A Standard for Financial Institutions on Biodiversity Risks Management recently launched in Kaihua, Zhejiang Province located in China’s Yangtze River Delta.

The Standard provides specifics 1) to screen potential biodiversity risks along the life cycle of any project before a decision on loans or investment, and 2) to measure actions which should be supervised by financial institutions to avoid or mitigate these risks. This marks the first of standards to address biodiversity risks with specific recommendations on operational actions to transfer these risks into opportunities for commercial banks in China.

The Standard was developed by the research team led by Professor Lan Hong of the Renmin University of China, through support and cooperation with the Quzhou Central Sub-Branch of the People's Bank of China, the People's Government of Kaihua County, and the Wildlife Conservation Society (WCS). This work also results from the Science for Nature and People Partnership (SNAPP) BRI BIODIVERSITY TOOLKIT Working Group (link:https://snappartnership.net/teams/bri-biodiversity-toolkit/). SNAPP is a partnership between The Nature Conservancy and the Wildlife Conservation Society. Senior executives of several banks and corporations attended the launch event of the new Standards.

This Standard is significant as it is the first such standard applied in China to domestic development and infrastructure projects financing that addresses risk to biodiversity.  The goal is to capitalize upon this to develop and scale this to all Chinese-financed infrastructure and development projects both domestically in China as well as China’s significant investments overseas.

In recent years, Zhejiang Province of China has been promoting the introduction and implementation of biodiversity protection policies. In May 2020, Zhejiang Province launched the "Implementation Plan for Aquatic Biodiversity Protection in Zhejiang Province" to guide funding to aquatic biodiversity protection and improve the compensation mechanism for the damage and ecological compensation mechanism. In April 2022, Zhejiang also released the Action Plan for Ecological Restoration and Biodiversity Conservation in Quzhou River Basin (2021-2025) to carry out population recovery of rare and endangered species and restoration of indigenous fish resources by stabilizing water ecosystems.

The Standard covers 20 industries whose operations or projects induce potentially high biodiversity impacts, which will have legal and/or other consequences and could cause huge economic loss for financial institutions. For biodiversity impact or risks identified for each industry, the Standard provides a set of management measures or actions that financial institutions need to take to avoid or mitigate these impacts or risks.

Taking forest harvesting as an example, controlling injurious insects is one of the major parts of harvesting management. Applying harmful insecticides beyond reasonable confines will cause damage to the habitats of forests themselves and other living beings depending on forests. Therefore, considering biodiversity protection is important while controlling injurious insects. Some measures should be taken, such as using biological or mechanical means instead of insecticides if possible, leaving buffer areas without using insecticides near rivers or lakes, or avoiding use of insecticides that are banned or classified as danger levels in international conventions etc.

Current conventional Environmental Impact Assessment (EIA) is not enough for financial institutions to manage biodiversity risks and the impact of their investment. The "Green Peafowl Case" in Yunnan, China, is a typical case, in which Beijing Chaoyang District Friends of Nature Environmental Research Institute filed Hydrochina Corporation Xinping Development Co., Ltd., et al. for civil public interest litigation concerning biodiversity impact by a hydropower station project to the Kunming Intermediate People's Court in Yunnan Province, China. The institute alleged that the inundation area of the first-tier hydropower plant on the Jiasha River, the mainstream of the Red River (Yuanjiang), is the habitat of the Green Peafowl (Pavo muticus), an endangered species protected at the national level. The hydropower station, once impounded, would lead to the possibility of extinction of the Green Peafowl in the region. At the same time, the hydropower station supporting the project will destroy the local precious dry hot valley monsoon rain forest ecosystem. The court ruled in favor of both plaintiffs in the first and second trials, and the project was eventually halted. The investment in the project was more than 3 billion yuan, and the halted construction resulted in huge losses to the financial institutions that provided the funds. Had the financial institutions funding the hydropower project taken steps to identify the biodiversity impact in advance the project would not have been carried out, and would therefore prevented this major financial loss. The new Standard will provide more measures to mitigate such biodiversity impacts or risks.

The Standard will be further improved and updated based on field pilots among financial institutions in Kaihua County, and consultation with various industry groups and financial institutions in the country. The goal is to develop and promote it to national-level standards. Furthermore, the SNAPP working group aims to contribute to the Standard to improve China’s overseas investments through south-south cooperation or through the Belt and Road Initiative.