China has been accused by environmental activists of propping up global coal consumption © AFP via Getty Images

A study backed by China’s environmental ministry has called for polluting Belt and Road projects to be placed on a negative list to encourage the country’s banks to avoid coal and other environmentally harmful investments along the route.

Under the proposal, drawn up by an international coalition of non-governmental organisations launched by China’s Ministry of Environment and Ecology last year, projects will be classified based on their pollution, climate and biodiversity impacts.

The study is intended to discourage banks from supporting projects that harm the environment in the world’s largest infrastructure investment programme.

The report, released on Tuesday, recommends a three-tiered system, with most coal-fired power, hydropower, petrochemical, and mining and metal smelting plants being classed as “red” projects that require strict regulation.

Infrastructure with a neutral or manageable impact on the environment, such as freight transportation, would be classed as “yellow”. Wind, solar and other renewable energy investments would be “green” and financial institutions would be encouraged to invest in them. 

The study also suggests a separate exclusion list for coal and other fossil fuel energy investments with “severe and irreversible negative impacts” that cannot be mitigated. That would bring China in line with more than 120 financial institutions worldwide that have adopted similar measures. 

Christoph Nedopil Wang, director of the Green BRI Center at the Central University of Finance and Economics and one of the study’s authors, said the aim was to create a transparent evaluation system for Chinese regulators, investors and host countries. 

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China’s approach to sustainability along the Belt and Road has largely relied on projects meeting host countries’ standards for carbon dioxide emissions and environmental protection.

The mechanism would ensure that host countries' wishes for particular projects can be respected while also protecting Chinese financial interests from growing environmental risks, Mr Nedopil Wang said. “There’s a difference between we do what you want and we’re risking our own money.”

Japan’s government has said it will restrict state export banks from providing cheap loans to build coal power plants in the developing world while South Korean lawmakers are considering adopting a similar stance.

However, China Development Bank and the Export Import Bank of China, the country’s largest policy banks, have yet to publicly pledge to end investments in coal.

Environmental advocates have repeatedly called out China for propping up global coal consumption, both at home and abroad. Its reliance on the sector remains one of the main obstacles to reaching peak carbon dioxide emissions before 2030.

The study paves the way not only for a ban on coal investments but also for China to establish stricter and broader standards for disclosure, environmental impact assessments and engagement with local communities, Dimitri de Boer, head of the China office for ClientEarth, an environmental law group, said.

“China has the potential to be exceptional in that it could set a framework for all of its international financial institutions, because of the heavy role the government plays,” Mr de Boer said. 

“When and to what extent the entire government will buy into that alongside [the Ministry of Environment and Ecology] is hard to say.”

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