (link is external)) of the LUXSE. Source

      The use of proceeds for this bond will be dedicated to ICBC's global financing and refinancing of eligible green assets in four categories:

      • renewable energy,
      • low carbon & low emission transportation,
      • energy efficiency &
      • sustainable water resources management.

      “ICBC officials said that the bank will push green credit business as a long-term development strategy, actively practice the "green development" and "green finance" concept and has committed to building into a leading green credit bank internationally with a good reputation.”

        • Re: The Belt and Road Initiative - greening infrastructure finance
          kmzz C4D Master

          Dear Leela,

           

          thank you for opening this essential topic for discussion.

          Designing infrastructure development in a more sustainable way brings great scope for carbon emission savings, during works and in operation/end of life.

           

          (1) Do I understand correctly that you are looking to get practical examples of green government procurement criteria for public works contracts?

          Such criteria would be a fantastic way to incorporate (a) green(er) construction materials which can be easier dismantled re-used/recycled/etc. at the end of use/end of life stage, (b) environmental conscious implementation of the works process, and (c) taking into consideration resources consumption and environmental footprints during the use and maintenance phases (e.g., if we are talking roads: reducing emissions from traffic through corresponding road surfaces, and robustness of the road).

          For Indonesia, I remember, some years back there was a larger project funded by Millennium Challenge Corporation (MCC/MCA) looking into improving public procurement. This included, if I am not mistaken, sustainability criteria for selected products and procurement processes; not sure if that addressed services such as for infrastructure... DKI Jakarta has a green building code applicable for new buildings, perhaps you can get some leads from IFC who are in charge for this.

           

          (2) Have you already looked into sample sets of criteria that are being used, or that are proposed to be used, in more advanced countries and/or municipalities? (3) Who are the leaders in sustainable infrastructure procurement?

           

          I'll have a look into the pdf on the Belt Road Initiative you provided, and come back on it in a separate message.

           

          Best regards

          Karin

            • Re: The Belt and Road Initiative - greening infrastructure finance
              kmzz C4D Master

              Hi Leela, I promised to come back to you regarding your post on the Belt and Road Initiative.

              Assuming you refer to chapter 5 on "PPPs at the heart of Asia’s infrastructure drive" where analysts point out that after a very successful green bond issuance (Oct 2016) by Agricultural Bank of China (ABC)

              (first international green bond from a Chinese borrower, raising just under $1bn in a healthily oversubscribed three-tranche issue), the market expects that there is plenty of more issuance to come from China, particularly in the context of the Belt and Road Initiative.


              In my opinion, "greenwashing" is the case if the green label is not trustful or credible, and in the case of infrastructure investment: if the labelled initiative does not lead to the positive impact it claims to achieve. In this context, perhaps we should not forget that financing any new human activity will leave footprints to our environment, irrespective if we title them "green" or not, it will still be a footprint unless it provides more good to the environment than damage... Also, "low carbon" does not in all cases mean "environmental conscious".


              China was very much engaged in the G20 Green Finance Study Group and a year ago announced its Guidelines for Establishing the Green Finance System (Aug 2016) and announced the China Climate-aligned Bond Index (Sept 2016) (Sources: NDRC and UN PAGE).


              For the Belt and Road Initiative, any refurbishment provide great opportunities to maximise environmental consciousness by design. In addition to that, there will be a lot of new construction as well where a green building code could be applied.

              To what extent such potential is materialised and with which footprint, is first and foremost, I believe, a question of:

              • (a) the standard applied both for the construction and the instrument to finance the activity,
              • (b) the impact measurement (if any?), as well as
              • (c) the scrutiny applied by the investor prior to investing...

              Perhaps the great hunger for green finance products should preferably be responded with supporting those activities which lead to a shift in paradigm, and perhaps the (green) labels for pure play green corporates/ projects which are essential part of a new paradigm should weigh higher than those sustainability labels provided to some refurbishment of an essentially brown company with a continued brown mission. Perhaps the labelling should be responsibility of green rating agencies, and not a choice and cost to the issuer. With the latter, I refer to recent case demonstrated by TESLA issuing a conventional corporate bond to finance the production of 100% solar driven cars (Aug 2017) but REPSOL issuing a green corporate bond (May 2017) to upgrade their facilities to lower emissions.

              What do we want to finance as "green"? Is there any independent impact measurement in place to see if what we funded as "green" has been showing green results?


              I believe @Pasquale Lucio Scandizzo could contribute to this topic.

              Any other thoughts anyone? Leela?

                • Re: The Belt and Road Initiative - greening infrastructure finance
                  pasqualelucioscandizzo C4D Enthusiast

                  Dear Karin,  although I appreciate its spirit and scope, I am not sure that your hypothesis on the paradigm shift could be practiced without massive and questionable value judgements. I rather think that we need to focus on a continuous evaluation process, both from third parties and from the issuer. Because the green label is imposed by the issuer, evaluating green bonds (GB) is more demanding than the usual evaluation process. Unlike ordinary project evaluation, it requires a double task: assessing the trustfulness of the issuer, and evaluating the project financed with the bond. Both tasks are not simple and differ significantly from ordinary assessments of issuers and projects. On one hand, there are subjective questions of commitment and reputation that can be addressed by analyzing past performance, and present self imposed constraints in terms of guarantees, self-regulations, full disclosure of past and present behavioral data and transparency of procedures and controls. Other issues such as capacity to carry out the green commitments can also be examined on the basis of records, as well as possession of tangible and intangible assets.   These characteristics can be the basis of a system of ratings, provided by external agencies, such as S&P, or non profit organizations. As  in the case of creditworthiness, ratings concern the subject (sovereign, corporate or otherwise) issuing the GBs rather than the object of financing. On the other hand, the projects to be financed with the GB proceeds should be also scrutinized both ex ante, during their implementation and ex post, in terms of design, activities, inputs, outputs and outcomes, with the green character of these components evaluated in detail. This is especially true for infrastructure, where the evaluation of each project should also yield data that can be used for other projects and to increase information and transparency of the whole process. Calling infrastructure “green” may mean different things, as it may refer to the construction technologies and procedures, which may be designed to reduce the environment footprint as compared to the most likely counterfactual, or to its impact once constructed, including the options created and destroyed. Only by considering both construction and operation impacts, the “net” green effect can be appropriately quantified and validated for the specific project.     

                    • Re: The Belt and Road Initiative - greening infrastructure finance
                      kmzz C4D Master

                      Your suggestions are great food for thought.

                       

                      I agree both, construction and operation are important and need to be considered together, also see my first reply to Leela above.

                       

                      Would you know any existing cases which can be highlighted re. the incorporation of environmental footprints in construction/infrastructure efforts?

                      E.g. I remember the IFC has supported a milestone for DKI Jakarta with a green building code which is now applicable for all new buildings in the city.

                        • Re: The Belt and Road Initiative - greening infrastructure finance
                          jordon C4D Master

                          I have a guess.... and it comes from the perspective that would ostensibly relate to sector wide infrastructure supply chain data or inventory, we know the system by it's components all of witch have a lifecycle. This applies for target relevant industry like RE. perhaps holistically it's not the project it's as well in urban planning.

                          This is one of the reasons to integrate sectors is data.

                  • Re: The Belt and Road Initiative - greening infrastructure finance
                    1533420 C4D Enthusiast

                    Hi karin merle and Pasquale Lucio Scandizzo- thank you so much for your insightful responses that have kept the discussion alive. I was looking at this from the perspective of tackling green outcomes from project conceptualization and design stages, ie. exante rather than expost. usually a lot of the safeguarding and environmental management design systems are established post the project has been designed and commissioned. Lets say there is a need to build public infrastructure for roads in a remote area in East Kalimantan where some of the most biodiverse forests are present. The building of this infrastructure will lead to higher deforestation in surrounding areas as land utilization would take place. Before project is procured, could the government assess which areas the road would lead to least damage versus measures to reduce deforestation after the project has already been commissioned, designed and allocated areas?

                      • Re: The Belt and Road Initiative - greening infrastructure finance
                        pasqualelucioscandizzo C4D Enthusiast

                        Leela and Karin:

                         

                        A few thoughts on the question of how to deal with  environmental impact during project preparation. First, some environmental effects of infrastructural projects are better addressed at country and program, rather than at  project level. These include plans, regulations as well as economic incentives to preserve biodiversity, use natural resources and reduce harmful externalities. Second, the environmental impact of the project should be assessed during preparation by considering both the expected impact and the options that would be created or destroyed by the project. For example, changing the design of a road in the Serengetti national park may avoid  to fraction the environment of wild species and to cut their migration routes.  Good practices require that an environmental impact assessment is made at the project preparation stage and that project design is adjusted to minimize the predictable impact both on the project area and beyond it (Extended Impact Assessment). Third, many of the project impacts will be known only after the implementation phase has started and thus project managers should be prepared to respond to environmental effects during both the construction and the operational phase. Options to respond to environmental impacts should thus be one of the tasks of project design, which should be such as to give managers the widest flexibility in tackling  unpredicted adverse environmental effects, as well as to govern the joint evolution of the project and its environmental niche. For example, options to respond to adverse environmental effects can be created by concentrating existing or enhanced forest management in selected areas near the infrastructure. This “enhanced forest ring” can then be expanded or otherwise adapted to meet environment needs in a broad project area.

                         

                         

                         

                         

                        Da: Leela Raina

                        Inviato: martedì 5 settembre 2017 11:37

                        A: Pasquale Lucio Scandizzo

                        Oggetto: Re:  - The Belt and RoadInitiative - greening infrastructure finance Collaboration for Development

                        The Belt and Road Initiative - greening infrastructure finance

                        reply from Leela Raina in Green Finance Community of Practice - View the full discussion

                         

                        Hi karin merle and Pasquale Lucio Scandizzo- thank you so much for your insightful responses that have kept the discussion alive. I was looking at this from the perspective of tackling green outcomes from project conceptualization and design stages, ie. exante rather than expost. usually a lot of the safeguarding and environmental management design systems are established post the project has been designed and commissioned. Lets say there is a need to build public infrastructure for roads in a remote area in East Kalimantan where some of the most biodiverse forests are present. The building of this infrastructure will lead to higher deforestation in surrounding areas as land utilization would take place. Before project is procured, could the government assess which areas the road would lead to least damage versus measures to reduce deforestation after the project has already been commissioned, designed and allocated areas?

                        Reply to this message by replying to this email, or go to the message on Collaboration for Development Start a new discussion in Green Finance Community of Practice by email or at Collaboration for Development Following The Belt and Road Initiative - greening infrastructure finance in these streams: Inbox

                      • Re: The Belt and Road Initiative - greening infrastructure finance
                        kmzz C4D Master

                        Hi Leela, Pasquale, Jordon, and everyone,

                         

                        as we discussed China’s "Belt and Road Initiative" in the context of sustainability and green finance, I thought it was worth mentioning that the Industrial & Commercial Bank of China (ICBC) – which is the world’s largest bank just issued its first green a One Belt One Road Green Climate Bond. The size issued amounts to USD 2.1 billion.

                         

                        The Climate Bond Initiative covered the story here, and highlights the ramifications of the bond here.

                         

                        It’s worth noting a few extra points – Global Capital reports the bond was issued in three tranches: a EUR1.1bn 3-year floating rate note, a USD450m 3-year floating-rate note and a USD400m fixed rate note. All tranches were oversubscribed - with the EUR 1.1bn tranche receiving EUR1.8bn in orders! Pricing was tighter than expectations.

                         

                        The bond was listed at the Luxembourg Green Exchange (LGX) (see listing).

                        Find analytic information on the green bond framework, verifier’s report and CICERO second opinion here.

                         

                        Attached is ICBC's Green Bond Framework for your perusal.

                         

                        Best wishes

                        Karin