Shortly after the New Development Bank (the NDB)’s official establishment, the first issue of the alert “Observation on China’s Overseas Investment” has focused on the establishment and potential investment projects of the bank in August, 2014.
The NDB has made progress in the past two years, including the appointment of its management personnel, the first board meeting, its opening ceremony in Shanghai and its announcement of the first batch of projects, etc. Meanwhile, the First Annual Meeting has taken place on July 20-21 this year, opening its’registration to stakeholders. The key word NEW and the approach to promote sustainability have been adequately discussed in the High Level Seminar. Recently, the NDB has built partnerships with several other banks through cooperation memorandums signed with the Industrial Credit and Investment Corporation of India (ICICI), Asian Development Bank (the ADB), and China Construction Bank (the CCB). It is expected that the co-financing process will commence in the near future. Besides, it has approved its first loans - $911 million for renewable energy projects in Brazil, China, India,South Africa and Russia, so as to realize its sustainable development goals. The NDB’s focus on green area may help mitigate or eliminate concerns regarding the negative impacts brought by its own investment projects. This July, the NDB issued three billion yuan green bonds with a tenor of five years, indicating its efforts to remain green in its future issuance of credit and bonds. Although the NDB has committed to incorporating sustainable development in its projects, the biggest concern lies in the fact that the NDB BoD approved Interim Information Disclosure Policy of the bank, which formed the basis for the Bank to be able to publicly disclose its relevant operational policies and other documents, it has not yet publicly announced its operational policies or launched any consultations with stakeholders. Thus, it remains blurred how it could address the forthcoming environmental and social impacts, which may undermine its previous promises. Notwithstanding, co-financing could render the NDB an opportunity to draw lessons from other banks, referring to their governance experiences in enforcing and improving environmental and social standards, as well as establishing effective accountability mechanisms.
This issue probes into the investment priorities and governance model of the NDB by focusing on the appointment of management personnel, cooperation partnerships, first batch of projects and operational policies. Discussed in the current issue are also the ways that the NDB achieves responsible investment and promotes sustainable development, by introducing the environmental and social policies of Multilateral Development Banks(MDBs).
- Basic Information
As an international financial institution initiated by BRICS countries(Brazil, Russia, India, China & South Africa), the idea of the NDB was first mooted at the Fourth BRICS Summit in New Delhi in March, 2012 in order to fulfill the funding requirements for the future development of BRICS countries and other emerging economies. In March, 2013, BRICS leaders reached a consensus on establishing the NDB in the Fifth BRICS Summit in Durban, South Africa. Subsequently in July, 2014, at the sixth BRICS summit in Fortaleza, Brazil, BRICS founding members signed the Agreement on the New Development Bank (the Agreement), which marked the official establishment of the NDB. After the first Board Meeting in Moscow, Russia, 2015, the NDB was formalized and welcomed its grand opening. Apart from a headquarter in Shanghai, the NDB also places its’ first regional office in Johannesburg. South Africa. According to the Fortaleza Declaration published at the Sixth BRICS Summit, the NDB has an authorized capital of $100 billion, and an initial subscribed capital of $50 billion, which are equally distributed among the founding members.
Leslie Maasdorp, Vice President of the NDB, stated that the mission of the NDB is to mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, complementing the existing efforts of multilateral and regional financial institutions for global growth and development.
- First Annual Meeting Held
The first Annual Meeting of the NDB has taken place on July 20-21 this year, opening its’ registration to stakeholders including the media and the civil society (the CSO) two weeks before. However, due to the short time the bank coordinator left for the applicants to confirm their attendance, there were only a few civil societies engaging in the High Level Seminar held in the afternoon of the second day. President K. V. Kamath indicated that the key words for the future of the NDB were: a green future, a lean organization and sustainable operation. Vice President (VP) Lesilie Maasdorp from South Africa did a summary on the features of the NDB as Green, Speed and Innovation. When being asked about the specific meaning of the word NEW to the bank, VP Paulo Nogueira Batista from Brazil illustrated it from these perspectives: firstly, from the perspective of the governance, the capital is equally distributed among the founding members thus no one has veto power at the NDB. It is and it always will be an emerging country-controlled bank. Secondly, sustainable development lies in the core. It is not a cost, but an opportunity. Besides, “green” will be embodied both from the funding and the lending process. When the question about the role of the CSO in the NDB being asked, VP Paulo Nogueira Batista believed that “the relationship between the NDB and the CSO could be regarded as partners, who share the same goals to promote sustainable development.” VP Zhu Xian added that “the CSO as a whole plays a critical role in the operation of the NDB. They can cooperate and carry on a constructive dialogue to work out a solution for sustainable development. However, prior to that, the NDB should establish its governance mechanism. ” As for the doubts towards the environmental and social safeguards and the information disclosure policy, VP Vladimir Kazbevok from Russia explained that “the NDB BoD approved Interim Information Disclosure Policy of the bank at the first day of the annual meeting, and it will be disclosed soon. Since the NDB is a “start-up”, a baby, with a small structure, some of the operational policies remain incomplete, among which, the environmental and social policy is under formulation. But we guarantee that the stakeholders will be involved in the consultation process before the policy is disclosed. ” Ambassador Liu Youfa from Shanghai Institute for International Studies (SIIS) made an important point that transparency and accountability have a significant role to play for the bank to act prudently, for which oversight of the CSO is essential. ”(Summarized from the speeches of the key persons from the High Level Seminar)
- Leadership and Major Appointments Completed
The major leadership of the NDB is comprised of the Board of Governors, Board of Directors, President and Vice Presidents. In accordance with the Fortaleza Declaration released at the Sixth BRICS Summit, the first Chairman of the Board of Governors, the first Chairman of the Board of Directors and the first President are from Russia, Brazil and India respectively.
Board of Governors: All the powers of the Bank are vested in the Board of Governors. The Board of Governors may delegate to the Directors authority to exercise any powers of the Board, except the power to admit new members, suspend a member, increase or decrease the capital stock, amend the Agreement and to approve the General Strategy of the NDB every five years, etc. Members of the first Board of Governors include Henrique de Campos Meirelles, Brazil’s Minister of Finance; Anton Siluanov, Russia’s Minister of Finance; Arun Jaitley, India’s Minister of Finance; Lou Jiwei, China’s Minister of Finance and Pravin Jamnadas Gordhan, South Africa’s Minister of Finance. Anton Siluanov, Russia’s Minister of Finance, was appointed Chairman of the Board of Governors, and Arun Jaitley, India’s Minister of Finance, Vice Chairman.
Board of Directors: The Board of Directors is responsible for the conduct of the general operations of the Bank. In conformity with the general directions of the Board of Governors, it makes decisions concerning business strategies, country strategies, loans, guarantees, equity investments, and borrowing by the NDB, and sets basic operational procedures and charges, and furnishes technical assistance and other operations of the NDB. Members of the first Board of Directors include Luis Antonio Balduino Carneiro, Secretary of International Affairs of Brazil’s Ministry of Finance; Sergei Storchak, Deputy Minister of Russia’s Ministry of Finance; Dinesh Sharma, Secretary of Economic Affairs of India’s Ministry of Finance; Chen Zhixin, Deputy Director of Economic and Financial cooperation of China’s Ministry of Finance; Tito Mboweni, member of the eighth Board of Governors of The South African Reserve Bank(SARB) and K.V. Kamath from India, the first president of the NDB. Luis Antonio Balduino Carneiro was appointed Chairman of the Board of Directors.
President: According to the Agreement, the Board of Governors elects a President from one of the founding members on a rotational basis, who shall not be a Governor or a Director or an alternate for either. The President shall be a member of the Board of Directors, but shall have no vote except a deciding vote in case of an equal division. The President may participate in meetings of the Board of Governors, but shall not vote at such meetings. The first President of the Bank is K.V. Kamath, an Indian banker. He used to work in the ICICI Bank and joined in the ADB in 1988, responsible for projects in China, India, Indonesia, the Philippines and Vietnam.
Vice Presidents: According to the Agreement, there shall be at least one Vice-President from each founding member except the country represented by the President. Vice-Presidents shall be appointed by the Board of Governors on the recommendation of the President. The first Vice Presidents of the NDB are Paulo Nogueira Batista Jr. from Brazil, also the Chief Risk Officer of the Bank; Vladimir Kazbekov from Russia, also the Chief Administrative Officer; Zhu Xian from China, also the Chief Operations Officer; and Leslie Maasdorp, also the Chief Financial Officer.
- Cooperation Partners Expanded
Similar to the AIIB, the NDB has set its development strategy in enhancing its cooperation with other banks. Previously, the AIIB has signed cooperation agreements with the World Bank, the ADB and the EBRD respectively on various projects. With an emphasis on infrastructure constructions in BRICS and Asian countries, the NDB also makes efforts to enhance its collaboration with the World Bank and the ADB, and strengthen its supports for global infrastructure projects.
In May, 2016, the NDB signed a Memorandum of Understanding (MoU) with ICICI for a partnership in bond issuance, co-financing and treasury management. A month later, another MoU on Strategic Cooperation was signed with the CCB for collaboration in bond issuance, co-financing and information exchange. This July, the NDB consecutively signed a MoU with the ADB, where the two institutions announce that they will work together in areas including sustainable development projects in renewable energy, energy efficiency, clean transportation, sustainable water management, and sewage treatment. The NDB BoG also adopted several resolutions at the first Annual Meeting of the NDB, which included the approval of the conclusion of two Memoranda of Understanding with CAF, Development Bank of Latin America.
Regardless of the clear vision of its investment projects, the NDB has not publicly announced its operational policies, arousing concerns in the international community. Notwithstanding, recent intention for co-financing could render the NDB an opportunity to draw lessons from other banks, referring to their governance experiences in enforcing and improving environmental and social standards, as well as establishing effective accountability mechanisms.
- Investment Areas and Projects Announced
The NDB is a multilateral development bank (MDB) initiated and founded by major emerging markets with a purpose of supporting infrastructure and sustainable development. Infrastructure development is the key drive for economic and social growth, deficiencies in which may hinder the growth in developing countries. One of the objectives of the NDB is to boost economic growth in emerging economies and developing countries by facilitating the constructions of infrastructures.
Other than devoting itself to exploring its development paths, the NDB also hopes to change its current development patterns through investment so as to promote sustainable growth of global economy. President K.V. Kamath expressed in his speech that “the recognition that one needs to ensure that the environmental and social issues are kept in context. These to me underpin holistic and sustainable growth and development and provide a compendium of knowledge.”
The NDB approved its first green loans — a cumulative $911 million in financing renewable energy projects across member countries Brazil, China, India, South Africa and Russia, which marked the official start-off of its business operations. About $300 million will be lent, through the Brazilian development bank BNDES, to projects to generate 600 MW of renewable energy, and $81 million to China’s Shanghai Lingang Hongbo New Energy Development Co., to support its rooftop solar power project of 100 MW. The bank will also provide a $250 million loan to India’s Canara Bank, with $75 million earmarked for 500 megawatts of renewable-energy projects. South African power utility Eskom will get $180 million in assistance for renewable energy projects. A spokesperson for the bank said the Eskom projects would involve transmission lines to carry 670 MW of generation and 500 MW worth of renewable energy projects involving independent power producers. At the first annual meeting of the NDB, a financial assistance of USD 100 million was approved for the construction of two hydropower generation plants with a total installed capacity of 49.8 MW in the Republic of Karelia in the Russian Federation, bringing the number of approved project to five.
- First Green Bond Issued
In July, 2016, President K.V. Kamath announced that the NDB would issue three billion yuan green bonds with a tenor of five years in China. On the basis of Bond Prospectus for the First Green Bond Issuance of NDB in 2016, Bank of China (BOC) was assigned as the lead underwriter and book runner, while the Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), China Development Bank (CDB), Hong Kong and Shang Hai Banking Corporation(HSBC), Standard Chartered Bank (China) as joint underwriters. China Chengxin International Credit Rating Co., Ltd (CCXI) and China Lianhe Credit Rating Co., Ltd have rated the NDB AAA sovereign credit. As stipulated in Green Financial Bond Directive and Green Bond Principles, proceeds gained from this round of green bond sale will be exclusively applied to finance green and clean energy projects including clean energy, clean transportation, resource protection & conservation, waste control, and climate change. It is said that the NDB has received a green light from the People’s Bank of China to conduct bond sales worth a total of 10 billion yuan on the mainland and the second tranche of bond sales in China will be carried out within the next few months.
- Operational Policies to Be Released
In April, the NDB issued its first loans as scheduled, which are directed at green area. Although the NDB has committed to incorporating sustainable development in its projects, the biggest concern lies in the fact that the NDB BoD approved Interim Information Disclosure Policy of the bank, which formed the basis for the Bank to be able to publicly disclose its relevant operational policies and other documents, however, it has not yet publicly announced its operational policies or launched any consultations with stakeholders.Thus, it remains blurred how it could address the forthcoming environmental and social impacts, which may undermine its previous promises. By contrast, the AIIB has released a series of operational policies, including Environmental and Social Framework, Operational Policy on Financing, General Conditions for Sovereign-Backed Loans, Procurement Policy, Policy on Prohibited Practices, Sovereign-Backed Loan and Guarantee Pricing, etc. Operational Policy on Financing sets aside the Bank’s general policy on providing Sovereign-backed Financing and Non-sovereign-backed Financing for Projects. General Conditions for Sovereign-backed Loans generally sets forth certain terms and conditions generally applicable to the Loan Agreement and to any other Legal Agreement. Procurement Policy aims to support borrowers for a better implementation of Bank-financed Projects through efficient, fair, ethical, and transparent procurement processes, therefore optimize both value for money, and social and environmental sustainability. Policy on Prohibited Practices is to ensure that the AIIB does business with trustworthy parties who adhere to the highest integrity standards, and to help the AIIB meet its requirement only for the purpose for which it has been granted. All the operational policies above set the regulation framework for approval and compliance of the AIIB.
- Environmental and Social Safeguard Mechanisms To be Established
International financial institutions will take environmental and social impact into consideration during their operations in terms of investment policies and regulations. Thus, it is of importance for MDBs to incorporate indispensable environmental and social policies and accountability and supervision mechanisms.
By far the NDB has not publicly disclosed its environmental and social policies. Many civil society groups have expressed their concerns and requested the NDB to establish a set of sound environmental and social policies before launching projects. “Infrastructure projects, even those deemed sustainable, can generate adverse impacts, and thus should be subject to environmental and social assessment prior to their approval, as well as supervision and management throughout implementation. If the NDB wants to develop a new approach to environmental and social impact assessment, it should do so by learning from past experiences of other multilateral development banks and listening to different perspectives, not by undermining social participation in this stage of policy development.” expressed Conectas Direitos Humanos, a Brazilian organization.
Other multilateral development institutions such as the World Bank and the ADB have already established systemic environmental and social policies over the past decades. As the forerunner of formulating environmental and social policies, the World Bank has always been devoted to building a state-of-the-art safeguard system. Therefore, in 2012 the World Bank initiated and encouraged stakeholders to participate in the update and review work of its environmental and social safeguards, ensuring the sustainability of its funded projects. In July, 2015, it carried out the third phase of the consultation, discussing the second amendment of Environmental and Social Framework. In March, 2016, the consultation came to an end with the amendment under review. Similarly, the AIIB has also formulated its environmental and social policies before announcing its first batch of projects, followed by a new round of consultations. Its Environmental and Social Framework guarantees better practice of environmental and social standards for its funded projects. This Framework is applicable to the very two projects that AIIB has announced to support independently, the efficacy and deficiency of which will both be revealed in future project operations.
- the NDB and the Sustainable Development
In 2015, the United Nations Conference on Sustainable Development and Paris Climate Conference jointly set the 2030 Agenda for Sustainable Development. In September, UN Development Summit was held at the Headquarter in New York City, where the post-2015 development agenda was officially passed. Succeeding and upgrading the Millennium Development Goals (MDGs), the Sustainable Development Goals (SDGs) were agreed upon by the Summit. SDGs is constituted of 17 sustainable development goals, ranging from health, education, gender equality to energy and climate change, so forth. In December, the COP 21 was held in Pairs, where a new global climate agreement——Paris Agreement was reached. These newly reached consensuses and goals have demonstrated the resolve of global society to promote sustainable development in the present international context, which could be justified as a revolution in panhuman production, life and ways of thinking.
Achieving SDGs proposes new requirements on the flow of global capital. In the past five decades, multilateral development financial institutions have played a pivotal role in financing key infrastructure constructions, creating employment opportunities and improving people’s living conditions. Every year over one trillion US dollars are needed to meet the demand of infrastructure development and to fill the gap of global climate funding. Traditional multilateral financial institutions leading by the World Bank, IMF and the ADB can no longer satisfy the new capital demand of countries, especially developing countries, to combat climate change and pursue sustainable development. Worse still, private international capital flow is not ripe enough to support sustainable development. Aiming at supporting infrastructure construction and sustainable development, the newly founded NDB has provided fresh channels for international development financing and is expected to fill the capital gap mentioned above. Its first loans are directed at green energy projects, which is a testament to its promise of pursuing sustainable development.
Besides filling the capital gap, the NDB has also brought new thoughts into promoting the establishment of sustainable system. The newly founded NDB supplements the current global financial system, as traditional financial system like the World Bank and IMF cannot solve the urgent issues confronting international economy and society. How the NDB will establish and improve its governance and multilateral mechanisms, and propel sustainable development and green investment will render global discussion. Nevertheless, rather than simply copying the financial governance pattern from other MDBs, the NDB should blaze a trail to compensate the flaws of existing financial order, therefore exploring the optimal multilateral financial governance pattern for today and the future.
- New Development Bank Opens Registration for First Annual Meeting on July 20-21
- Opening Ceremony of New Development Bank First Annual Meeting Held, major operational policies and procedures in place
- ‘BRICS Bank' Says to Issue Bonds in Members Local Currencies
- First Set of Loans Approved by the Board of Directors of the New Development Bank
- BRICS Development Bank Plans To Issue Green Bonds Worth Up To $384 Million
- NDB, ADB Sign MOU on Cooperation for Sustainable, Inclusive Growth
Mr. K. V. Kamath, President of NDB BRICS："The MDGs included 8 development goals with 21 measurable targets, which helped focus the world's attention to the most urgent problems. The SDGs – with twice as many goals as MDGs, reflecting a more comprehensive set of aspirations…Therefore it is important that this next chapter of development unleashes economic growth - not just for the few at the top, but inclusive and sustainable growth that lifts the fortunes of many. Our basic premise at the NDB would be to look back at the last 50 years and learn from what has succeeded and what has not, and also understand what has changed in these years. And from these learning’s chart an approach to inclusive development as a way to achieve the SDGS. Clearly we need to emphasize sustainable growth and development which becomes the foundation for the inclusive development agenda."
Caio Borges, attorney with Conectas Direitos Humanos:" Infrastructure projects, even those deemed sustainable, can generate adverse impacts, and thus should be subject to environmental and social assessment prior to their approval, as well as supervision and management throughout implementation. If the NDB wants to develop a new approach to environmental and social impact assessment, it should do so by learning from past experiences of other multilateral development banks and listening to different perspectives, not by undermining social participation in this stage of policy development."
Robert Orr, former U.S. representative on the board of ADB:"The NGO community is trying to figure out its relationship with the new bank. It is located in Beijing, which is not noted for its openness towards NGOs, it has talked about implementing high environmental standards. But the proof is in the pudding."
Ankit Panda, editor of The Diplomat:"As the AIIB matures as an institution and looks to take on more projects, we may see its preferred operating methods change. Joint financing might make sense initially as a way to mitigate risk stemming from improper due diligence and evaluation, helping the well-capitalized bank, with $100 billion in assets, piggyback on existing projects that have been vetted by more experienced players in the international development finance world. China, no doubt, cares deeply about expansive, reliable, and accessible infrastructure across the Asia-Pacific–particularly in the continental heartland to its west, where its One Belt, One Road project’s Silk Road Economic Belt lies. But nothing the AIIB has done so far or is looking to do in the near future suggests that the bank will bend to augment Beijing’s strategic whims at the expense of other states. For the ADB, China, and the recipients of funding under the bank’s first projects, including Pakistan, the AIIB’s proposition is strictly positive sum."
- Letter: Civil society groups express great concern over BRICS Bank --- Call for transparency and robust social and environmental protections -Civil Society
- Working Paper: Bond Prospectus for the First Green Bond Issuance of NDB in 2016(CH)—China Bond
- Analysis: The AIIB and the NDB: The End of Multilateralism or a New Beginning? – The Diplomat
- Report: Financial market regulation for sustainable development in the BRICS countries（CH） - WWF
- Report: China’s Belt and Road Initiative Motives, Scope, and Challenges - Peterson Institute for International Economics
- Report: Environment Safeguards: A Good Practice Sourcebook –the ADB
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