The global development challenges of our time are steep and substantial financial support is required to promote sustainable development, especially across the Global South.
Before the COVID-19 pandemic, the financial gap for developing countries to achieve the United Nations' Sustainable Development Goals was already estimated by the Organization for Economic Cooperation and Development and the International Monetary Fund to be in the order of $2.5 trillion per year. Pandemic-related emergency response and recovery spending appear to have further increased this figure by over $1.7 trillion.
The G20 and other stakeholders have called for multilateral development banks, among others, to play a crucial role in bridging the gaps at both the regional and global levels. Among them, the young, yet already 106-member-strong Asian Infrastructure Investment Bank is answering the call, stepping up the pace of its operations while placing sustainability at the very core of its mission.
Headquartered in Beijing, the bank began its activities in 2016, soon after the adoption by the international community of the Paris Agreement and of the UN 2030 Agenda for Sustainable Development (and related SDGs). In a coherent move, the bank has announced that its operations are going to be aligned with the Paris Agreement from July 1, 2023.
The core mission of AIIB is, in fact, to mobilize the capital necessary to build the "infrastructure for tomorrow" (i4t), across Asia and beyond. The concept of "i4t" rests firmly on the pillars of the sustainable development paradigm, such as the promotion of sound economic growth patterns that are also conducive — not antithetic — to social inclusion and the preservation of natural systems. By financing innovation, connectivity and climate action, the bank strives to positively impact people's lives in both the short and the long term.
The AIIB's commitment to sustainability is clearly stated in the organization's basic Articles of Agreement, as well as in its Environmental and Social Framework (ESF).Adopted from the bank's inception in 2016, and further strengthened in 2019, 2021 and 2022, the ESF notably makes mandatory environmental and social requirements applicable to every project, as well as for detailed sets of standards that, depending on the nature of the project, clients themselves should fulfill. These standards are designed to facilitate the assessment and management of risks ranging from "generic" environmental and social ones to those specifically concerning land acquisition and involuntary resettlement and/or other impacts on indigenous people.
The AIIB has approved, to date, 218 projects, and over 50 are currently under evaluation. They target various domains of "infrastructure" — holistically intended both as physical and socioeconomic in nature — such as transportation, energy and water management, but also digitalization, education, healthcare, agricultural development and economic resilience.
Thus far, approved and committed financing account respectively for over $41 billion and $36 billion, while $33 billion has been earmarked as special funding. Financing originates initially from sovereign sources — equity from member countries, who are also shareholders of the bank — and then increasingly from international markets, in the form of debt capital raised, generally, on favorable terms given the bank's sound credit rating, which in turn allows for loans at accessible conditions to members themselves.
All debt issued by the bank — the AIIB's Sustainable Development Bonds — is issued under the Sustainable Development Bond Framework (SDBF), whose core purpose is to aid bond investors' assessment of the AIIB's sustainability pledges and to enhance the transparency and understanding of the impact generated by the AIIB funding. More specifically, the framework regulates the use of proceeds, the process for project evaluation and selection, the management of proceeds and reporting requirements.
In 2021, the AIIB's climate finance amounted to over $2.9 billion. That was 48 percent of total approved financing — close to the target of 50 percent minimum by 2025 the bank committed to in its Corporate Strategy document. The needs of women and girls, and existing gender inequalities are addressed by 55 percent of the bank's projects. Energy sector endeavors such as the direct financing of 4,502 megawatts of renewable energy capacity, as well as efficiency-related interventions approved by 2021 helped save 26,334 gigawatts hour of primary energy and spare 16.3 million tons per year of carbon dioxide equivalent of greenhouse gas emissions. Access to water supply and sanitation, as well as improved irrigation and drainage infrastructure was provided to more than 46 million people. Construction, maintenance or upgrading of 32,494 kilometers of roads, rail or metro tracks were ensured by financing a total of 21 projects, while 10 projects were approved to incorporate digital technologies — including artificial intelligence — into the development of smart transportation, irrigation and energy management systems.
The AIIB's achievements, its overall policy orientation as well as the solid ESG ratings by prominent specialized agencies, confirm the bank's sound commitment to actively supporting the pursuit of sustainable development worldwide.
One of the challenges for the future will be to clearly communicate these achievements to some of the most important audiences of the AIIB: the global investors that support the bank's frequent borrowing in the capital markets. Communicating the results targeted and achieved by AIIB-funded projects in a clear way and supported by reliable data will be key to maintaining their trust in the bank's generated impact. With this in mind, the AIIB started to publish its Sustainable Development Bond Impact Report in 2021, which is a key information tool for the bank's investor community. The third issue will be released shortly.
There's much yet to be accomplished.
Fulfilling the Paris Agreement's 2030 ambitions alone would possibly require $2.3 trillion a year in global renewable energy infrastructure investment, while even more will be needed in order to achieve the "net-zero" targets by 2050.
The lingering effects of the COVID-19 pandemic and increasing geopolitical tensions contribute to a climate of uncertainty that multilateral development banks can contribute to solving with renewed, unwavering institutional support and active private sector involvement. The mission of the AIIB, supported by its broad global membership base, will proceed steadily in that direction.
This article was first published in China Daily on June 27, 2023.