Wednesday, May 1, 2013

China sets out 'green' guidelines for energy firms

China sets out 'green' guidelines for energy firms
By Peter Bosshard
Asia Times online, May 1, 2013

With toxins in the air and dead pigs in the rivers, environmental
destruction has become a huge topic in China. The government has closed
down hundreds of polluting factories, banks have refused lending for
polluters, and protests have derailed numerous destructive projects. For
Chinese companies, environmental risks have become business risks.

The same is true internationally. Chinese banks, mining and hydropower
companies have faced protests and lost contracts when their projects
destroyed the environment. China Southern Power Grid pulled out of
Cambodia after concerns emerged about the social impacts of its dam
projects, and China Power Investment lost a multi-billion dollar
contract for the Myitsone Dam in Myanmar. As a result, Chinese investors
have started worrying about their long-term acceptance in host
countries, and the government, about the country's soft power.

Since 2006, the Chinese government has issued a series of appeals and
recommendations calling on companies to respect the environment,
community interests and workers' rights when investing abroad. It has
for example requested that investors apply Chinese laws if host country
laws are insufficient and that their projects comply with the
international treaties that China has signed.

New environmental guidelines
Two recent guidelines mark China's commitment to improve the
environmental track record of its overseas projects. In February 2012,
the China Banking Regulatory Commission updated the "Green Credit
Guidelines" that regulate the environmental performance of Chinese
banks. They now stipulate that banks "shall strengthen the environmental
and social risk management for overseas projects" and follow
"appropriate international practices or international norms" in such

In February 2013, the ministries of commerce and environmental
protection issued their long-awaited "Guidelines on Environmental
Protection in Foreign Investment and Cooperation". Their goal is to
guide Chinese companies "to identify and preempt environmental risks in
a timely manner, lead our companies to actively fulfill their social
responsibility in environmental protection, build a good foreign image
of Chinese companies and support the sustainable development of host

The new guidelines stipulate that environmental strategies and
management plans be developed, environmental impact assessments and
mitigation plans for sensitive projects be prepared, environmental
information be disclosed to the interested public, and environmental
aspects be considered in the supply chain. As my colleague Grace Mang
has commented, the guidelines have not been designed to stop projects,
but to mitigate damages and improve projects that go forward. Had they
been in place earlier, they might, for example, have convinced Sinohydro
to redesign the Kamchay Dam, which flooded parts of Bokor National Park
in Cambodia.

In substance the new guidelines are similar to the environmental
recommendations of the OECD Guidelines for Multinational Enterprises.
The Organization for Economic Cooperation and Development guidelines are
the most important international norms for foreign investors and cover a
broad range of topics from human rights to labor relations and
corruption. They are wider in scope than the Chinese guidelines, but
unlike China, the OECD does not have any specific guidelines for banks
and the environment.

Brazil, Argentina and numerous other non OECD-countries have endorsed
the OECD guidelines for their own companies. In contrast, China is not
keen to follow norms that rich countries prepared without its
involvement. The new guidelines add to the profusion of international
norms, but Chinese enterprises may well take recommendations from their
own government more seriously than OECD norms.

Questions about compliance
Beyond the environment, the responsibility of businesses for respecting
human rights has gained wide recognition in recent years. In 2011, the
UN Human Rights Council confirmed this responsibility in its "Guiding
Principles for Business and Human Rights". According to the UN,
state-owned enterprises (including those in China) have a particular
responsibility for upholding human rights, for example through
"meaningful consultation" with affected communities.

China has so far not prepared any guidelines on the human-rights
obligations of its overseas investors. The new environmental guidelines
emphasize the need to establish good relations with local communities,
but do not recognize any community rights. Recognizing and protecting
the rights of project-affected communities would be particularly
important in countries with a long history of government repression such
as Myanmar, Cambodia, and Laos.

Neither the Chinese nor the OECD guidelines are binding. Yet the OECD
norms allow civil society groups and others to file complaints about
violations with national authorities, which are supposed to initiate
mediation processes between the companies and the plaintiffs. More than
100 such complaints have been filed, including on the role of Poyry and
Tractebel, two European engineering companies, in the Xayaburi and Houay
Ho dams in Laos.

The Chinese guidelines are not supported by any compliance mechanism. An
earlier draft of the guidelines stipulated that banks (not other
companies) "establish an appeal mechanism for local controversial
projects", but the final version did not take this up. It is positive
that the Chinese government has started addressing the environmental
performance of its companies overseas. A compliance mechanism would help
ensure that the new guidelines are actually being implemented.

Some Chinese companies have already taken steps to act as good
ambassadors for their country when investing abroad. Sinohydro requires
environmental impact assessments for its projects even where local laws
don't, as was the case for example in Myanmar. The company has also
adopted an environmental policy that goes beyond the new guidelines (but
has so far been slow in rolling it out). Other companies and banks,
including Gezhouba, China Power Investment and ICBC, have not made
serious efforts to address their corporate social responsibility abroad.

Chinese companies have expressed an interest in building large,
environmentally sensitive dam, mining, pipeline and other projects in
Africa, Asia and Latin America. Chinese companies have for example
signed memoranda of understanding to build four of the proposed 11 dams
on the Mekong mainstream. The Global Environmental Institute has
translated the new guidelines into English, and International Rivers,
into Spanish and Burmese. Civil society groups around the world can now
hold Chinese companies to account for their responsibilities under the
new guidelines and the UN human rights principles.

Peter Bosshard is Policy Director of International Rivers and tweets
@PeterBosshard. This is an expanded version of an article that appeared
in China Dialogue. Republished with permission from Japan Focus.

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