The vast infrastructure financing needs far exceed the fiscal capacity of governments and balance sheets of multilateral development banks. Notwithstanding the extensive private financing that can potentially be attracted, current participation of private capital in Asian infrastructure is quite low. Private financing is still predominantly provided by the banking sectors with the large Asian institutional investor pool untapped.
There is a significant need for AIIB to play a catalytic role to increase private and other investors’ appetite for investing in emerging market infrastructure as well as other productive sectors that are associated with and complementary to core infrastructure. This becomes even more important at times of increased financial distress and economic downturns when private capital withdraws from developing countries. AIIB's financing can be direct or indirect, with flexibility in how financings are structured. Investment may take a variety of forms, including loans, guarantees, or equity investments.
AIIB aims to develop the climate bond markets through the establishment of a managed fixed income portfolio. The Asia Climate Bond Portfolio Project seeks outperformance by identifying, analyzing and selecting climate champions—issuers who are well placed to thrive in the coming climate change environment.
While ESG investing is a well-established practice in Europe and North America, such investment strategies are lacking in Asia. Most investors reported that the biggest hurdle for ESG investment is the lack of data, consistent standards and ESG expertise. This gives AIIB a window of opportunity to act as a facilitator and improve the situation.
The Bank’s long-term aim is to position itself as a “go-to” institution for providing infrastructure financing solutions in and to client countries.
Infrastructure for Tomorrow sets a clear mission for AIIB by requiring that all investments across infrastructure and other productive sectors should align and add value through one or more of the following four thematic priorities.