As global heads of state convene in Argentina this month for the much anticipated G20 Summit, G20 leaders should commit to calibrating global development finance towards the Paris Agreement and the Sustainable Development Goals. 

China has emerged as the world’s leader in combating global climate change domestically, but its global development finance overseas is not aligned with such leadership. The United States has abandoned its leadership at home and abroad by withdrawing from the Paris Agreement and eliminating regulations on coal and other climate change commitments. It will thus be up to China and other global actors at the G20 to lead. 

In many ways, China has become a responsible stakeholder when it comes to climate change and global development finance. Not only was China a key participant in the Paris Agreement, it has spurred investment in solar and wind technologies that have led to a global drop in prices and the rapid diffusion of clean energy across the world. China is a leader in global development finance as well. 

According to research at Boston University's Global Development Policy Center, the China Development Bank and the Export-Import Bank of China now provide as much financing to foreign countries as the World Bank does. What is more, as part of China’s ambitious Belt and Road Initiative and beyond, China has created approximately $170 billion in bilateral and regional development funds across the world that recently received a pledge of another $60 billion from China. China also helped create the New Development Bank with Brazil, India, Russia and South Africa, and the Asian Infrastructure Investment Bank with nearly 80 countries in Asia and across the globe. This financing couldn’t come at a better moment.

According to the McKinsey Global Institute and the World Bank, unmet global infrastructure needs until 2030 top more than $3 trillion annually if they are to be conducted in a manner that is low carbon and socially inclusive. Yet, Global Infrastructure Facility, an initiative for public-private partnerships supported by the G20 and the World Bank, has attracted a mere $84 million and committed just $37 million.

To echo the G20 Eminent Persons Group, set up by the G20 to recommend reforms to the global financial system to promote economic stability and growth, new development finance will need “governance structures and internal incentives should be reoriented towards achieving development impact, rather than deployment of their own financing”. 

To be put more bluntly, additional development finance for the same set of development projects will stray us away from our common goals of a lower carbon and more socially inclusive world economy. Indeed, approximately 70 percent of global carbon emissions come from the existing infrastructure footprint of power plants, buildings and transport.

China has made some important steps, but China’s overseas financing is not aligned with its Paris commitments nor the commitments of the host countries where it invests. On the positive side, the China Development Bank has been active in green bond markets, issuing a $500 million bond certified by the Climate Bond Initiative for low carbon wind, transport and water projects in China and Pakistan. Moreover, the China-led Asian Infrastructure Investment Bank and the BRICS-led New Development Bank (where China is a major shareholder) have committed to sustainable energy as a core goal.

These efforts are a step in the right direction for sure but fall short of what is needed. Although China has emerged as the world’s climate leader for its domestic policy, 80 percent of its overseas investments in energy are in fossil fuel extraction and generation -- including billions of dollars in financing for overseas coal plants. 

At the summit in Argentina, G20 leaders should commit to calibrating such finance towards a climate change goals. Some development finance institutions have been moving in this direction. The World Bank and the Asian Infrastructure Investment Bank have strict limits on coal finance, the World Bank also pledged to end financing for oil and gas. The Inter-American development bank will begin screening all projects for climate impacts. 

Despite these steps, US President Donald Trump is under pressure to reverse this pledge, and he has already dismantled many of the regulations on coal and other harmful fossil fuels at home.

China can lead by example by aligning its global development finance institutions such as the China Development Bank and the Export-Import Bank of China with its domestic climate goals and the goals of recipient countries -- by limiting investment in coal, oil, gas and other fossil fuels and focusing on cleaner renewable energies. Such a policy shift would not only make China the true global leader on climate change, it would also mean significant growth for China given that Chinese firms are now world leaders in solar and wind technology.

If China leads, other G20 countries will be less apt to be swayed by the irresponsible efforts by the US government on climate change, and help steer the world economy and the earth’s climate in a better direction.

Kevin P. Gallagher is the director of the Global Development Policy Center at Boston University's Pardee School for Global Studies, and co-chair of T20 Task Force on International Financial Architecture for Stability and Growth. The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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