Asian Infrastructure Investment Bank (AIIB) Chief Financial Officer Andrew Cross was invited to the Budapest Eurasia Forum 2023 where he shared AIIB’s experiences and other valuable insights on environmental, social and governance (ESG) investing. Andrew summarizes his thoughts on the event and the topic in this blog.
The margin for error in our climate change targets is narrow. Our climate financing therefore needs to be fine-tuned.
In 2015 almost every country in the world signed the Paris Agreement and amid this backdrop financial organizations and governments were compelled to integrate environmental, social and governance (ESG) investing while the global community continued to grapple with climate change, social inequality and major geopolitical crises.
As part of an expert panel during the Budapest Eurasia Forum 2023 session on multilateral cooperation, I was able to share insights on how AIIB incorporates ESG into its projects.
How AIIB incorporates ESG standards into project investments
AIIB is straightforward when it comes to projects. Simply put, ESG is the “application” of AIIB’s Environmental and Social Framework on every single project that we undertake.
There are two criteria: The project has to be financially sustainable and has to meet the institution’s development goals in terms of its contribution to climate change.
If the project does not align with our environmental and social framework, it does not pass the test and AIIB does not proceed. It is in every project we do, every project we've done and every project we are going to do.
We practice what we preach. AIIB’s ESG strategy is not a token initiative but rather guidelines that help us become good ESG practitioners.
Being part of the Bank’s Investment Committee, which oversees our projects, I would like to believe that I have a unique perspective. The Bank approved 50 projects in 2023, and every year we do more. We've done infrastructure projects since being established in 2016, so I live and breathe the implementation of ESG or corporate social responsibility.
For 2024, AIIB is eyeing to surpass the number of projects approved in 2023, and we are looking at somewhere between 50 and 60.
As of end-2023, AIIB had approved a total of 253 projects, amounting to more than USD50.67 billion in investments.
ESG investing
ESG investing continues to pose formidable challenges. When it comes to sustainable investing, one of the roadblocks that seems to continue to confound stakeholders is the lack of a unified ESG standard. This, in turn, can give rise to certain pressures on financial institutions to ensure that continued development is achieved sustainably.
Despite the many challenges that ESG investing brings to the table, AIIB will continue focusing on more sustainable projects. Out of the USD25.25 billion in total regular AIIB financing since inception, USD11.75 billion was for climate financing.
To address ESG standards, AIIB continues to hold consultations with other parties. For example, the Bank holds dialogues with the UN Principles for Responsible Investment.
AIIB also shares methodologies with other multilateral development banks (MDBs) aligned with the Paris goals, including adaptation and climate-resilient operations, engagement and policy development support, reporting, and alignment of internal activities, among others.
Global collaboration and green bonds
Looking at the theme of the panel and the discussions, we have three Triple-A ratings—S&P, Moody’s and Fitch—and within each of those three AAA ratings there is an ESG component that each of the ratings firms label differently.
AIIB has received three unsolicited ratings from three separate ESG rating agencies. This means we’re in the pack among other MDBs around Environment and Social.
When it comes to cooperation with our peers, AIIB has been collaborating with other MDBs on the climate financing front. Globally, MDB climate financing has already reached a staggering USD100 billion in 2022, a substantial increase from USD82 billion in 2021. We expect this figure to continue to rise.
Green bonds were also discussed during the session.
Green bonds help raise money for renewable energy projects that benefit the environment, like solar, wind, and clean transportation. The Bank uses these long-term investments to support its Members' green projects.
For many years, well before I joined AIIB, the path to green investing was not easy. I did my first green bond along with another team in 2008 (it was literally one of the first) and that was a USD200-million green bond. It was hard work. It was difficult to make a compelling case to corporate social responsibility investors around buying a green bond.
Today, the sustainable finance bond market is over USD700 billion market per annum. AIIB has just very recently issued a USD2-billion sustainable development bond and we received USD4.8 billion in orders. It's now well established. It's a mainstream market. AIIB has taken the steps to be ready, and we’ve unveiled our own blueprint for ESG investing in our Sustainable Development Bond Framework which applies to all the debt we issue.
AIIB’s future actions
The bottom line here is that climate change is a very immediate concern for AIIB. It is an issue we all have to be committed to, but we have to tackle it urgently. That’s why AIIB will stick to its plan and not finance coal-related projects as AIIB President Jin declared in 2020.
That was also the same year that the Bank declared its ambition to make climate finance 50 percent of its total financing approvals by 2025 (climate finance accounted for 41 percent in 2020).
Many will consider AIIB as a relatively young MDB established only in 2016. However, it already has noteworthy achievements. AIIB’s initial target for climate finance was to reach 50 percent of new projects by 2025, but it has already exceeded that objective in 2022 by approving 56 percent in climate finance (including both climate mitigation and adaptation). By 2030, AIIB expects its cumulative climate finance to reach USD50 billion.
I also discussed in a previous blog that AIIB is committed to reporting the impact we have on society and the planet. We published our first AIIB Sustainable Development Bonds Impact Report in October 2020 and have continued to do so annually since then.
In September 2023, the Bank also unveiled its Climate Action Plan (CAP), designed to guide AIIB’s climate ambition from 2024-2030. The plan aims to bring together the principles governing the Bank’s climate financing while identifying crucial action areas that will steer AIIB’s investments in support of its Members.
These are just a few of our initiatives and accomplishments. There are more. Despite the many challenges ESG investing brings to the table, we are ready for 2024.
