The bigger picture: Brazil and China’s approach to sustainable finance
by Rey Edward, sustainable finance coordinator
The environmental cost of economic development
Brazilian and Chinese national development banks played a fundamental role in stimulating and supporting the tremendous economic growth within their respective countries. These banks have played a complex role in balancing the simultaneous needs for economic growth and environmental protection. Especially as polluting manufacturing industries were displaced to the Global South in the past few decades, countries like China and Brazil experienced first hand the environmental trade-offs for economic development. As a result, Brazilian and Chinese governments are drawing upon the power of the banking sector as a way to better control the environmental and social impacts of economic development.
Different paths towards the same goal
Brazil and China have taken uniquely different approaches towards sustainable finance. In Brazil, the use of voluntary banking standards and disbursement of special financing funds for environmental issues (like greenhouse gases or conservation in the Amazon), represents a typical approach towards incorporating environmental and social considerations into bank lending. In keeping banks accountable, Brazil benefits from their robust environmental legal framework and civil society sector. For instance, several court cases have firmly established environmental liability for banks, and pressure from civil society has pushed Brazilian banks, such as BNDES, to strengthen its policies on the social impacts of their lending.
On the other hand, in China the central government has created a national policy framework encouraging the adoption and expansion of green credit, a concept which encourages Chinese banks to consider environmental aspects — ranging from energy consumption, pollution, land, health, safety, resettlement of people and climate change — into their lending practices. China’s effort to green its financial sector has already produced some of the most innovative green finance policies in the world in a relatively short amount of time. One such example is the Green Credit Guidelines, which obligates banks to terminate credit to clients if “major risks or hazards” are found. Chinese banking authorities have also worked with environmental protection bureaus in creating credit blacklists; companies with a record of environmental violations are blacklisted from receiving future loans. Today, Chinese policy makers are attempting to design a green financial system in order to ensure the long-term sustainability of the country’s economic development.
New players, new rules, a new normal?
The way in which Brazil and China have approached sustainable finance domestically will likely impact their approach towards their investments internationally. As international investors, Brazil and China have the chance to internationalize their own homegrown models of sustainable finance. In light of China’s $900 billion One Belt, One Road Initiative (an economic policy encouraging Chinese investors to invest along two transcontinental lands and shipping routes from China to Europe) the need for truly sustainable finance is more important than ever. Brazil and China are new players in the global economy, but the question of whether they can use their domestic experiences to raise the bar when it comes to sustainable financing remains to be seen.
In the end, the definitions of sustainable development and sustainable finance are at stake. Until now, Western multilateral banks held the advantage of setting the rules and definitions for everyone else to follow. Today, new players like Brazil and China have an opportunity to make new rules — perhaps even a new normal — when it comes to sustainable development and finance.
Learn more
Find out more about emerging sustainability frameworks from our three-part report series examining the environmental and social policies at Brazilian and Chinese national development banks here.
