The Asian Infrastructure Investment Bank (AIIB) – ostensibly China’s development bank – gathered plenty of criticism when it launched in 2016.
The Obama administration in the US lobbied other countries to steer clear of joining, saying it would compete with the likes of the World Bank, Asian Development Bank (ADB) and other development finance institutions (DFIs), while favouring Chinese companies.
Another argument was that AIIB would fall short of western ESG standards, despite the Chinese ‘soft power’ play. It was fair comment after decades of Chinese hard infra loans to poorer countries, few questions and occasional ‘robust’ diplomacy noises to ensure repayment.
But the AIIB’s mission now appears to be adding to the positive work of IFI’s globally that are committing serious capital to green infrastructure within clear social and governance parameters. And its model can take co-investment with some of the world’s biggest investors – notably sovereign wealth funds – into areas where sustainable project finance is needed.
The long-term hope, of course, is that it is not just a Potemkin village. Rather, that it charts a course of sustainable finance for institutions such as the China Development Bank, which is starting to make some fledgling ESG statements that need more clarification as they finance huge future regional economy-changing plans such as the Belt & Road Initiative.
Speaking at the International Forum for Sovereign Wealth Funds (IFSWF) in Marrakesh last week, AIIB President, Jin Liqun, gave some clearer context to its quirky “lean, clean and green” mission statement. Lean, he said, reflected the organisation’s desire to be relatively small and nimble in terms of personnel and deals, despite the organisation having now grown to 87 approved members worldwide.
“We are looking to partner with private capital.”
Clean, he said, meant that it aims to operate to the highest possible ethical standards, with zero tolerance of corruption. The organisation, he said, has a Chief Ethical Officer that reports directly to the board.
On the Green side, he said investments were being specifically looked at in the context of an investee country’s Nationally Determined Contributions (NDCs) agreed at the Paris COP21 conference and set to be reviewed for five-year progress in 2020. Notably, he said the fund had invested in renewables projects in Egypt as one of its first projects and that its goal is to promote low carbon energy projects and related offshoots.
He said there was no coal-based power in its deal pipeline.
So far, the AIIB has invested in 28 projects for a total of $5.3bn in less than two years.
Jin said: “I believe our investments in green infrastructure will help these countries to reduce their carbon emissions, but we are still a new kid on the block.”
Co-financing is an important part of its operations, with a view to building out capacity: “If we don’t measure up to the standards of the World Bank, ADB, etc., it will not to be possible to partner with DFIs and investors,” he noted. He said AIIB was focusing on deal co-operation with the ADB and also looking at co-operation with the Inter-American Development Bank.
“Asia cannot sustain itself without partnering closely on economic trade relations with other parts of the world.”
He said that thematically the deals it focuses on are in energy, transport, water and sustainable cities. Every project AIIB is involved in, he said, must meet three main criteria: financial sustainability, environmental quality and social acceptability in the project areas.
As he was speaking in Africa, Jin signalled the bank’s plans on the continent: “We think that Africa has a challenge in implementing its development agenda. We believe that infrastructure is important in helping to develop other productive sectors, and our mission its to develop broad-based socio-economic development in this manner, notably in trying to get companies in developing countries to move up the value chain.”
He noted that commodity-producing countries are often at the base of the value chain where the lowest revenue is generated, rather than in production or sales, which is an area where the bank is seeking to provide capital and expertise.
He said the bank is also seeking to future-proof its investments: “We should not be building infra the way it was done 30 years ago: in an era of driverless cars and electric vehicles we need to be thinking about what the future holds and how the infra will adapt to that.”
In turn, he noted that Asia itself needs $1.7 trillion per annum in new infrastructure: “Our challenge is how to tackle that massive infra gap because the success of the region depends on it. We are looking to partner with private capital to achieve this.”
We know that development banks can no longer just rely on government donor funding in these cash-strapped times. Partnership with investors on long-term, low carbon infrastructures both at the project finance, bond re-financing and equity participation stage is vital to ‘shift the trillions’ required to meet the Paris Agreement and stimulate broader green growth across economies. To that extent, the ESG progress of the AIIB to date is welcome news indeed.