Emerging Actors in Development Finance with Potential Social and Environmental Risks: China & Brazil

WRI’s work on emerging actors in development finance is led by the International Financial Flows and the Environment (IFFE) team.

The goal of this research is to improve the environmental, social, and climate change policies that govern emerging actors’ investments, and to ensure that local communities and civil society organizations impacted by the investments are able to engage with “emerging actors” more effectively. This preliminary research focuses on Chinese and Brazilian overseas investments and begins to look at the growth drivers and geographic trends of those investments.

A Changing Global Landscape

The landscape of development finance is rapidly changing. In the last decade, major emerging economies such as China and Brazil have been fueling a growing trend of South-South flows by increasingly channeling their overseas investments to other developing countries.

By taking this new approach, China and Brazil are surfacing as major international investors, their activities driven by financial institutions such as:

• the Export-Import Bank of China (China ExIm),
• the China Development Bank (CDB), and
• the Brazilian Development Bank (BNDES).

Other commercial banks and state-owned and private enterprises also have roles to play in this process. These “emerging actors” finance and invest in major initiatives designed to open new markets and to forge strategic relationships.

Many of these investments comprise small and medium size projects developed by private SMEs. Others constitute large-scale, high impact projects requiring access to and management of natural resources. The projects are reshaping the relationship between investors and recipient countries, as well as posing new opportunities for environmental and social sustainability initiatives.

Research Focus

Our work focuses on exploring questions such as:

• How are Chinese and Brazilian overseas investments impacting development finance and the environment?
• What unique characteristics do China and Brazil display in their approach to environmental and social sustainability?
• What opportunities can be created for both investor and host countries?
• How should the environmental and social risks of increasing OFDI be managed?

Strategy: Three Elements

Investor Country (China & Brazil Strategy)	Engage governmental organizations to develop environmental and social guidelines to govern overseas investments.
	Engage companies and financial institutions to develop and implement environmental and social risk management policies.
	Build the capacity of local civil society organizations to promote stronger environmental and social guidelines.
International Strategy	Study on coherence of international trade and financial treaties and multiple environmental agreements.
	Enhance the role of emerging actors in international and bilateral investment standard setting.
Host Country Strategy	Work with host country governments, business partners of emerging economy investements and local civil society organizations to facilitate stronger environmental and social performance among foreign companies.

Building on WRI’s record of independent research, our experience in convening a wide range of local and international stakeholders, and our close partnerships with organizations in China, Brazil, and multiple host countries in Africa and Asia, as well as international organizations, the International Financial Flows and the Environment (IFFE) supports efforts by investors, host countries, and international actors to move towards environmentally and socially sustainable development that benefits all parties.

A Closer Look at China’s Overseas Investment

China is surfacing as a major international investor through nationally owned financial institutions such as the Export-Import Bank of China and the China Development Bank.

These Chinese “emerging actors” are financing major initiatives to acquire natural resources, open markets, and forge strategic political ties. They are increasingly financing large-scale, high impact projects beyond their borders — such as hydropower plants and gas pipelines — which may pose new challenges for environmental and social sustainability.

How do we ensure that Chinese investments abroad align with sustainability objectives by observing high environmental and social standards?

The following presentation - Emerging Actors in Development Finance: A Closer Look at China’s Overseas Investment - begins to look at the growth drivers and geographic trends of Chinese overseas investments.

This collection of figures and charts is based on preliminary research conducted by a team of Chinese scholars and compiled and edited by Bruce Jenkins, WRI consultant, and Xiaomei Tan, WRI Senior Associate. The scoping research concluded in April 2011 and includes data from various sources that are updated frequently. Tao Hu, WRI Senior Associate and Yingzhen Zhao, WRI Research Assistant continued this research, revised and updated the slide deck in August 2012. The data is circulated to stimulate timely discussion and critical feedback and to influence ongoing debate on emerging issues. WRI will continue to update the data as our research moves forward.

A Closer Look at Brazil’s Overseas Investment

From 2001 to 2011, Brazil’s per capita GDP more than tripled. At the heart of this domestic economic boom is the Brazilian National Development Bank (BNDES).

How do we ensure that Brazil’s investments abroad align with sustainability objectives by observing high social and environmental standards?

This presentation - Emerging Actors in Development Finance: A Closer Look at Brazil’s Growth, Influence, and the Role of BNDES - begins to look at growth drivers and trends of Brazil’s overseas investments.

Credits: Roland Widmer, Athena Ronquillo-Ballesteros, Catarina Freitas, Tao Hu and Yingzhen Zhao of WRI’s International Financial Flows and the Environment Project (IFFE) and Xiaomei Tan of WRI China. An earlier version of this slide deck was prepared with the help of Bruce Jenkins, Kirk Herbertson, Alisa Zomer and Catarina Freitas.