appropriate risk management tools—is one key
aspect of this. At the same time, Chinese oil
companies have paid around 20% above the
industry average for oil and gas assets. Together,
these factors have affected the profitability of
Chinese FDI in the hydrocarbon and mining
sectors, leading some Chinese officials to question the performance of such investments.
Avoiding carbon leakage is another factor, as
China’s domestic economy undergoes structural
transition and as high-carbon capital and technologies seek an escape valve in the BRI. President Xi Jinping proposed an “international
coalition for green development” at the first Belt
and Road Forum for International Cooperation in
Beijing in 2017; and greening the BRI has risen
up the policy agenda.
Box 17: Minimising investment risks
through enhanced governance
The risks to fossil fuel and clean energy
infrastructure investments in host countries, especially in developing countries
whose regulatory and governance structures are weak, can be minimised by the
development and implementation of strong
international standards. Targeted governance mechanisms have evolved to help
minimise the risk of some of the negative
governance and societal impacts associated
with resource development and trade.
These range from the transparency of
resource revenues under the Extractive
Industries Transparency Initiative (EITI) to
certifying that raw mineral supply chains
are conflict-free through the OECD and the
due diligence guidelines of the China
Chamber of Commerce of Metals Minerals
& Chemicals Importers & Exporters
(CCCMC).
The EITI aims to enhance transparency
around resource-related payments to governments. The EITI transparency standards
require disclosure along the value chain as
to how revenue makes its way through the
government and contributes to the economy. At the same time, environmental,
social and governance (ESG) risk frameworks that originated in multilateral banks,
such as the International Finance Corporation’s (IFC) Environmental and Social
Performance Standards, are increasingly
referenced in the market.
China is not an EITI member country,
but its companies are active in implementing EITI standards in countries like
Iraq and Mongolia. While there is the
potential for tension between the initiative’s mechanism and China’s core foreign
policy principle of non-interference, China
has approved EITI’s principles and
strongly supported the EITI in international
forums. The EITI is perhaps the most
high-profile of a suite of governance
mechanisms and technical competencies
that resource investors have developed, in
order to safeguard relationships and
investments with host governments and
communities, often in collaboration with
multilateral banks. Figure illustrates some
of the areas of governance support and
capacity building around a hydrocarbon
development (Fig. 42).
Special Report 5: International Energy Cooperation and Governance
647
aspect of this. At the same time, Chinese oil
companies have paid around 20% above the
industry average for oil and gas assets. Together,
these factors have affected the profitability of
Chinese FDI in the hydrocarbon and mining
sectors, leading some Chinese officials to question the performance of such investments.
Avoiding carbon leakage is another factor, as
China’s domestic economy undergoes structural
transition and as high-carbon capital and technologies seek an escape valve in the BRI. President Xi Jinping proposed an “international
coalition for green development” at the first Belt
and Road Forum for International Cooperation in
Beijing in 2017; and greening the BRI has risen
up the policy agenda.
Box 17: Minimising investment risks
through enhanced governance
The risks to fossil fuel and clean energy
infrastructure investments in host countries, especially in developing countries
whose regulatory and governance structures are weak, can be minimised by the
development and implementation of strong
international standards. Targeted governance mechanisms have evolved to help
minimise the risk of some of the negative
governance and societal impacts associated
with resource development and trade.
These range from the transparency of
resource revenues under the Extractive
Industries Transparency Initiative (EITI) to
certifying that raw mineral supply chains
are conflict-free through the OECD and the
due diligence guidelines of the China
Chamber of Commerce of Metals Minerals
& Chemicals Importers & Exporters
(CCCMC).
The EITI aims to enhance transparency
around resource-related payments to governments. The EITI transparency standards
require disclosure along the value chain as
to how revenue makes its way through the
government and contributes to the economy. At the same time, environmental,
social and governance (ESG) risk frameworks that originated in multilateral banks,
such as the International Finance Corporation’s (IFC) Environmental and Social
Performance Standards, are increasingly
referenced in the market.
China is not an EITI member country,
but its companies are active in implementing EITI standards in countries like
Iraq and Mongolia. While there is the
potential for tension between the initiative’s mechanism and China’s core foreign
policy principle of non-interference, China
has approved EITI’s principles and
strongly supported the EITI in international
forums. The EITI is perhaps the most
high-profile of a suite of governance
mechanisms and technical competencies
that resource investors have developed, in
order to safeguard relationships and
investments with host governments and
communities, often in collaboration with
multilateral banks. Figure illustrates some
of the areas of governance support and
capacity building around a hydrocarbon
development (Fig. 42).
Special Report 5: International Energy Cooperation and Governance
647