China’s overseas investment impact and the rise of ESG practices

China is attempting to take measures to manage the environmental risks of its overseas investments; the China Green Finance Committee and the Foreign Cooperation Center of the Ministry of Ecology and Environment jointly released the “Chinese Initiative on Environmental Risk Management for Outbound Investment” in 2017. The initiative aims to encourage and guide Chinese financial institutions and companies to avoid environmental disputes during their overseas investments. It can be said that this initiative, consisting of only twelve points, accurately addresses the weaknesses that are most likely to be criticized in China’s overseas investments. Among them, the second point calls on investors to fully understand China, the host country, and internationally accepted environmental standards, and to adopt the highest standards possible, conducting in-depth environmental due diligence for projects. In addition, the initiative encourages investors to consider environmental, social, and governance (ESG) factors in investment decision-making and project implementation. Not only should ESG information be actively disclosed, but proactive cooperation with environmental organizations should also be sought, using information disclosure to drive improvements in project management. The lack of understanding of local laws and society is related to social and environmental conflicts and even project failures that have occurred in China’s overseas investment projects since the early 2010s. The lack of communication with local environmental organizations has also exacerbated some of the environmental disputes experienced by projects. By thoroughly understanding and adopting internationally accepted environmental standards, Chinese investors can enhance the sustainability of investment projects and avoid environmental disputes.