EU banks finance destructive Chinese dam builder in Congo

A new report has revealed how investment companies and banks from Europe and the United States are financing a Chinese company building a dam that threatens to contain a large swathe of protected forest in the Obemba National Park in the Democratic Republic of the Congo.

London-based human rights organization Global Witness reported on Wednesday (December 8) that France’s Societe Generale and Britain’s Standard Chartered secured €530 million in bonds issued by engineering giant PowerChina – in 2018 and 2019, respectively.

  • Elephant area photo in Upemba National Park, Democratic Republic of the Congo (Photo: H Vanleeuwe)

When investment bankers underwrite the bonds, they take the risk of buying the company’s newly issued bonds and reselling them to pension funds and insurance companies, providing companies like PowerChina with easy access to financing.

However, Standard Chartered’s policies expect hydropower companies to abide by rules set by the International Finance Corporation (IFC), which warns against undertaking projects in protected areas in national parks – such as the Upemba.

Similarly, Société Générale has a policy on hydroelectric dams that states that “the impact of clients’ investments on critical habitats and protected areas must be evaluated.”

Instead, banks often rely on information provided by the companies themselves – in this case, PowerChina, with investment giants BlackRock and Vanguard also holding significant stakes in the company.

According to Global Witness, banks should scrutinize clients’ investment projects themselves to prevent environmental damage, “which should include meeting with local communities and NGOs critical of the project.”

environmental impact

The €442 million Sombwe Dam will provide power to mining companies in the copper-cobalt belt in the Democratic Republic of the Congo and will be built by PowerChina.

PowerChina is a major player in the Belt and Road Initiative, China’s project to create a “21st Century Silk Road” by investing in overseas infrastructure.

If completed, the project would submerge up to 48 square kilometers of dryland forest in a protected valley where the European Union, one of the largest donors in years, describes Upemba as a “biological priority site”.

Hydroelectric dams are widely viewed as a source of renewable energy, which makes them attractive to green investors, who often include pension funds and insurance companies.

But dams are not without risks, and in the case of Somboi Dam, information about the impact on the natural environment and local people is publicly available.

Global Witness cites two technical studies commissioned by the European Union that raise serious concerns about the dam.

By submerging a forest patch, dying trees would release 1.3 million tons of carbon dioxide into the atmosphere — the equivalent of burning three million barrels of oil, according to a calculation by the University of Edinburgh’s School of Earth Sciences.

Another EU study cited by Global Witness indicated eight sites outside the park as most suitable for hydropower projects.

It will produce up to twice the amount of electricity at Sombwe Dam.

The mentioned areas are sparsely populated, mainly because they are already prone to flooding.

The EU ambassador to the Democratic Republic of the Congo, Jean-Marc Schatiener, sent a letter in November 2020 to Kusma Wellungola, head of the country’s conservation body, saying that alternatives were out there.

This, he said, “will allow, on the one hand, to provide energy to the residents of the area, and on the other hand, to avoid construction work within the Upemba-Kundilongo complex itself.”

The Congolese human rights NGO Justicia also warned in September 2021 of the dam, describing it as a “real violation”. [Congolese environmental] Law.”

However, the Congolese parliament opposed the idea of ​​moving the project, saying that “the project will address the energy deficit in Katanga, the headquarters of several mining companies”.

Global Witness also notes how the project was licensed to Kipay, a company owned by a well-connected Congolese businessman named Eric Monga, citing a history of multimillion-dollar transactions in the controversial.

I promise

Hydropower projects such as the Somboy Dam are raising questions about recent EU pledges made at the United Nations Climate Summit in Glasgow (COP26) to halt deforestation and biodiversity loss.

China’s recent announcement that it will no longer fund coal-fired power plants outside China “is increasingly aware of the climate impact of its financing globally,” Global Witness writes.

But to keep promises, financial institutions need to properly verify the effects of their financing scheme, even if those projects are nominally green.

“This case demonstrates … the need for governments to regulate companies and financiers, and oblige them to mitigate the environmental risks of their investments in a more stringent manner,” Global Witness wrote.

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