We entered 2023 with new hope for a sustainable post-pandemic recovery. But we also braced ourselves for a year of potential political, social and financial uncertainty.
That prudence proved prescient when concurrent crises confronted the global community at the start of the new year. The tragedy in Türkiye and Syria. COVID’s lingering disruption of supply chains. The ongoing conflict between Russia and Ukraine, which analysts predict could continue for months or years more.1 All leading to inflation and the possibility of a recession.2
During such turbulent times, I feel thankful that we at the Asian Infrastructure Investment Bank (AIIB) have been preparing for different scenarios since our inception. This foresight allowed us to distill global perspectives to learn and better serve our 106 Members worldwide, especially during an era of constant crises.
The key to better serving our shareholders lies in our sustainable financing advocacy, bearing in mind that sustainability includes safeguarding our Members’ economic stability. Debt sustainability for clients is of equal weight with our other priorities—that is, being responsible not only from an environmental perspective but also through the lens of economic and financial viability. Yes, the US dollar’s sobriquet is “green” in the financial world, but we believe financing should give equal importance to the “green” of sustainability.
We focus on sustainable finance as part of our mission of “Financing Infrastructure for Tomorrow” or “i4t.” At its core, i4t is about making investment decisions that consider not only financial returns but also environmental, social and governance factors, as embodied in AIIB’s Corporate Strategy.3
On the environment front, we are working with other multilateral development banks (MDBs) to increase our combined climate financing to USD175 billion by 2025. This while simultaneously stemming climate change through AIIB’s own green investments. We announced as early as Oct. 26, 2021 that we would align our operations with the goals of the Paris Agreement by July 1, 2023. We have set an ambitious target of ensuring that 50 percent of our overall approved financing by 2025 would be directed toward green finance. Our current estimate is that our cumulative climate finance approvals could be USD50 billion by 2030.
Since AIIB’s green alignment announcement in 2021, we have been working closely with other MDBs to establish a joint technical framework for assessing alignment of financing activities with the goals of the Paris Agreement. The Paris alignment commitment was a key driver of our Energy Sector Strategy update,4 and its underlying methodologies are embedded in the implementation approach throughout the strategy. This means that AIIB’s effort to address the diverse energy needs of our Members will respect internationally recognized Paris-aligned climate pathways, particularly our Members’ Nationally Determined Contributions and Long-Term Strategies.
Financing the energy transition will require a massive reallocation of capital, and AIIB stands ready to provide financing and advisory support for our Members. In the coming years, we will focus our investments to help Members achieve their low-carbon and net-zero ambitions. By doing so, we hope to accelerate the just transition to affordable and sustainable energy access for all.
In addition, our Sustainable Development Bond Framework5 is the blueprint for our green bond offering. The framework was published in April 2021 to facilitate bond investors’ assessment of AIIB’s commitment to sustainable development. It also increased the transparency of environmental and social impacts generated by AIIB’s financing. The impact of this is made even more pronounced when management consulting firm McKinsey & Company found that sustainable bonds comprise about 11 percent of total bond market volume worldwide, while sustainability-related syndicated loans are about 13 percent of the global syndicated loans market.6
Green bonds address the problem of finance in the rapidly developing renewable energy sector. For AIIB, such bonds represent long-term financial instruments where proceeds are used solely to finance projects that are environmentally friendly. For example, green bond revenues are used to support solar energy, wind energy and clean transport projects.
However, instead of issuing green bonds with earmarked use of proceeds, our Sustainable Development Bond Framework applies to all debt issued by AIIB. This reflects our holistic approach toward promoting sustainable development through sovereign and nonsovereign investment operations.
This is our way of encouraging investors to look at AIIB as a sustainable institution and issuer. We have the same “use of proceeds” language across our issuances in all currencies, markets and under all programs.
We are also committed to reporting the impact we have on society and the planet. Our first AIIB Sustainable Development Bonds Impact Report 2020 was released in October 2020,7 followed by the second edition released in September 2021.8 Our impact reports present data on AIIB’s portfolio volume, alignment with thematic priorities and portfolio performance. Thus, we can see the tangible, real-world impact of our green, sustainable financing. For example, our reports show that in 2021 and after only six years of operations, AIIB has:
● Directly financed 4,502 MW in renewable energy capacity.
● Financed 32,494 kilometers of roads, which include climate resilience measures.
● Helped save 26,334 GWh of primary energy through investments to improve energy efficiency.
Our total investments into the energy sector are expected to avoid 16.3 million tons of carbon dioxide equivalent of GHG emissions per year, thus contributing to the Paris Agreement climate ambitions. AIIB understands that sustainable impact investing is developing rapidly, and we will respond by continuing to enhance our approach to impact reporting.
These are but some of the ways by which AIIB is contributing toward net-zero and the world’s green aspiration. Today in 2023, after COVID and despite the entry of potentially disrupting global factors, we continue to see each year in a positive light—not only in the green financial sense but more importantly, in the green sustainable sense.
Such is the value of learning and collaborating with peer MDBs, our client-members and other partners worldwide. It allows us to prepare for 2023 and beyond. It enables us to continue financing i4t for Asia and beyond.
1. When will the war in Ukraine end? Experts offer their predictions.
https://www.defensenews.com/global/europe/2023/02/13/when-will-the-war-in-ukraine-endexperts-offer-their-predictions/
2. Here's Everything Wall Street Expects in 2023.
https://www.bloomberg.com/graphics/2023-investment-outlooks/#xj4y7vzkg
3. AIIB Corporate Strategy: Financing Infrastructure for Tomorrow.
https://www.aiib.org/en/policies-strategies/strategies/.content/index/_download/AIIB-CorporateStrategy.pdf
4. AIIB Energy Sector Strategy Update
https://www.aiib.org/en/policies-strategies/strategies/sustainable-energyasia/.content/index/_download/AIIB-Energy-Sector-Strategy-Update_Final_Nov-2022.pdf
5. AIIB Sustainable Development Bond Framework.
https://www.aiib.org/en/treasury/_common/_download/AIIB-SUSTAINABLE-DEVELOPMENT-BONDFRAMEWORK.pdf
6. Green Finance Is Key Growth Opportunity for Banks in 2023.
https://thefinancialbrand.com/news/loan-growth/will-green-finance-be-the-next-big-thing-forbanks-and-credit-unions-156286/
7. AIIB Sustainable Development Bonds Impact Report 2020.
https://www.aiib.org/en/news-events/impact-reports/sustainability-bondimpact/2020/index.html
8. AIIB Sustainable Development Bonds Impact Report 2021.
https://www.aiib.org/en/news-events/impact-reports/sustainability-bondimpact/2021/index.html
