China encourages green finance in Malaysia through BRI

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THE prevalence of green finance in Asia has increased dramatically over the years, following the region’s commitment to commit to net zero goals since the launch of the Paris Agreement in 2015.

At the recent COP26 summit, countries reached an agreement to prevent the worsening and irreversible impacts of climate change. According to the United Nations Economic and Social Commission for Asia and the Pacific (Unescap), the Asia and Pacific region needs around 1.5 trillion US dollars (6.34 billion RM) per year to reach the United Nations Agenda for Sustainable Development Goals (SDGs) by 2030.

Much of it has to be green investments. Within the region, a significant portion of green finance in Asia is driven by China and Japan. China’s green bond issuance totaled up to US $ 25.06 billion (RM 106 billion) in the third quarter of 2021, with a total of US $ 63.16 billion (RM 267 billion) during of the first nine months of this year, according to the Climate Bonds Initiative.

China’s pledge to go green encourages other countries in Asia to follow suit. As announced by President Xi Jinping, China plans to accelerate the reduction of carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060.

Since the plan was announced, there has been a rapid development of China’s green finance business, with a strong need for financial institutions to switch to green banking as soon as possible.

The Belt and Road Initiative (BRI) is a China-led initiative that aims to foster economic development and interregional connectivity between the continents of Asia, Europe and Africa.

The BRI is associated with major investments, particularly in the development of transport infrastructure, power plants and telecommunications networks. However, such large-scale development involves significant environmental risks.

If environmental requirements are not incorporated into project plans, many countries may not be able to meet their SDG targets. The BRI emphasizes greening to tackle this problem, which paves the way for other countries to participate in long-term green and sustainable development.

The BRI International Green Development Coalition (BRIGC) created in April 2019 is SDG compliant. Although in its infancy, the goal is to mobilize capital to finance green projects through multilateral and bilateral international cooperation.

Along with other ASEAN counterparts, Malaysia is also reporting emergencies to address the impact of global warming. Delivering on his pledge to mitigate the effects of climate change, Prime Minister Datuk Seri Ismail Sabri Yaakob announced Malaysia’s intention to reduce greenhouse gas (GHG) emissions intensity by 45% in the country. entire economy by 2030.

Green finance is also steadily gaining ground. Based on Malaysia’s 12th Plan, the financial system will drive the transformation towards a low carbon economy.

As part of efforts to strengthen its position as a leading Islamic financial market, the introduction of the Sukuk Green Bond is seen as a step towards demonstrating interest in green finance. The Central Bank of Malaysia has issued guidance on Climate Change and Its Impact on Business, which aims to empower the financial sector to boost green finance, to keep abreast of the need for an enabling and cohesive ecosystem.

According to Ernst & Young’s Climate Risk Disclosure (CRD) barometer, 60% of the 100 publicly traded companies surveyed in Malaysia said they are committed to tackling climate change. Petronas has announced that it aspires to be carbon neutral by 2050, making it the first oil company in Asia to set a net zero target.

Efforts include stepping up disclosures on climate-related risks, strategy and risk management.

Through investment and collaboration, BRI coalitions are driving Malaysia to partner to accelerate green finance efforts and ultimately mitigate climate change, protect biodiversity and improve livelihoods. .

Since 2013, Malaysia has been the largest recipient of China-related contracts and investments among Southeast Asian countries, according to China Global Investment Tracker.

Some of BRI’s major flagship infrastructure projects are East Coast Rail Link (ECRL), Malaysia-China Kuantan Industrial Park (MCKIP), and Bandar Malaysia. Although many projects are currently at a standstill following the Covid-19 pandemic and recent political unrest in Malaysia, some are expected to be reinstated after intensive renegotiations.

Chinese banks such as the Asian Infrastructure Investment Bank (AIIB) and New Development Bank (NDB) involved in financing BRI projects are incorporating the green concept into their investments.

These banks contribute by creating their own environmental guidelines, as well as by promoting development finance cooperation and stakeholder coordination.

Given the focus on achieving the SDGs, spillovers are expected in BRI participating countries, including Malaysia. China must deliver its Green Silk Road story that has been promoted by the government to ensure that all projects under the BRI are green, low-carbon, circular and sustainable.

In fact, there are large green infrastructure financing gaps between the BRI countries. To solve this problem, multilateral cooperation between banks should be encouraged to develop innovative green financial instruments and financing models such as green credit, green bonds and green funds for BRI projects.

Malaysia is at an incipient stage in the pursuit of a green revolution. Network and resource sharing companies can inspire Malaysia to step up its climate change initiatives.

For this, China should lead the way by actively participating in joint action plans of sustainable infrastructure standards, capacity building and green finance. The aim is to ensure that the BRI brings long-term green and sustainable development to all the countries concerned.

Dr Sonia Kumari Selvarajan is Senior Lecturer in the Department of Development Studies, Faculty of Business and Economics, Universiti Malaya. The opinions expressed here are entirely those of the author.

The SEARCH Fellowship Series is a social responsibility program jointly organized by the Southeast Asia Research Center for the Humanities (SEARCH) and the Center for Business and Policy Research, Tunku Abdul Rahman University College (TAR UC), and co-organized by the Association of Belt and Road Malaysia.


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