The Chinese government has announced a US$4 trillion investment in developing infrastructure globally under the “Belt and Road Initiative” (BRI). Under the BRI the Chinese government will spend US$750 billion on overseas investments in the next five years alone. Although China often cites the BRI as the country’s way of fostering sustainable economic development, there are concerns regarding management of environmental risks, especially in countries lacking environmental governance. In response, the Chinese government has recently issued two publications encouraging sustainable investment practices overseas.
China’s National Development and Reform Commission, Ministry of Commerce, Ministry of Foreign Affairs, and the People’s Bank of China have jointly issued an Opinion on further Guiding and Regulating Outbound Investment (the Guiding Opinions). The four bodies intend that the Guiding Opinions will endorse foreign investment in strategically important areas, and discourage or ban investments that conflict with China’s national interests.
The Guiding Opinions classify overseas investments within one of three categories: “encouraged,” “restricted,” or “prohibited.” Transactions that fail to meet the host nation’s environmental, energy-efficiency, or safety standards fall within the restricted category. The four bodies will scrutinise these investments more closely, and may impose conditions on certain transactions. The level of a transaction’s non-compliance with environmental or energy-efficiency standards that will result in a restricted category classification remains unclear. However, China’s inclusion of host-country regulations in the Guiding Opinions indicates that China is pushing for stronger environmental standards beyond its own borders.
Following the International Green Finance Seminar in September 2017, the participating parties, including the Ministry of Environmental Protection’s Foreign Economic Cooperation Office, released the Environmental Risk Management Initiative for China’s Overseas Investment. This publication consists of 12 articles which set out the relevant principles, such as disclosure of environmental, social, and governance (ESG) information, and encourages investors to consider (ESG) factors in investment decision making.
The Chinese government is reportedly drafting legally binding regulations on overseas investment, including plans to implement the Environmental Risk Management Initiative’s 12 articles to form a detailed operational guide before the end of 2017.
Clearly, Chinese investors will need to consider ESG standards in evaluating outbound investment opportunities, as China seeks to deliver on its promise of sustainable economic development both inside and outside the country.
Read more on the development of China’s environmental policy:
This post was prepared with the assistance of Tegan Creedy in the London office of Latham & Watkins.