Governance fears played down on China overseas investments

New global players learning the benefits of safeguards

  • By Philip Alexander
  • 20 Oct 2007
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The tide of development and infrastructure lending from emerging markets, principally China, does not threaten environmental and social safeguards, a senior IFC official has told Emerging Markets. Rachel Kyte, the IFC’s director of environment and social development, acknowledged that “there will always be a source of finance without standards”.

But she emphasized that wider adherence to the Equator Principles on environmental and human rights safeguards will restrict less disciplined borrowers to short-term and more expensive funding. There are 54 signatories to the Principles already, and Kyte said that her department had been “inundated” with requests from private sector banks for help to establish sustainability benchmarks.

She added that state-owned institutions were also paying attention. Kyte pointed to the memorandum of understanding signed between the IFC and China Exim bank in June 2007 to support environmentally and socially sustainable investment. This should allay fears among Western investors that they risk unfair competition from emerging market companies if they apply high governance standards, she argued.

“Not one country has said that it will supply financing without standards. We are not in a race to the bottom,” she said emphatically. Chinese banks are also recognizing that there are sound commercial incentives for efficient environmental risk management, Kyte said, as they could otherwise be left with bad loans in their portfolio due to litigation against polluters.

But Western companies are still concerned about being undercut by the perceived lower standards required in other countries, said Daniel Litvin, director of consultancy Critical Resource and a former advisor to mining firm Rio Tinto. He cited the example of Sudan, where Chinese resources companies moved in to replace Western rivals that had withdrawn due to the reputational risks from human rights abuses in the country.

Still, Litvin agreed with Kyte that, “if leveraged in the right way,” compliance with high standards of governance could bring commercial benefits, such as better access to new markets and a more stable policy environment after entry.

“It helps companies to show that they are not just looking for the quickest bang for their buck, but rather that they are focused on long-term development, including safety and community development,” he said.

He added that the new global players rising in emerging markets might have much to learn from the torrid experiences of Western international resources companies over the last few decades. “If you are investing in a long-term asset such as a mine, the best way to preserve it is not to become too cozy with one particular regime, or complicit in environmental damage and human rights abuses,” said Litvin.

  • By Philip Alexander
  • 20 Oct 2007

All International Bonds

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2 JPMorgan 230,914.50 1036 8.11%
3 Bank of America Merrill Lynch 221,389.46 762 7.78%
4 Goldman Sachs 171,499.26 554 6.03%
5 Barclays 169,046.60 646 5.94%

Bookrunners of All Syndicated Loans EMEA

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4 BNP Paribas 19,315.94 110 5.26%
5 Credit Agricole CIB 18,706.93 106 5.09%

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