"BRI Notebook: Where is the overseas grievance mechanism for Chinese banks?" 24 May 2023

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 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. [...]

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.