MANILA – A recent study indicates that approximately 40 percent of the development finance the Philippines receives from China is associated with significant economic, social, and governance (ESG) risks.
According to Philippines News Agency, the research conducted by US-based firm AidData, which assessed China’s economic and diplomatic engagements in the Philippines over the last two decades, was unveiled during a media briefing on Wednesday. “The assessment we found is that 40 percent of the projects that China was bankrolling here in the Philippines had a heightened level of exposure to at least one form of risk – environmental, social or governance,” stated Samantha Custer, AidData’s Director of Policy Analysis.
The study highlighted particular vulnerabilities within the energy sector, which harbors the highest incidence of ESG risks among all Beijing-financed projects in the country. “Although all three types of risk manifest, environmental risks are most frequently associated with these projects,” the report notes. It also identified considerable ESG risks across the agriculture, forestry, and fishing sectors.
Furthermore, the terms of Beijing’s financing are described as “relatively opaque” by the study, raising concerns about fiduciary risks and the potential for corruption. “Because you are talking about large sums of money without a lot of transparency, it creates opportunities for collusion and corruption,” Custer added.
The report disclosed that between 2000 and 2022, China funded 233 projects in the Philippines, valued at USD 9.1 billion, with at least 91 percent categorized as high-interest loans. About 55 percent of these projects involve Chinese firms, often state-owned enterprises, which are linked to elevated ESG risks or are directly or indirectly sanctioned by international bodies like the World Bank or Asian Development Bank.
While discouraging a complete disengagement from China, Custer advised the Philippines to negotiate cautiously with China. “I would say it is not in the Philippines’ interest to entirely decouple dealing from China. I think your negotiation hand is stronger when you can have more people around the table, so you should be working with the US, you should be working with China, you should be working with Australia,” she explained. She emphasized the importance of a balanced approach to international relations, noting that limited options could force the country into less advantageous agreements.