Our investment decisions are based on a strategic programming guide. We review proposals from clients, then projects that meet the preliminary screening criteria are included in our rolling investment program. We then calibrate until our strategic programming matches clients’ needs with our thematic priorities. These three priorities form the foundation on which we create our sector strategies.

In 2019, we drafted two new strategies that would further guide our investment decisions.

The 28 projects we approved in 2019 continued to show strong alignment with four infrastructure-related Sustainable Development Goals (SDGs). These are SDG 6 (Water and Sanitation) with three projects, SDG 7 (Energy) with 10 projects, SDG 9 (Industry, Innovation and Infrastructure) with four projects and SDG 11 (Sustainable Cities and Communities) with six projects. The remaining five projects out of the 28 contribute to all SDGs 6, 7, 9 and 11 by virtue of raising private capital for these infrastructure sectors.

Our climate finance amounted to USD1.7 billion or 39 percent of total financing approved in 2019—an increase from USD2.5 billion or 35 percent of total financing approved over the previous three years combined (2016-2018). These projects can be mapped against SDG 13 (Climate Action). Of the 28 projects approved in 2019, 16 were categorized as having mitigation finance and/or adaptation finance components. Climate finance projects were categorized across various sectors: energy (5), financial institutions (4), transport (3), water (1), rural infrastructure (1), multisector (1) and other infrastructure (1). Climate finance was tracked using the Common Principles for Climate Change Mitigation Finance Tracking and the Common Principles for Climate Change Adaptation Finance Tracking, both of which are methodologies jointly adopted by multilateral development banks (MDBs) and the International Development Finance Club.

SDG alignment is achieved not only through investment flows, but also through our environmental and social standards and direct and indirect benefits emerging from our investments, partnerships and other operational activities. Morever, it is important to note that SDGs are inherently interlinked and these interrelations are critical to achieving development benefits.

We cannot ignore or separate the environment from our operational policies. “Green” is one of our three core values. Sustainable Infrastructure is one of our three thematic priorities. More importantly, we’re committed to help our members achieve their Nationally Determined Contributions under the Paris Agreement. Aside from working with other MDBs to increase our combined climate financing to USD175 billion by 2025, we’re making our own efforts to combat climate change through our investments.

One example is our Asia Climate Bond Portfolio approved in August 2019. We partnered with Amundi, Europe’s largest asset manager, to accelerate climate action in our members and address the underdevelopment of the climate bond market. With AIIB and Amundi’s partnership, this project shows how an international financial institution such as AIIB can cooperate with a private entity to help address climate change by modifying the way we invest in projects and rethinking the principles behind why we invest in the first place. The Asia Climate Bond Portfolio will invest in labeled green bonds and unlabeled climate bonds then engage with issuing companies to help them transition their business models to increase climate resilience and green leadership. We developed a first-of-its-kind Climate Change Investment framework which considers three variables: the share of green business activities, climate change mitigation and resilience to climate change. These variables are used to analyze issuers’ ability to cope with climate change. Watch the video to know more about the project.

For projects that involve bond portfolios, it makes sense for us to partner with external asset managers that have comprehensive experience and capabilities in researching, screening and assessing such bonds. Similar to the Asia Climate Bond Portfolio where we partnered with an established and capable expert, with the AIIB Asia ESG Enhanced Credit Managed Portfolio we partnered with Aberdeen Standard Investments. This portfolio will comprise primarily Asian infrastructure-related bonds—including both green and unlabeled issuances—with environmental, social and governance (ESG) factors fully integrated in the investment process and portfolio management. The objective is to develop sustainable debt capital markets for infrastructure and build an effective ESG ecosystem in emerging markets in Asia.

Still in partnership with Aberdeen, in 2019 we announced the start of the Sustainable Capital Markets Initiative. We intend to engage with market participants such as corporates, investors and rating agencies to develop a sustainable debt capital market.

In November 2019, we approved a project to establish a private equity fund that allows institutional investors to take advantage of the energy transition trend in developing Asia and invest in renewable energy, energy efficiency, energy storage and microgrid projects in the region, particularly Southeast Asia. This is one of the ways by which we’re mobilizing private capital for energy transition in selected AIIB members within developing Asia.

In July 2019, we approved a project to create a facility that would be used by L&T Infrastructure Finance Limited to fund mid- and large-scale solar and wind power projects in India to increase the country’s renewable energy supply through private capital mobilization.

In November 2019, we approved a project that would support sustainable infrastructure development in Türkiye by providing a long-term source of financing. The plan is to provide subloans through TKYB to privately owned companies in Türkiye then invest in subprojects in the renewable energy and energy efficiency sectors. These include subprojects in the wind, solar, geothermal and biomass industries. In effect, Türkiye’s renewable energy and energy efficiency infrastructure would improve by channeling private funds to sustainable infrastructure.

Similar to our project strategy in Türkiye, this facility will be used to finance renewable energy, power transmission and distribution and water infrastructure construction projects in India. The project is aligned with the Government of India’s plans to reduce the country’s carbon intensity by 30-35 percent of 2005 levels under the Paris Agreement.

Sustainable development goes beyond pooling funds to address environmental and economic concerns. We also need to address the social dimensions of sustainable development. In 2019, we approved projects that seek to address these various dimensions of sustainability.

We approved a USD100-million loan to accelerate Bangladesh’s efforts to deliver improved water supply and sanitation services to underserved communities. Once completed, about 600,000 people are expected to be connected to new piped water supply systems and benefit from improved sanitation services. In particular, women and girls, often responsible for water collection, are expected to directly benefit from the project.

We approved a USD300-million loan to help improve Istanbul’s disaster resilience against earthquakes and enhance the city’s emergency preparedness. The project is aligned with the aspirations of AIIB’s Sustainable Cities Strategy by making Istanbul’s critical public buildings greener and more resilient to seismic shocks.

We approved a USD144.7-mliion project to help improve water allocation, increase storage potential and strengthen institutions in India that are responsible for irrigation management. About 40 percent of West Bengal is flood-prone, and agriculture accounts for about 20 percent of the economy. We’re helping India reduce flooding and optimize the use of water for agriculture.

Connectivity is of critical importance for strengthening regional cooperation and promoting economic growth in Asia. However, it is one of the most underserved areas in Asia as evidenced by large connectivity gaps between neighboring and other Asian economies. In line with our core mandate, we will prioritize projects that connect vital infrastructure and economies that are currently not linked within borders, across Asia and between Asia and the global economy.

Infrastructures that connect borders are not limited to roads and other physical structures in which we invest. Infrastructure could connect information and data digitally. It could connect energy. It could connect finance and economies. Infrastructure has the power to connect people, services and markets.

When we helped develop a project to improve the highway from Sylhet to Tamabil, our aim was not only to ease the flow of traffic. We wanted to ease the flow of people, goods and services between Bangladesh and India.

When we helped connect Georgia, Azerbaijan and Türkiye via the East-West Highway, we helped our members integrate within regional and international transport systems and link their ports and airports to neighboring countries and beyond. Such investment assistance boosts regional trade and connectivity between Western Asia, Central Asia and Europe.

When we invested in the Trans Anatolian Natural Gas Pipeline Project, we did not intend for the project to merely lay down and connect pipes for a gas pipeline. We knew that energy from gas fields in Azerbaijan can be transmitted through Georgia, Türkiye, Greece and Albania to Italy, thus connecting not just energy but commerce as well by integrating Azerbaijan with new markets in Southern Europe.

We’re focused on increasing our financing support for cross-border infrastructure. Given our mandate to promote regional cooperation and partnerships, we prioritize projects that connect vital infrastructure and economies that are currently not linked within borders, across Asia and between Asia and the global economy. Working with other MDBs through existing platforms, AIIB can continue to invest in a pipeline of connectivity projects in alignment with our mandate.

Private capital mobilization is essential to address the huge infrastructure financing needs that far exceed the fiscal capacity of governments and balance sheets of MDBs. Notwithstanding the extensive private financing that can potentially be attracted, current private investment in Asian infrastructure is quite low. There is a huge need for AIIB to play a catalytic role to increase private and other investors’ appetite in emerging market infrastructure and other productive sectors, particularly those associated with and complementary to infrastructure investments. AIIB’s own financing can play a critical role.

To complement its own financing, AIIB will expand its financing instruments to mobilize private capital. Mobilization can involve financing projects that leverage our own finance with additional private capital for investments supporting the development of capital markets and/or promoting infrastructure as an asset class. It also includes projects that mobilize private investments in infrastructure—including social infrastructure and other productive sectors—particularly those associated with and complementary to infrastructure investments.

In 2019 we invested in the CITIC Capital Pan Eurasia Fund, a private equity fund to mobilize private capital investments for resource efficiency, renewables and emerging technologies. We’re aware that institutional investors stand to gain from trade flows across Eurasia, and so this closed-end private equity fund was established to allow institutional investors to take advantage of rapidly growing economies and opportunities in Eurasian countries.

In the same year, we invested in the Infrastructure Private Capital Mobilization Platform. It will purchase infrastructure loans from financial institutions and distribute them to institutional investors, in effect supporting private capital mobilization and building infrastructure as an asset class. The platform mobilizes a new pool of institutional capital for Asian infrastructure since institutional investors have significant assets under management that could match the long-term nature of infrastructure assets. The ability to address existing market frictions associated with investing in infrastructure debt would help crowd-in this alternative source of capital.

As envisioned under our Strategy on Mobilizing Private Capital for Infrastructure, AIIB will focus on opening new markets and creating deal flows. This will require a range of financial products and services that will make projects bankable. Broadening our local currency financing will open avenues for AIIB to invest in infrastructure sectors that primarily have a local currency revenue stream and can have the added impact of stimulating investments by local private investors.

In 2019, we mobilized USD1,178.4 million in private capital through our approved projects—the most since we began operations in 2016. This included USD578.6 million in direct mobilization and USD599.8 million in indirect mobilization. AIIB’s own commitment in these transactions was USD1,048.6 million.

We will deepen our partnerships with MDBs, governments, institutional investors, commercial banks, reputable project sponsors and clients to identify and structure bankable investments and devise solutions that can pool private capital.