ESG Risk Managment: Recommendations for the AIIB

This paper (available in Chinese here) proposes a new approach to managing environmental, social and governance risks (ESG) within the Asian Infrastructure and Investment Bank (AIIB).  The approach has been designed to meet two imperatives: speed of implementation and the effectiveness of environmental and social protection.  The AIIB does not have to choose between these outcomes, which are all-too-often presented in conflict.  An approach to ESG risk management that is based on engaging local people as counterparties might allow the AIIB to invest in infrastructure as quickly as is required while also delivering high social and environmental performance.

One cannot understand the AIIB without realizing how poorly international institutions like the World Bank, International Monetary Fund (IMF) and Asian Development Bank (ADB) align with Chinese interests – that is, the interests of the world’s most populous nation and its second-largest economy. 

The Chinese have a voting share in the World Bank that bears little relationship to their economic importance.  When China asks the IMF to help address Asia’s infrastructure gap, it finds the Fund preoccupied with helping the Eurozone nations bail out German banks who have lent to Greece.  At the ADB, they must accept that Japan retains a permanent hold on the institution’s presidency.

These institutions’ ongoing failure to invest in Asian infrastructure will have an impact on the Chinese economy. China’s forward-looking economic performance requires that places like Laos, Myanmar, Pakistan and Indonesia develop, not just as providers of raw materials for Chinese manufacturing, but also, sources of demand for Chinese goods. We therefore presume that the AIIB was born of the realization that, if China cannot influence the World Bank or Asian Development Bank to build the infrastructure its neighbors need, the only choice is an alternative. 

Western countries such as Germany, France and the United Kingdom made a courageous decision to buck American opposition to the AIIB and join the project.  But they did so with some reservation, which is that they are afraid the AIIB will make the rest of Asia look like China. They are worried that economic prosperity will be gained at the cost of irreversible environmental, social and political damage.

This is not a specious concern: China’s model of economic growth has long favored implementation over environmental protection, transparency, minority rights and other similar issues. The longstanding position of the Chinese is that their trajectory of economic development is little different than that followed by the West more than a century ago.  Look at the Ruhr Valley or Pittsburgh or Liverpool in the early 1900s, they say, and you will see the same problems you see in Guangzhou or Harbin today – and in regimes with similar corruption issues.

This is undeniably true. The difference is that those problems happened in a world where carbon emissions had not risen to the point they are today, largely because the planet’s population is roughly five billion people larger than it was in 1900. This means less margin for environmental error and a far greater propensity for disruption of social cohesion. And so, the AIIB will have to adjust and innovate.

This paper (also available in Chinese) offers our thoughts and analysis on why, how and when this might happen in practice.

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本文将提出在亚洲基础设施投资银行(AIIB,下称亚投行)进行环境、社会和治理(ESG)风险管理的新方法。

中国是全世界人口最多的国家和全球第二大经济体,认识不到世界银行、国际货币基金组织(IMF)、亚洲开发银行(ADB)之类的国际机构与中国利益多么不符,便不能理解亚投行。

中国在世界银行的投票权与它的经济重要性极不相称。当中国要求国际货币基金组织帮助解决亚洲基础设施落后的问题时,它却发现国际货币基金组织忙着帮助欧元区国家救助贷款给希腊的德国银行。而在亚洲开发银行,中国必须接受日本长期占据行长一职。

这些机构一直未能对亚洲基础设施进行投资,这将对中国经济产生影响。中国今后的经济表现要求老挝、缅甸、巴基斯坦、印尼等国不仅是中国制造业的原材料供应国,还要求它们是中国商品的需求国。因此我们认为,亚投行的出现是基于这样的一个认识:如果中国不能影响世界银行或亚洲开发银行去建设邻国所需的基础设施,那么唯一的选择是另起炉灶。

德国、法国、英国等西方国家不顾美国对亚投行的反对勇敢加入亚投行。不过它们这样做有所保留,就是担心亚投行将使亚洲其他国家像中国一样,实现经济繁荣将以不可逆转的环境、社会和政治损害为代价。

这并非似是而非的担心:中国经济增长模式长期以来都支持发展优于环境保护、透明、少数人权利和其他类似议题。中国的长期立场是,他们的经济发展轨迹与100多年前西方国家所走的路没有多少不同。他们会说,看看20世纪初的鲁尔河谷、匹兹堡和利物浦,你会发现今日的广州或哈尔滨存在同样的问题——政府也存在类似腐败问题。

这是不可否认的事实。区别是由于1900年的全球人口比目前大约少50亿,那些问题发生时全世界碳排放还未攀升到当今的程度。这意味着当今世界在环境方面犯错误的余地较小、破坏社会凝聚力的倾向要大得多。有鉴于此,亚投行必须做出调整和创新。

以下观点和分析就是我们对其为何、如何及何时可实践操作的见解