Chinese Banks Can Play Key Role in Shaping Sustainable Hydropower Development
China has more installed hydropower capacity than Brazil, Canada, and the United States combined, representing 26 percent of hydropower development globally. Hence, Chinese banks can play a crucial role in shaping hydropower projects by requiring developers to adhere to higher environmental and social standards before approving loans.
“Chinese banks are among the leading lenders in neighboring Southeast Asia and Africa, making them important players in international development finance,” said Morgan Landy, IFC Transaction Risk Solutions Director based in Washington D.C.
In late May, IFC and the China Banking Regulatory Commission (CBRC) jointly organized a workshop on financing sustainable hydropower in Beijing. Leading Chinese hydropower companies, Chinese banks, the National Institute of Water Resource and Hydropower Research (IWHR), the International Hydropower Association (IHA), and industry experts from the World Bank Group discussed the challenges and best practices to manage environmental and social risks associated with hydropower projects. They also talked about how financial institutions and hydropower companies could work together to improve sustainability.
“Hydropower requires a huge amount of investment and involves complex environmental and social issues, including ecosystem maintenance and resettlement. These issues become more complex when China invests in hydropower projects overseas,” said Xiaojun He, Deputy Director of the Department of Statistics at the CBRC. “It is essential for China’s banks to manage environmental and social risks when financing hydropower projects.”
In 2012, the CBRC, with the support of IFC, issued a guideline to encourage banks to provide financing to green projects and manage their environmental and social risks. Many Chinese financial institutions have since adopted the Green Credit Policy and developed procedures to manage environmental performance. Since 2012, green lending has been on the rise and amounted to 6 trillion yuan, 659 billion of which has been loaned to hydropower projects.
At the May workshop, participants from Chinese banks and hydropower companies explained the environmental and social risks they had encountered when investing in projects abroad. A hydropower executive acknowledged that a better understanding of local policy, regulation, and international best practice would be helpful to improving environmental and social risk management in hydropower projects. Participants also agreed that there is a need to better address social issues such as resettlement in overseas projects, which can be very different from projects within China.
IFC industry specialists explained the tools available for financial intuitions to get more information on sustainable banking practices. For example, IFC’s Performance Standards are a global environmental and social risk management benchmark and can help hydropower companies identify and manage risks related to their projects more sustainably.
“What types of policy and systems do you have in place? Do you have the internal capacity to manage such risks? These are the questions we ask our clients when evaluating their environmental and social management systems,” said Kate Lazarus, team leader of IFC’s advisory program on sustainable hydropower in the Mekong region. “We help companies develop a road map to get to where they want to be.”
