Silk Road Fund partners with institute on sustainable Belt and Road projects
China’s Silk Road Fund recently signed a memorandum of understanding (MoU) with the UN-backed Global Green Growth Institute to promote sustainable investments in Belt and Road infrastructure projects.
The MoU demonstrates China’s fresh efforts in pursuing sustainability and responsible investments in its Belt and Road Initiative (BRI), following President Xi Jinping’s pledge of a stronger emphasis on environmental and social responsibilities for the flagship national initiative late last year.
The MoU was signed during the Boao Forum for Asia Annual Conference 2024 in late March. The Silk Road Fund (SRF) and Global Green Growth Institute (GGGI) agreed to jointly explore sustainable infrastructure investment opportunities, financing and capacity building in Belt and Road countries to promote sustainable social and economic development.
Global Green Growth Institute (GGGI) is a treaty-based, international inter-governmental organisation established at the United Nations Conference on Sustainable Development in 2012, with headquarters in Seoul. It is dedicated to promoting energy transition and sustainable economic growth in developing and emerging countries.
GGGI has 48 member states, including Australia, Indonesia, Korea, Qatar, and Zambia. China is not yet a member.
Neither the Silk Road Fund nor the GGGI provided more details on the MoU as to how the cooperation would work to promote sustainable investments.
FINANCIAL SUPPORT
China has a national agenda to peak carbon emissions by 2030 and reach net zero by 2060.
During the Belt and Road Forum last year, Chinese President Xi announced that the country’s two policy banks, the China Development Bank and the Export-Import Bank of China, will each set up Rmb350 billion ($48.5 billion) financing windows, while an additional Rmb80 billion will be added to the Silk Road Fund.
The purpose for the surge in funding is to offer more financing for BRI projects — especially those that are “small and beautiful” — meaning China is moving away from mega infrastructure projects overseas, and towards environmental and social responsibilities.
With the new injection of funds, the Silk Road Fund’s total assets under management (AUM) reached $65.3 billion.
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Most recently, the fund established a long-term cooperation with the Ministry of Economy and Commerce and the State Development Bank (SDB) of the Kyrgyz Republic in Central Asia to explore investment opportunities in sectors such as infrastructure, renewable energy, health and medical services, and the digital economy in Kyrgyzstan and other regions.
SRF has committed to investing up to Rmb1 billion, while SDB has committed up to 1.26 billion Kyrgyzstani Soms.
GREEN FOCUS
UBS estimated that annual infrastructure demand from Belt and Road countries may reach $1-2 trillion. Transportation, power, and general building have been the key focus areas, while more green infrastructure — such as renewable energy and 5G — are expected to be new growth drivers.
China’s foreign direct investments to BRI countries from 2013 to 2021 totalled $240 billion, according to data released in October last year.
“China’s expertise in infrastructure construction should help countries build out better quality and sustainable infrastructures at lower costs,” said Robin Xu, head of research at UBS Securities.
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But there are also challenges. Naubahar Sharif, acting head of the division of public policy at the Hong Kong University of Science and Technology, said the primary challenge of implementing sustainable investment in Belt and Road countries is the heterogeneity of these countries in economic development, political stability, and institutional capacity.
“Aligning sustainable investment objectives with each country’s developmental stage is critical,” Sharif told AsianInvestor.
“For less-developed countries, the focus might need to be on building basic infrastructure and capacity before fully implementing advanced sustainability criteria. In more developed countries, there might be more scope to integrate cutting-edge sustainable technologies and practices.
“A tailored approach, therefore, is essential — one that respects local contexts and works collaboratively with local governments and communities to ensure that the investments are both sustainable and beneficial to the local populace,” he said.
To effectively measure the impact of sustainable investments in Belt and Road projects would also require a multifaceted approach, Sharif noted.
Quantitatively, tools such as the Global Reporting Initiative (GRI) can be adapted to track the sustainability impacts of infrastructure and energy projects.
Qualitatively, stakeholder engagement processes are crucial for understanding the social impacts and local community feedback, he said.
“It's essential to recognise the financial and expertise constraints in these regions, hence the need for capacity-building initiatives that can empower local stakeholders to participate effectively in these processes,” said Sharif.