In the wake of the recent Doklam stand-off, India and China relations remain delicate. Engulfed in economic and political turmoil, South Africa and Brazil are likely to play a less active role at the meeting in Xiamen. But if question marks on the future of BRICS are repeatedly raised, the New Development Bank (NDB) is probably the most concrete avenue through which the grouping can deepen co-operation. Last month the NDB Board of Directors approved four projects in China, Russia and India with loans totalling more than $1.4bn.
The second tranche of projects broadens the scope of NDB’s activities from renewable energy to areas ranging from information technology to energy conservation. This includes a $2bn sovereign project finance facility for flood control and water quality extended to Hunan province in China, and a $470m sovereign project loan for developing the rural drinking water supply scheme in the Indian state of Madhya Pradesh. Going forward, another $30bn in loans, including a total of 15 projects by the end of 2017 and up to 50 in 2021, has already been announced.
According to the Bank’s five-year strategy, approximately two-thirds of all projects will be devoted to sustainable infrastructure development. The NDB’s stated commitment to sustainable infrastructure is perhaps its most important differentiating feature, carving out a niche for itself among existing multilateral development banks. In 2015 almost 190 countries, accounting for more than 98 per cent of greenhouse-gas emissions, agreed to a global climate-change strategy. Each country submitted a voluntary plan that set out how it would move its economy on to a lower-carbon growth pathway. With the recent withdrawal of the US from the Paris Agreement, countries such as India and China may well provide a new kind of leadership to climate change efforts.
Attention now shifts towards how to implement and finance sustainable development. While these voluntary plans will take years to play out, one thing likely to happen is to direct investment towards ensuring the sustainability of infrastructure. Given the scale of investment required, creating the right conditions for these investments is essential. From 2015 to 2030, global demand for new infrastructure could amount to more than $90tn from a total estimate of $50tn in 2015. In India alone, this amount could reach $646bn over the next five years. Doing it sustainably will probably increase upfront capital costs by 6 per cent for individual projects.
But apart from stating that sustainable development will be linked to the financing of infrastructure projects, the NDB has been less clear about how it will ensure that these projects will be rooted in sound social and environmental practices. Addressing this question will be critical as the NDB implements its five-year strategy and realises its vision around sustainable development.
An ongoing research study by BRICS scholars at the Center for African, Latin American and Caribbean Studies (CALACS) at O.P. Jindal Global University, India, and Conectas Human Rights, Brazil, in collaboration with the Center for BRICS Studies at Fudan University, China, has found that there is no common definition nor a unified approach to sustainable infrastructure. A working definition of sustainable infrastructure coupled with a framework for assessing the actual sustainability of NDB’s projects would equip the bank with the necessary policy tools to fully articulate its mandate. Some institutions have gone further and developed methodologies for assessing sustainability of infrastructure projects and institutions’ commitments to sustainable development. These experiences point to important lessons for the BRICS to apply within the context of the NDB.
First, the negative spillovers of sustainable infrastructure projects on the environment and local communities are normally corrected via safeguards. But safeguards are limiting in that they do not necessarily unlock the transformational nature of development itself. Sustainable infrastructure projects should not only aim to compensate or mitigate adverse impacts on the environment and vulnerable groups, but go beyond the “do no harm” approach to generate positive impacts in borrowing countries.
Third, the social dimension of sustainability is not exactly framed under a “rights-based approach” to development. Even though requirements on consultation, participation, transparency, accountability and non-discrimination are present in most existing frameworks, people’s rights are not necessarily reflected therein. This is particularly important since infrastructure projects can cause heavy social impacts.
Financial and non-financial incentives, such as long-term repayment terms and lower interest rates, could be further designed to stimulate countries to submit projects that meet these sustainability criteria and to ensure that projects remain as such throughout their entire lifecycle.
Linking sustainability criteria to incentives would encourage countries to think about sustainable practices not as bureaucratic formalities or risks to be avoided, but as actions conducive to better development outcomes. This would represent a major shift in the way environmental and social standards are conceived in the international financial architecture, ultimately moving beyond do no harm’s and bottom lines to unravelling the “new” in the New Development Bank.
Prof Karin Costa Vazquez is Executive Director of the Center for African, Latin American and Caribbean Studies (CALACS) and Assistant Dean for Global Engagement at O.P. Jindal Global University School of International Affairs, India.
Supriya Roychoudhury is a Senior Associate Researcher at the Center for African, Latin American and Caribbean Studies (CALACS) at O.P. Jindal Global University School of International Affairs, India.