‘Greening’ the BRI through Corporate Social Responsibility

Driven by the Going-out strategy and the Belt and Road Initiative (BRI), Chinese companies have taken over the role of funding and constructing hydropower dams overseas. As of 2020, 320 overseas hydropower projects entailing Chinese involvement have either been completed or are underway – constituting 70 percent of the hydropower generation market outside China (National Energy Administration, 2019). While hydropower is viewed positively by the Chinese government as an alternative energy source which can effectively reduce emissions, Chinese companies working in this sector have been criticized for the wider distributional consequences, huge economic costs, and social issues that have accompanied its development. As Chinese companies internationalise, they have been accused of failing to adhere to international sustainability standards, especially in addressing the social and environmental impacts of dams. Allegations of human rights violations including unfair compensation mechanisms and the failure to uphold indigenous people’s right to free, prior, and informed consent (FPIC) have surged (Business & Human Rights Resource Centre, 2021; Grimsditch 2021).

Over the past few years, researchers have analysed the social dimensions of Chinese hydropower projects, including those related to corporate social responsibility (CSR). In the literature, scholars tend to associate Chinese-led projects with an extension of state control, thereby shielding Chinese companies from accountability (Murton et.al 2016; Tan-Mullins et.al, 2017; Urban et.al, 2015). These companies, with connections to local governments, can approach their own CSR programs with flexibility, while local institutions would bear the brunt of addressing the adverse effects of the dam amidst pressure from civil society. Moving beyond treating Chinese companies as ‘passive actors’ in this process, recent literature unpacks such Chinese ‘exceptionalism’ and traces to what extent civil society actors, by way of transnational advocacy networks, have influenced Chinese companies’ policies to comply with global norms and standards (see Chheat, 2021; Yeophantong, 2020). While the literature reveals that civil society groups have played a pivotal role in sensitising Chinese companies to their social and environmental responsibilities, the politics within which CSR programs and related policies are conceived tends to be obscured. Absent from these accounts is, for example, consideration of power relations that reshape the program; why CSR takes the form it does and what its form can tell us about Chinese companies’ strategies of managing dissent.

I argue that Chinese companies should not be treated as mere subjects of sustainability standards, but rather as actors who reshape the standards to suit their interests and agendas (on the point of sustainability regime, see Sinclair 2020). For almost any aspects of the environmental and social dimensions of hydropower, there have been relevant international standards developed to help companies effectively assess and address their social responsibilities. These include International Organisation for Standardisation (ISO) 14001 and ISO 26000; the 2003 International Hydropower Association’s (IHA) Sustainability Standard and Compliance Control; the 2021 Hydropower Sustainability Standard recently launched at the World Hydropower Congress that provide a new certification scheme for hydropower projects and; other standards and guidelines related to financing instruments, such as the World Bank Environmental and Social Standards (ESS). As will be evidenced in the following case study –  Batang Toru hydropower project in South Tapanuli regency, North Sumatra province, Indonesia – these standards are rather a site of compromises and contestation among different socio-political groups. In this setting, Chinese companies have taken heed of their discursive power, extending their influences over and through broader social groups at varying scales. These groups included international organisations, international and national academics, international and regional-based human rights organisations, media, as well as local communities such as ethnic and religious groups who are important enough to be co-opted and then forgo their oppositions.

Batang Toru project and the rise of opposition forces

Batang Toru was built and operated by PT North Sumatera Hydro Energy (PT NSHE). The company originally proposed the 510 megawatts project in 2012 and intended to begin operations by 2022. The composition of NSHE’s shareholders was complex, involving a number of Indonesian powerful political elites, an Indonesian state-owned electric company (Perusahaan Listrik Negara, ‘PLN’), and various Chinese companies. As is widely documented, majority shareholders in NSHE comprise PT Dharma Hydro Nusantara (52.82 %) and Asia Ecoenergy Development A and B (based in Singapore) with 44 % shares (Sumatran Orangutan Society, 2018). The latter are subsidiaries of Zhefu Holding Group, a private company with suspected ties to the provincial government based in Hangzhou, China.  The remaining NSHE shareholder is PT PJB Investasi, owned by PLN while Sinohydro was awarded the contract to build the plant. The project was backed by the China Export & Credit Insurance Corporation (Sinosure) and PLN has also named Bank of China as a loan provider (Apriando, 2019).

Over the past few years, Batang Toru has become the target of both international and national campaigns. Internationally networked alliances – Mighty Earth (US), PanEco (Swiss), and Orangutan Information Centre – together with biologists and environmentalists, brought together a coalition of local environmental and human rights organisations led by the Indonesian Forum for the Environment (Walhi). Discourses on environmental devastation, impacts on the Tapanuli orang utans, and human rights violations stood out in the international campaign against NSHE and Sinohydro. The opposition forces produced reports and web-site information, press-releases, as well as other scientific analysis to support claims that the project would further “imperil the world’s rarest and most endangered great ape species” (Gartland, 2020). These groups put immense pressure on the Indonesian national government to re-evaluate the project, if not annul the project contract. A group of environmental scientists and economists – representing every major region of the world – filed letters to President Joko Widodo to halt Batang Toru project that would threaten the rarest great ape in the world, rendering the project as “the riskiest environmental project in the history” (Jong 2018). They also called for the Bank of China to stop financing the project (Walhi, 2018). The letter was nevertheless dismissed by the president while the Bank of China released a vague statement that it will “take note” of the concerns expressed by environmentalists and NGOs (The Jakarta Post, 2019, March 14). Accordingly, Walhi submitted a lawsuit against the North Sumatra provincial government over alleged irregularities in the project development, especially related to building permits, environmental assessments, and land issues. However, in March 2019, the administrative court rejected Walhi’s lawsuit, ruling that NSHE has met all legal requirements and therefore construction could proceed (Aprindo, 2019).

Although NSHE gained an upper hand in exchange for kickbacks for Indonesian political elites [1], a series of protests following the court verdict has caused reputational damage. The internationally-networked opposition group has continued to sue NSHE to hold it to global standards. These crises of legitimacy kept NSHE from operating relatively free of social commitments or being exempted from managing social and environmental impacts. It is in this context that NSHE began to proactively coordinate its portfolio of CSR activities as well as take part in some environmental initiatives that were rendered as part of its efforts toward sustainability. However, these activities were by no means a mere form of applied business ethics or what scholars called ‘strategic coupling’. The NSHE’s CSR activities and related initiatives are embedded in wider power relations and ideological structures with which NSHE respond to conflicts with local communities.

CSR as a political process

CSR taken by NSHE does not necessarily reflect the company’s simple adaptation to prevailing social demands. The company’s social and environmental responsibility programs are constructed in ways that facilitates a wider national and international legitimacy for the hydropower project and reorganisation of alliances. Firstly, in 2019, NSHE appointed Emmy Hafild as one of company’s advisors. Hafild is in fact the former head of Walhi, long regarded as a tenacious environmentalist [2]. As a strong proponent of the project, Hafild has been proactively interacting with media and defending the Batang Toru project as a flagship ‘green’ project in Indonesia. Discourses on environmental degradation and loss of orangutans’ habitats were discursively reframed in a way that justified the project, claiming: “Orangutan, (and) hydro power plant can coexist” (cited from Hakim, 2020). Likewise, NSHE introduced a zero-accident policy ensuring that the project construction will not have adverse effects on wildlife, including orangutans. In the media, Hafild, acting in her capacity as a NSHE representative, rejected commonly held assumptions that the Batang Toru hydropower project will damage the Batang Toru ecosystem and threaten the livelihoods of local communities. Instead, Hafild emphasized the argument that the hydropower project will contribute to orangutan conservation efforts, pointing out that orangutans have long been the most high-profile victim of climate change in Indonesia, particularly due to changing temperatures and rainfall patterns. As such, rather than an emerging threat to the orangutan, the dam infrastructure project is one of the most promising ways to mitigate climate change by reducing Indonesia’s carbon emissions by four percent, thereby saving the orangutan and generating jobs for surrounding communities (South China Morning Post, 2019, April 24). Further, the company continued to re-localize conflicts by framing its social responsibility program as a solution to the most urgent environmental problem. In one instance, NSHE indicated that its environmental protection efforts will not only provide the best way to protect orangutan habitats, but also compensate for the adverse impacts caused by the Martabe gold mine – owned by a subsidiary of UK company Jardine Matheson – which has been in operation since 2018 (Jong, 2020).

Another aspect of CSR politics is the way that NSHE relocated sites of conflict from global to local scales through social programs based around ethnic identity. For example, the company participation among the local majority Batak ethnic group through a ‘local wisdom’ program (on the point of participation, see Rodan 2018). In this program, community leaders and local experts played roles as volunteers who apply their customary wisdom to protect the Tapanuli orang utan and improve their livelihoods. Some local-wisdom based programs have come in the form of local businesses that were backed by NSHE, for example the production of coffee and ratan, kolang-kaling (palm fruit), and palm sugar (Filemon 2019). These programs were rendered not only as effective ways not only to improve local residents’ livelihood but also to conserve forests, and thus the habitats of orangutans. As a result, this program tacitly separated communities from their potential allies, namely the internationally-networked NGOs and academics. More crucially, the CSR program and the localisation of issues invoked Bataknese entitlement where NSHE articulated a narrative that equated the Batang Toru project with Batak people connected to the project. In this sense, the project is rendered as a tool for communities to claim their rights over forest land and resources, allowing them to secure benefits from participation in the program (see Perez-Solero, 2020). This process parallels what critical development scholars refer to as the practice of “territorialised ethnic identities” (see Mähler, 2014; McCarthy 2007), where access to productive resources is linked to concepts of identity within a local space. Indeed, the ideological nature of CSR takes form in the context of this territorialised ethnic identity.

Finally, the harmonisation of principles has been central to the politics of CSR where NSHE borrowed legitimacy both from the United Nations (UN) and key civil society groups and linked them together as stakeholders of corporate social and environmental programs. NSHE has become a main sponsor for Indonesian’s pavilion at both the 2018 and 2019 COP climate summit. To burnish its image, NSHE representatives promoted the international standard it used – Environmental, Social, and Health Impact Assessment (ESHIA) – in line with commitments set in the Paris Agreement (South China Morning Post, 2019, April 24). One, however, should not equate this with greenwashing practices. What has been evolving in this context is that NSHE managed conflicts that accompanied process of Batang Toru development through harmonisation of principles. Following the COP summit, NSHE forged a partnership with PanEco in August 2019, which was previously one of its staunch opponents (see Mighty Earth, 2019). For years, the organisation has been at the forefront in criticising the dam, claiming that it poses threat to Indonesia’s national sovereignty and challenges the country’s commitment to reduce emissions. Ultimately, PanEco decided to team up with NSHE to develop CSR and other environmental programs – otherwise the Indonesian government  would not allow it to operate. As such, CSR supplemented existing state-sponsored mechanisms of political co-option, which means that PanEco’s participation in the country would be fully restricted to the implementation of CSR programs. In turn, whatever CSR program is designed and executed by NSHR gives the appearance that the program has been based upon an inclusive and multi-stakeholder approach.

To sum up, what gives this case its twist is that Chinese companies and domestic allies have increasingly wielded discursive power to shape the sustainability regime. Chinese companies’ commitment to social and environmental responsibility has been weak and vague. Sinohydro, the main contractor of Batang Toru, claims on its official website that it has obtained the ISO14001, an international standard for operations and environmental protection. But while most CSR activities are restricted to the provision of development goods such as building schools or donating rice, there are no concrete environmental and social policies in place. Nevertheless, as vague as these CSR policies may be, they illustrate how vagueness of policy is entangled with power asymmetries between companies, local governments, NGOs, and affected communities.

To date, construction on the project remains halted. This delay is not merely because the Bank of China officially suspended financing to the project.  The novel coronavirus and suspended economic activities during the pandemic have proved to be a setback, while the emerging opposition – the International Union for Conservation of Nature (IUCN) – took the opportunity to call on the Indonesian government to halt the project and conduct an independent and objective assessment (see Meijaard & Wich, 2020). Regardless of the ultimate decision, one important lesson this case tells us about Chinese-sponsored green investment is that while green infrastructure has increasingly become a new domain for geoeconomics competition, the infrastructure itself should not be readily seen as a means of influence and power. Rather, it is a struggle over sustainability standards and ideas as well as over how social, economic, and political power is organised across varying scales.

[1] Personal interviews conducted both online and offline with civil society actors and officials.

[2] Hafild has now become a politician and a member of the National Democratic political party, part of the President’s ruling coalition.

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