
Editor’s Note: The BRI Notebook section is created to offer more timely content on developments that may be of interest to our readers. In this issue of the BRI Notebook, we look at the progress of grievance mechanisms at Chinese institutions for which stakeholders have been advocating to increase the accountability of Chinese actors operating overseas.
A new “consultation mechanism” for the mining sector created by the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters (CCCMC) launched on May 15 caught the attention of Belt and Road watchers recently. While the CCCMC’s will be the first mechanism established by a Chinese industry association to allow communities to raise concerns about the social and environmental impacts of an overseas mining project (see analysis by IDI experts of the instrument), it is not the first such proposal among the spectrum of corporate and financial players who take part in the BRI. As early as 2017, China’s banking regulators indicated interest in setting up a grievance mechanism for banks financing overseas projects. But since a series of dialogues and training, there have been few updates on the banks’ grievance mechanism.
The initial suggestions to establish a grievance mechanism for local communities affected by lending and investment decisions of Chinese banks to seek redress was in no small part thanks to strong campaigning by host country civil society groups (such as in the Batang Toru hydropower project in Indonesia involving Bank of China and the Lamu coal power plant involving ICBC). Nudging by Chinese advocates of more responsible overseas practices particularly along the Belt and Road also played a role. In September 2017, seven Chinese institutions, including the Investment Association of China (IAC) and China Banking Association (CBA) issued a public statement calling on Chinese financial institutions to improve their environmental risk management in overseas investment. In the statement, Chinese financial institutions were “encouraged to adopt multiple means of conflict management, including mediation, for settling environment-related disputes.”
Following the statement, China’s banking regulator, the CBIRC, greenlighted a training seminar for Chinese bank executives on the international experience with grievance mechanisms at financial institutions. Representatives from the Exim Bank of China, China Development Bank, Band of China, and ICBC joined top accountability officials from international financial institutions, including World Bank’s inspection panel chairman Gonzalo Casro de la Mata and Tang Dingding, then Chair of Compliance Review Panel at Asia Development Bank, to learn about how to set up and run independent compliance and grievance mechanisms. At the seminar, ADB’s Tang offered Chinese bank executives the opportunity to send staff members to ADB for six months of on-site learning, with one-on-one coaching from the Compliance Review Panel.
Since this ice-breaking event, research and exchanges on the topic accelerated with stronger buy-in from CBIRC on the value of such mechanisms for Chinese banks. The primary interest from Chinese regulators was in non-litigation dispute resolution and compliance review for Chinese banks.
In order to move the initiative forward in China’s banking sector, CBIRC delegated the China Banking Association (CBA) to look into the matter. But the process has stalled at the CBA due to the cautiousness of responsible staff, according to people familiar with the matter. The initial idea was for the CBA to host the mechanism and serve as the “call-in center” offering a one-stop place for affected communities to file their complaints, rather than going to individual banks. While the idea certainly makes administrative sense, it would require the CBA to shoulder certain liabilities attached to running a grievance mechanism. Foot dragging has slowed the process ever since. With the recent detainment of a deputy secretary general for corruption allegations and the ensuing turmoil at the CBA, the initiative will probably not see the light of day any time soon.
Meanwhile, the Asia Development Bank also offered a small technical assistance (TA) project to the Foreign Economic Cooperation Office (FECO) of the Ministry of Ecology and Environment (MEE) to study and build a model overseas grievance mechanism for Chinese banks. In mid-2019, the project team came up with a draft framework for an “environmental and social compliance review and grievance mechanism” that was socialized through conferences in Beijing. However, the project team encountered the same foot-dragging as they tried to sell it to Chinese banks. So far the framework remains at draft stage.
In June 2022, the new Green Finance Guideline for Chinese financial institutions issued by CBIRC, which is primarily focused on domestic activities, contained language calling on banks to set up grievance mechanisms for “lending and investment with major environmental, social and governance impacts” (Article 28). The clause essentially kicks the ball back to individual banks. But as with any such non-binding guidelines, it would take ownership and commitment (and probably some hand holding) from CBIRC to re-inject momentum to the initiative currently stuck in a limbo.
What could a grievance mechanism look like at a Chinese bank?
Advocates in China have not given up on nudging the CBA forward. In December 2021, a comprehensive guidance for Chinese financial institutions to set up environmental and social accountability mechanisms was submitted to the CBA by Greenovation Hub, a Chinese environmental think tank, with inputs from experts on the matter. The guidance contains a generic structure of an independent redress mechanism (IRM) that Chinese banks may adopt and adapt. The IRM contains three functions: dispute resolution, compliance review, and advisory for the board and senior management. Detailed descriptions of each function, including process flow charts, sample job descriptions for complaint handling staff members and sample complaint forms, are offered in the guidance for Chinese banks to consider.
China is reluctant to make demands on host nations, lest it be accused of interfering in their domestic matters.
In my experience, most local grievances stem from local authorities’ failures to implement the social and environmental projects they had promised to undertake.