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15th May 2022

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Chinese banks accused of funding deforestation around the world

Chinese banks are the second largest financers of commodities implicated in tropical rainforest deforestation, according to research that casts doubt on Beijing’s ambitions to be a global leader in the fight against climate change.

Data analysed by Forests & Finance, a global coalition of non-governmental organisations, showed that from January 2016-April 2020, Chinese institutions provided $15bn in loans and underwriting services to companies that traded in commodities linked to deforestation in south-east Asia, Brazil and Africa.

Chinese companies involved in trading pulp and paper, palm oil, soy, rubber and timber largely operate overseas and are often funded by Chinese banks, highlighting the international footprint of the country’s financial sector. Brazil accounted for the largest amount of funding linked to deforestation, but most of the loans were made within the country.

The findings, which estimated how much of a company’s borrowings went towards activities that put forests at risk, has coincided with an increased focus in Beijing on limiting greenhouse gas emissions. President Xi Jinping pledged last year that China would reach “carbon neutrality” by 2060. 

Climate advocates have pointed out, however, that China’s overseas investments and lending for environmentally risky infrastructure and trade run counter to Xi’s bold target. 

The state-owned Industrial and Commercial Bank of China was the largest provider of loans and underwriting services in the database, at a total value of $2.2bn. Sinochem, a Chinese state-owned chemicals group, was the largest recipient, collecting $4.6bn, most of it for its rubber business.

The trade of commodities included in Forests & Finance’s database accounted for about two-fifths of deforestation globally. Research suggested that it contributed about 5 per cent of annual greenhouse gas emissions through its effect on deforestation alone.

“The world’s big economies talk big on climate action yet continue to turn a blind eye to their own banks funding tropical deforestation,” said Tom Picken, head of the Forests & Finance campaign.

Picken explained that the aim of the database was to demonstrate the huge flow of financing from Chinese banks that fell below the standards of “green financing” and to press Chinese banks to adopt stricter safeguards to avoid funding deforestation. 

“There are currently few implications for banks found to be even knowingly funding illegal deforestation overseas,” he said.

In 2017, the Chinese banking system overtook the eurozone to become the world’s largest by assets. There are also signs of its growing influence in other developing economies.

A research paper from the Bank for International Settlements last year found that Chinese banks have become the biggest cross-border creditors for about half of emerging and developing economies globally. The paper added that their lending activity “strongly correlates with trade”.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here 

2021-05-04 05:33:49

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By admin