Focus on Arts and Ecology

As coastal guardians scramble to save these valuable ecosystems, the emergence of parametric insurance products is releasing the necessary funds. 

By Emma Bryce, September 27, 2023

On 7 October 2020, Mélina Soto hunkered down in the Mexican port town of Puerto Morelos as Hurricane Delta struck the coast she calls home at 110 miles per hour. “The sound of the wind is like a screaming, up high in the sky,” she says. “You hope for the best, but you prepare for the worst.”

Soto is the Mexico national coordinator for conservation initiative Healthy Reefs, so her mind was primarily on Puerto Morelos’ coral reef. Rich with towering elkhorn and violet fan corals, turtles and rays, this ecosystem is part of the Mesoamerican Barrier Reef: 1,000km of coral that curls along the coasts of Mexico, Belize, Guatemala, and Honduras. “Puerto Morelos is a small town. But we all depend on the reef” says Soto. Many residents are fishers, employed in marine tourism, or academics at the town’s coral research campus.

Once the storm had passed and work begun to patch up Puerto Morelos, Soto led a brigade of volunteer divers that took these efforts out to the corals, too. Bit by bit, they pieced together the storm-shattered reef. “It was like a triage” says Soto. Divers set about fixing 1,200 chunks of broken coral onto the reef with cement and ferried another 9,000 pieces to shore to be regrown in nurseries.

What made this possible was a flash of financial innovation. In 2019, Puerto Morelos’s home state of Quintana Roo purchased insurance to cover the reef, triggering emergency funding to repair it after a storm. It was a world-first. Now, similar insurance schemes are spreading to the Pacific, the Caribbean and the United States.

Increasingly, insurance is being considered a tool for securing natural capital against climate change. But as a wave of bleaching in 2023 affects global reefs, can this novel approach really protect corals against ever-warming seas?

Insurance products for a changing world

Worldwide, coral reefs provide ecosystem services to the value of $2.7 trillion annually. This includes livelihoods and food for one billion people, and flood defences valued at $1.8 billion, because reefs are natural breakwaters that can absorb 97% of wave energy before it hits the shore. Hurricanes threaten this role because they break reefs apart, coat them in sand and debris, and turn the water into a cloudy soup. These conditions block the sunlight that corals’ symbiotic algae need to photosynthesise and supply them with food.

Reefs have evolved to cope with hurricanes, but frequent battering gives corals less time to recover. “With climate change, there are more hurricanes, [they’re] more continuous and stronger,” says Maria del Carmen García-Rivas, director of the Puerto Morelos Reef National Park, a marine protected area that encompasses the reef. Pollution and warming seas heap further pressure on these embattled ecosystems.

The idea that insurance could alleviate this strain first took hold in Quintana Roo in 2015, says Mike Beck. Back then, he helped pioneer this idea as the lead marine scientist for The Nature Conservancy (TNC). “All of it was completely novel” says Beck, who is now director of the Center on Coastal Climate Resilience at the University of California Santa Cruz. “On the conservation side, it was [a case of] look, at this point, we need any kind of help we can get with reefs.”

Beck and his TNC colleague Fernando Secaira began exploring parametric insurance: unlike traditional indemnity insurance, which necessitate loss assessments that delay claims, parametric insurance provides pre-agreed payouts that are immediately triggered by an agreed parameter, such as a specific wind speed. This rapid payment is a boon for hurricane-damaged reefs that can only survive a few days without help.

In 2016, TNC began work to determine what damage to expect from different wind speeds, which helped them estimate the associated restoration costs. But they also needed the capacity to patch up the reefs: “Like with medical insurance, you need the hospital and the ambulance in order for it to work,” explains Secaira, who leads TNC’s climate risk and resilience efforts in Mexico. So, working with Mexico’s national park service and local researchers, TNC launched restoration training for volunteer divers in Quintana Roo. By 2018, this emergency ‘Guardians of the Reef’ brigade was ready to dive to the corals’ rescue.

Meanwhile, the cash for the insurance premium was raised by government and private-sector funding. The latter was collected via a tax on the beachside hotels that depend on the tourism that the reef underpins. In 2019, the state purchased a policy from insurance company Seguros Banorte and reinsurer Swiss Re. The policy covers 400km of coral, triggered by winds of 96 knots within 60km of the reef. In 2020, the first payout for almost $800,000 was made.

Beyond Quintana Roo

Increasingly frequent hurricanes make these costs unsustainable for states to pay. Transferring this risk to insurance companies is therefore an attractive option, while insurers benefit from the relatively high premiums.

However, these premiums can be reduced, explains Simon Young, the Climate and Resilience Hub’s senior director at insurance broker Willis Towers Watson (WTW). “If you’re looking at the probability of a certain wind speed, then the error bar on that is more limited,” he explains. “So, you can hold [insurers] much more to a price that reflects the risk than you can with more uncertainty.” The positive publicity linked to ecosystem insurance also gives insurance brokers leverage to negotiate favourable premiums, he adds.

Building on this success, a regional conservation funding institution called the MAR Fund purchased parametric insurance from AXA Climate in 2021, covering four Mesoamerican Reef locations in Mexico and Belize. Developed at the same time as the Quintana Roo scheme, the policy relies on a precise metric that categorises wind speed and reef proximity into distinct bands, each corresponding to a percentage of the payout. The insurance aggregates several reef sites under one policy, which has also helped secure favourable premiums, according to Claudia Ruiz, MAR Fund’s reef rescue initiative coordinator.

In 2022, the fund received its first payout of $175,000 to repair hurricane damage to Belizean reefs, following Hurricane Lisa. This year, the policy was renewed for the third time and expanded to cover 11 locations, now incorporating Guatemala and Honduras. “This is a very innovative programme,” Ruiz says. “It is working.”

A parametric insurance project for Hawaii was developed in 2022, while similar initiatives are being considered for the Pacific Islands and Indonesia.

These tools are also evolving to serve other ecosystems, like hurricane-hit mangroves in Mexico. WTW is currently exploring how tailored insurance products could “help support the mangroves themselves, but also the blue carbon that they are sequestering,” says Sarah Conway, director and head of WTW’s Ecosystem Resilience Practice.

Growing complexities

The nascent field has had some teething pains. For example, the 2020 payout to the state of Quintana Roo was held in a government gridlock for months before being released; TNC and others supplied interim cash to allow the time-sensitive restoration work to go ahead.

Meanwhile, the MAR Fund is trying to secure more sustainable funding streams for premiums: so far it has relied on grants from the UN Development Programme and others. “This programme cannot rely only on international cooperation funding” says Ruiz. Chip Cunliffe, the programme and risk director for the multi-sector finance initiative Ocean Risk and Resilience Action Alliance (ORRAA), is familiar with this problem: “Who is going to pay the premium? I think that’s always one of the big questions.”

However, these challenges are eclipsed by something much larger. This year, warming oceans have brought widespread reef bleaching, when heat-stressed corals eject their vibrantly hued, symbiotic algae. Caribbean reefs haven’t been spared. Speaking at the end of a day diving on the Puerto Morelos reef, García-Rivas, director of the marine protected area, described an ecosystem sapped of colour: “The bleaching is terrible, there are a lot of dead corals. This is critical – I think it’s an emergency.”

Can coral insurance evolve to respond to bleaching? It’s a complicated picture. Compared to the clearer cause-and-effect of hurricanes, where damage can be predicted by wind speed and proximity to the reef, Soto says the parameters of a bleaching event and ocean acidification are more difficult to define. They vary widely in scale and impacts even across individual reefs, depending on species composition and general health. Warming may also bring added threats like acidification and disease. These factors increase the risk for insurance companies, which would likely be reflected in higher premiums.

The uncertainty of ocean heatwaves and bleaching also creates a conundrum for potential policyholders: what to spend the payout money on? Reefs smashed by waves can be pieced together and regrown. But bleached corals, while not necessarily dead yet, have lost a critical life partner in the algae, which may or may not return. Restoring this delicate relationship requires a set of complicated and ultimately uncontrollable conditions in the wild.

Incentives for risk reduction

There are some voices in the nascent parametric insurance field who think instruments could in fact be designed to help bleaching reefs – under specific circumstances. In 2022, AXA Climate developed a bleaching insurance product for a hotel in the Maldives that is propagating sapling corals offshore. AXA Climate’s nature initiatives lead, Ariane Kaploun, elaborates: “Here, what was interesting is that the insurable value was the money that they had engaged to plant these new baby corals into the nurseries.” The clearly defined nature of this coral project made it possible to cost the damage of potential bleaching, and with funding, fix it directly.

Ultimately, the hotel chose not to buy AXA’s policy, but Kaploun thinks it could become a blueprint for designing future insurance products. Furthermore, García-Rivas says insurance payouts could help fund research to identify the resilient corals that remain after a bleaching event and propagate those to genetically buffer reefs against climate change.

“We are still in the early days of understanding how all the pieces fit together, such that we could construct a product that there is an actual buyer of,” says WTW’s Conway. “But it’s an exciting area where there is, we think, a role for parametric insurance to play.”

The ultimate defence against acidifying oceans and bleaching reefs is to reduce global carbon emissions. In the meantime, at the ORRAA, Cunliffe believes parametric insurance is growing: “We’re now working with probably over 60 projects, and the majority of them have a finance or insurance link to them.”

Beck is hopeful that investments in reef conservation will be increasingly guided by estimates that reflect the full value that coastal ecosystems provide for fisheries and tourism, and as sea and climate defences. This could help build the case for protecting and restoring reefs preemptively before disasters hit. Beck suggests that insurance products could even be designed to offer premiums to policyholders who take this proactive approach: “When this really takes hold is when we’re offering different kinds of insurance-related incentives for the risk-reduction value of these [ecosystems].”

Back in Quintana Roo, it’s hurricane season. The dual threat of extreme weather and marine heatwaves has left reef rescuers like Mélina Soto desperate for solutions. “The bleaching is so intense that we will need more action,” she says. “We know that some of the corals that have been restored are bleached right now. That doesn’t mean they are dead: that’s why we are hoping for the best, that they might survive.”

Climate experts offer their views on Rishi Sunak’s weakening of net zero policies. 

By Aron White, September 26, 2023

On 20 September 2023, British prime minister Rishi Sunak, standing behind a lectern adorned with the slogan “long-term decisions for a brighter future”, announced a series of changes to cancel, delay or water down the UK’s climate policies.

While still claiming to be committed to the country’s legally binding target to reach net zero emissions by 2050, Sunak announced that a ban on new petrol cars will be pushed back from 2030 to 2035; that plans to end installation of new gas boilers and off-grid oil boilers would be reduced to an 80% phase out; and that landlords would no longer be required to meet energy efficiency targets in their properties.

The prime minister also announced that the government was “stopping” a series of measures, including taxes on meat and flying, compulsory car sharing and “sorting your rubbish into seven different bins” which had in fact never existed.

Despite receiving praise from some quarters of Sunak’s Conservative party and right-wing newspapers, the announcements were met with consternation from many parts of British society. Former environment minister and Conservative MP Zac Goldsmith called the move “a moment of shame”. Shadow climate and net zero secretary Ed Miliband said the moves would increase costs for motorists; leave the country more reliant on imported gas; and ensure the UK’s climate targets are missed. The UK’s own Climate Change Committee, which advises the government on climate issues, stated the announcements were “likely to take the UK further away from being able to meet its legal commitments.”

Nor were announcements well received by industry. Lisa Brankin, the chair of car manufacturer Ford UK said in a statement: “Our business needs three things from the UK government: ambition, commitment and consistency. A relaxation of 2030 would undermine all three.”

We asked climate experts from around the world to share their thoughts on what Sunak’s announcements mean for the UK and the global climate movement.

Yao Zhe, Beijing, China

Strategic communications director at the Beijing-based Institute for Global Decarbonization Progress (iGDP)

The UN’s Global Stocktake is effectively a to-do list for the climate. Countries know where they need to be, but will they get there? 

By Catherine Early, September 26, 2023

The climate movement is gearing up to the next round of international negotiations, at COP28 in November and December. Several significant events took place this month, including the publication of the first UN Global Stocktake report, and the UN Climate Ambition Summit, held in New York.

What did the stocktake find?

The global stocktake is held every five years to assess progress on dealing with climate change, and inform the next round of national climate plans, which governments will have to submit in 2025.

A key element of the 2015 Paris Agreement, the stocktake does not assess progress in individual countries, but rather the aggregate effect of action so far. It covers climate change mitigation, adaptation and finance.

The two-year stocktake process began at COP26 in 2021. The first phase gathered information from scientists and technocrats but also businesspeople, Indigenous leaders, farmers, youth and civil society. This was followed by several rounds of discussion on the technical details.

A report bringing together the findings was published on 8 September, just ahead of the G20 meeting in India. It highlights progress made since Paris, with global temperatures now expected to rise by 2.4-2.6C by the end of the century, compared to projections in 2010 of a 3.7-4.8C rise. However, it also makes clear that greater ambition and urgency are needed on all fronts to combat the climate crisis.

The window for reaching the internationally agreed goal to try and limit temperature rise to 1.5C is “rapidly narrowing”, the report warned. Greenhouse gas emissions, which are still rising, need to be slashed by 43% by 2030, and 60% by 2035, compared with 2019 levels.

The report stresses that systems transformation is needed across all sectors to achieve emissions reductions, including scaling up renewable energy and phasing out all fossil fuel projects that fail to abate their emissions. On adaptation, it notes increasing ambition in plans and support, but that most efforts are “fragmented, incremental, sector-specific and unequally distributed across regions”. Lastly, the report urges more financial support for developing countries for both mitigation and adaptation.

Though its findings are not new, the publication is intended to galvanise governments to agree a global response at COP28. In Dubai, delegates will produce a summary of key political messages which will guide the next round of national climate plans (also known as nationally determined contributions, or NDCs).

Some governments have already signalled that the final agreement at COP28 should include measures to accelerate the phase-out of fossil fuels. The Nairobi Declaration adopted at the Africa Climate Summit in early September called for a universal tax on trade in fossil fuels.

COP28 host the United Arab Emirates has supported calls for an agreement to triple renewable energy global capacity to 11,000 gigawatts by 2030, which G20 governments also signed up to at their meeting in India in early September.

Speaking at the official launch of the Global Stocktake (GST) report, UNFCCC executive secretary, Simon Stiell, said it confirmed what the world already knows, that progress was “far off track” what had been agreed in Paris.

“The challenge is how we use the GST as a global reset and tool to course correct, while at the same time not forgetting where we’ve come from,” he said.

The final agreement coming out of the stocktake at COP28 should both speak to the need for a “comprehensive and honest backwards look” at successes and barriers in order to reestablish trust among governments, but also have a strong forward focus towards more ambitious action, he said.

Not all parties were happy with the level of detail on certain topics in the stocktake. A representative of the Alliance of Small Island States (AOSIS) told the launch meeting that the report had understated the issue of loss and damage, meaning the impacts of climate change that cannot be adapted to, such as rising sea levels.

“We think loss and damage is very under-done in this report and that this is out of sync with the ongoing global discussion, and the current state of the climate,” he said.

A speaker from the African Group said: “Key fundamental issues raised by the African Group have not been adequately reflected, or not done in a manner that underscores their importance. For instance, the right to sustainable development and just transitions, important principles and considerations that unlock needed ambition in developing countries.”

The EU’s representative broadly welcomed the report’s findings, but noted: “There are few concrete numbers or targets. For the GST decision to be useful and really actionable, more concrete conclusions will need to be identified, pre and post 2030, and through to 2050.”

Climate Ambition Summit no-platforms countries without robust goals

The other major event on the climate calendar in September was the UN’s Climate Ambition Summit, held during the UN General Assembly in New York. The summit was convened by UN secretary-general, Antonio Guterres, who said in his opening speech that “humanity has opened the gates of hell”, and that if the course was not changed, temperature rises of 2.8C would lead to a “dangerous and unstable” world.

Organisers of the summit put a heavy emphasis on policy credibility, and weeded out speakers who did not have robust net zero goals. Out of more than 100 governments who asked to speak, only 34 were approved, with the leaders of Brazil, Canada, France, Germany and South Africa the only G20 nations who made the cut.

Key developments at the summit included the unveiling of institutional reform of the UN’s Green Climate Fund by its new executive director, Mafalda Duarte. The fund has been criticised by poorer countries and development experts for being bureaucratic, slow and hard to access. Duarte, a Portuguese banker, acknowledged that the fund’s design was no longer fit for purpose.

“It’s a single blueprint that has been enhanced over time, but instead of simplifying access, has made it more complex with high transaction costs,” she said.

Her aim was for the fund to have a capitalisation of $50 billion by 2030, up from $17 billion today, she said. This so-called “50 by 30” vision, would include overhauling the accreditation process to significantly speed up project approval, and focus on country- and sector-wide programmes to maximise private-sector investment, she said.

Incoming COP28 president, Sultan Al Jaber, emphasised his aspiration for the COP to deliver progress on phasing down fossil fuels while phasing up zero-carbon alternatives; tripling renewable energy by 2030; and supporting the energy transition by minimising permission timelines for green projects and “supercharging” investments in battery storage and energy efficiency.

Guterres ended the summit more positively, noting that there were regions, cities, companies and financial institutions that were already aligning their policies, strategies and investments with the 1.5C limit. “If these first-doers and first-movers can do it, everybody can do it,” he said.

Tom Evans, policy advisor in E3G’s climate diplomacy and geopolitics team, comments that the Global Stocktake had set out a clear task, but that there was a long process ahead. “There’s a big gap between expectations set out by the report in order to close the gaps to meet the Paris Agreement and where we are politically.

“Climate action is struggling to move quick enough in a context of geopolitical fragmentation, and insufficient action, especially on financing for low-income countries.”

The summit had been unusual for a UN event in that it left some countries out of the room, he says. “When we have everyone around the table, there is just too much opportunity for warm words but not actual delivery. The secretary-general was very clear he wants to have that space for leadership, and I think that’s been successful.”

“It’s trying to take inspiration and use this vanguard of countries to be able to bring everyone else up – but let’s see whether that works.”

Renewable energy projects have yet to appear in droves, but new coal power projects have largely been halted. 

By You Xiaoying, September 19, 2023

Developing countries have “huge interest” in Chinese companies and institutions helping with their green energy development, experts have told China Dialogue. But there has yet to be a surge of renewable energy projects finalised under the Belt and Road Initiative (BRI), China’s global infrastructure programme, they said.

Experts spoke to China Dialogue two years after President Xi Jinping promised a shift towards greener overseas energy investments, and ahead of the BRI’s 10th anniversary this autumn.

The slow progress for renewable projects could be down to a range of factors, they explained, such as the long time it takes for deals to be negotiated, expectations realigned and strategies updated, within both China and BRI member countries.

Nevertheless, a few high-profile clean energy projects have been announced this year. They include a 123-megawatt (MW) solar farm in South Africa, to be constructed by Power China; a 50 MW wind farm in Namibia, that has received investment from a consortium led by Energy China; and a 600 MW solar farm in Saudi Arabia, being built by Energy China.

New coal-fired power projects have largely been halted, but a few projects slipped through the net because of “loopholes”, the experts added.

Ditching coal (almost)

At a UN meeting in September 2021, Xi announced that “China will step up support for other developing countries in developing green and low-carbon energy, and will not build new coal-fired power plants abroad”.

Since then, no new investments in coal power plants have been recorded under the BRI, according to the China Overseas Finance Inventory, which tracks Chinese equity and debt investments in the power-generation sector. The database is a collaborative effort between five US universities and institutes, and contains transaction details of 652 investments in 569 power plants across 87 BRI countries.

“There is huge interest in having Chinese manufacturers, developers and state-owned enterprises going out and supporting the green energy transition. This is a change,” Christoph Nedopil, an expert in green finance and the BRI, told China Dialogue.

The interest mostly comes from host countries, and partly from Chinese companies wanting to be closer to their customers and avoid potential trade restrictions, among other reasons, Nedopil said. 

“Most Chinese state-owned companies and banks I know are not interested in coal projects anymore,” he added. “This was not true in 2020, where there was still a lot of talk about the need for coal.”

The shift in mindset can also be found in a lot of host countries, he noted. “The understanding is that coal is less relevant.”

Nedopil is director of the Griffith Asia Institute in Australia. When China Dialogue spoke with him, he was director of the Green Finance and Development Centre (GDFC) at Fanhai International School of Finance, part of Fudan University, in Shanghai. At the GFDC he published a series of reports analysing BRI investments. 

The GFDC’s latest assessment found that China’s energy-related “engagement” – meaning construction and investment – under the BRI in the first half of 2023 was “the greenest” for any six-month period since the initiative’s launch in 2013.

The report looked at the share of renewable projects in all-energy engagement, which includes power generation and exploration of resources related to energy. It found that nearly 56% of the US$12.3 billion that China spent on energy projects during the period went into renewable sources, with 41% going into solar and wind, and 14% into hydropower.

However, some experts emphasised that not all new coal power projects have been scrapped. While Xi’s announcement was “certainly a step in the right direction”, a few projects are still moving ahead, such as a 300 MW coal power plant in Pakistan and a 1.5-gigawatt (GW) plant in Indonesia, Blake Berger, associate director at the Asia Society Policy Institute in New York, told China Dialogue.

“This is where the loopholes begin to come into play,” Berger noted. The plant on Obi, an island in eastern Indonesia, dodged the axe because it was designed as an internal facility of an industrial park, instead of a standalone coal power project. On the other hand, the project in Gwadar, in south-western Pakistan, is not considered “new” by Chinese and Pakistani officials as it was first proposed in 2016 but repeatedly delayed. China Dialogue has previously reported on both developments.

Long renegotiation processes

Although many coal power projects have been called off, there has not been a wave of renewable projects coming in to fill the space, some experts noted.

“There have been no major changes,” said Wang Xiaojun, founder of People of Asia for Climate Solutions, a Manila-based non-profit organisation. This was the case “no matter [whether] we count the number of renewable energy projects that has been signed, or China’s total overseas investments on renewable energy projects – or even the types of new renewable energy projects that were built by host countries,” Xiaojun added.

“Although many thermal power projects have been halted, they have not been transformed into renewable energy projects,” he said. “At the same time, no trend indicates that new renewable energy projects will appear in bulk.”

One possible cause for the “vacuum” – as Xiaojun put it – is the fact that Xi’s one-line pledge did not specify how coal power projects in the pipeline should be dealt with.

The issue, which remains to be explained clearly, has likely caused the Chinese government and host countries to spend a long time renegotiating those projects, Wang said. “Many previously committed coal projects might be under renegotiation to be converted into renewable energy projects,” he explained.

Other experts stated that it takes time for a government mandate to show impact on the ground. Oyintarelado Moses, data analyst for the Global China Initiative at the Boston University Global Development Policy (GDP) Center, cited the BRI itself as an example. After the initiative was introduced in 2013, it took about three years for large volumes of financing to arrive, she told China Dialogue.

The GDP Center runs a database that mostly follows the financing from China’s development finance institutions, such as the Export-Import Bank of China and the China Development Bank. The database did not record any energy projects finalised after Xi’s announcement in September 2021.

“I think we are still in that initial time lag period of [Xi’s] announcement. I do expect there to be more low-carbon and renewable energy projects from 2023,” she added.

Host countries also need time to realign their national energy strategies and make decisions on old and new projects, according to Shen Wei, director of the Green BRI Centre of the International Institute of Green Finance at the Central University of Finance and Economics in Beijing.

“A country’s energy strategy is often the result of long-[term] research and preparation by relevant government departments,” Shen told China Dialogue.

“Even though a country’s government halts its plan for an old coal power plant, researching and formulating a new plan is a very complex process and involves a lot of practical questions.” Should the project be in renewable energy, questions might include the type, location, and capacity, Shen said.

Other challenges include the lack of “supportive infrastructure” in some countries, particularly reliable power grids that can take in renewable power – which can be unpredictable and unstable – while still running safely, according to Shen.

The push for ‘small but beautiful’ projects

Renewable energy projects are often much smaller in scale than coal power plants. This means that Chinese energy investors, banks and developers need to apply new business logic and approaches to them.

Chinese state-owned banks are “having to learn how to structure new deals that are focused on renewable energy projects”, said Moses.

China has prompted state-owned enterprises, particularly those directly run by the central government, to adjust their strategies. In February, Zhao Shitang, deputy director of the State-owned Assets Supervision and Administration Commission of the State Council, instructed central-level state-owned enterprises to “incubate a batch of ‘small but beautiful’ projects with good economic and social benefits” under the BRI, with a focus on areas such as green, health and digital. 

That was the first time the phrase “small but beautiful” had appeared in the narrative of the BRI, according to Xiaojun, who described the instruction as “a very good change”.

“‘Small but beautiful’ renewable energy projects, such as distributed, flexible and off-grid projects, can meet the energy demands of host countries and provide a huge stage for Chinese private companies,” Xiaojun commented. “This should be the future direction of energy investments for China under the BRI.”

He called for more government backing for Chinese private companies to help them “play to their full strength … Whether it is policy or financial support, I hope the government can enable private companies to invest in energy projects faster and more flexibly overseas.”

Turning to renewable projects also brings the Chinese into a more competitive investment space, said Nedopil. Previously, China, Japan and Korea were more or less the only providers of technology and public financing for overseas coal power plants.

“If you work on renewable energy, there are a lot more potential investors and technology providers, not only from China, but other countries as well,” he said.

‘Traffic light system’

Several Chinese and international organisations have published useful tools for evaluating the environmental impacts of BRI projects and guiding Chinese companies to invest in more sustainable ways.

One of them is the Green Development Guidance for BRI projects, a collaborative research effort launched in 2019, two years before Xi’s announcement on ending support for new coal overseas.

The series of studies is being led by the Belt and Road Initiative International Green Development Coalition, which was initiated by the Ministry of Ecology and Environment and comprises more than 40 companies, associations, thinktanks and non-governmental organisations from China and around the world.

The guidance is also known as the “traffic light system” because it assesses BRI projects using colour-coded labels, based on their impacts on climate, ecology and the environment. Green stands for projects that should be encouraged, yellow indicates neutral ones, and red those that require stricter supervision and regulation.

The first phase of this effort, which was published in December 2020, red-flagged coal-fired power projects, explained Wang Ye, an associate of the Finance Center and China Sustainable Investment Program at the World Resources Institute (WRI) China, which co-leads the project. This red flagging supported policy guidance “towards transformative development in China’s overseas energy investments on stopping building [of] new coal power plants overseas,” said Ye.

In the third report of the project, published in May, researchers analysed the role of foreign investment cooperation funds in greening the BRI. These are official funds established by China to meet the financing needs for sustainable development in developing countries. Examples include the China-ASEAN Investment Cooperation Fund, China-Africa Development Fund, and China-Latin America and the Caribbean Cooperation Fund.

“All three funds primarily invest in energy, infrastructure construction and manufacturing capacity, sectors [that are] key to the green transition,” noted Ye.

She underscored the importance of such funds: “How they evaluate projects and manage clients are crucial for aligning investment decisions with local needs, concretising their commitment to sustainability, and shifting financing to green projects.”

Asia Society, a non-profit organisation with offices in the US, Asia, Oceania and Europe, has developed a digital “toolkit” to help local communities and companies involved in the BRI ensure that their projects are “mutually beneficial, equitable, inclusive, and environmentally and socially sustainable”.

Available in five languages – English, Mandarin, Khmer, Lao and Bahasa Indonesia – the toolkit focuses on two “critical aspects”: how to undertake environmental and social impact assessments, and how to ensure engagement from stakeholders throughout the project.

“We designed the toolkit to empower local communities with information to better safeguard and defend their own interest, and to help companies involved in these projects undertake these critical aspects of due diligence in a more systematic way,” Berger, of Asia Society, said.

“We found that even minor adjustments in how projects are undertaken can have a sizeable impact on long-term sustainability of the project and receptiveness of the local population,” he added.

How to go further

Looking into the near future, experts listed several types of renewable projects they wanted to see more of under the BRI.

“One is the local manufacturing of goods related to energy transition,” said Nedopil. His report found that there were not many engagements in the manufacturing of equipment needed for green energy transition under the BRI. “I do hope to see more of these engagements – for example, the manufacturing of solar panels.”

Nedopil also hoped to see China step up its support for BRI countries by improving their power grids and helping their existing coal plants retire early.

Xiaojun underlined the importance of a growth in “capacity building” in BRI countries by Chinese companies, such as facilitating technological transfer and relocating some of their renewable supply chains there.

In his view, these moves “can help Chinese companies mitigate some potential supply chain risks, as well as nurture the host countries’ labour market and create electricity demand”.

Training local talent is even more important, he pointed out. 

“For the construction of BRI power projects, Chinese companies usually bring their own workers, including technicians, from home.” But moving forward, Chinese companies can train workforces locally, while Chinese universities can also offer electricity and renewable courses for young people from BRI countries, Xiaojun said.  

“These practices can truly transform a country: to stop it being a climate victim and help it become a climate victor,” he concluded.