To promote innovation and its adoption of green and technology-enabled infrastructure across AIIB members by providing scarce capital to early-stage companies through small-scale VC funds.
The proposed VC Program contemplates investing in small-scale VC funds to drive and support the development of innovative technologies and new business models that are central and scalable for green and technology-enabled infrastructure across AIIB members. Through the Program, AIIB has the dual role of a facilitator and an influencer in accelerating the adoption of innovations in promoting sustainable infrastructure.
The Program will follow strategy, of investing in small-scale VC funds with reserved funding for follow-on co-investments. The Program will focus on green and infrastructure-related technologies, as well as new business models catalytic to sustainable infrastructure development, contributing to AIIB's mandate of building i4t.
VC investment space is characterized by fast transaction speed, a smaller average ticket size, and a unique risk-return profile. The proposed Program adopts a portfolio-driven approach to mitigate risk through diversification and has established a systematic approach of selectively identifying VC fund managers with rigour as per the pre-defined investment guideline under a proposed streamlined approval process. Implementation Working Group (a coordinated VC dedicated working group)'s live discussion and evaluation process from all relevant departments will be applied, followed by single stage Final IC and President Approval. IWG unanimous no objection is required before proposed VC fund is taken to IC for single review. The program would work to have a diversified portfolio to ensure proper risk allocation across various sectors and geographies.
AIIB's Environmental and Social Policy (ESP), including the Environmental and Social Standard 1 (ESS 1) and Environmental and Social Exclusion List (ESEL) is applicable to this VC Program. The VC Program seeks to invest in smaller size VC funds that provide capital to startups - investee companies in the early stage of the business lifecycle. The Program is placed in Category FI, as the financing structure involves the provision of funds to the VC funds pursuant to which AIIB delegates the decision-making related to the use of the AIIB's funds for investee companies that meet the conditions of the investment guidelines to be agreed with the VC Funds. For each VC fund, the Environmental and Social Management System (ESMS) which details the selection, appraisal, approval, and monitoring of investee companies, will be enhanced to be aligned with AIIB's ESP. An overview of enhanced ESMS for each VC fund will be prepared and disclosed in a timely and appropriate manner.
The Program portfolio will comprise mainly early-stage green and technology-enabled investee companies which may be classified as Category B or C. Each investee company will be screened to identify the risks and following the due diligence, appropriate mitigation measures will be adopted. Activities included in AIIB's ESEL, Category A and any investee companies that may trigger ESS 2 land acquisition and involuntary resettlement and ESS 3 indigenous peoples will not be eligible for financing. Coal mining, coal transportation, and coal-fired power plants, as well as infrastructure services exclusively dedicated to supporting any of these activities, are also excluded.
For all Higher Risk Activities proposed for Bank financing, the Bank requires each VC Fund to furnish its detailed environmental and social due diligence for the Bank's prior review and approval. Regarding renewable investments, the VC Fund will review potential supply chain related labour and working conditions, require appropriate mitigating measures, and seek AIIB's advice if required. As an LP to VC funds, AIIB may exercise excuse rights on any investee company which does not meet our E&S requirements or internal policies.
Each VC Fund will be required to disclose the name, industry, and location of investee companies supported with AIIB's proceeds on its corporate website within twelve months of closing an investment. For all Higher Risk investments, each VC fund will be required to disclose annual E&S documentation during the preceding 12 months, unless such disclosure is subject to the host country's regulatory requirements, market sensitivities or consent of the investee company.
AIIB will conduct post-reviews of the selection and implementation of investments as part of its regular supervision, comprising engagement with the VC Fund, potential site visits once conditions allow and a detailed review of the E&S documentation of selected investments.
Each VC Fund will establish an External Communication Mechanism (ECM) as a project-level grievance redress mechanism (GRM) to address third-party views, inquiries, or concerns regarding their E&S processes and outcomes, as well as E&S impacts and performances of their investee companies. In addition, the Bank will require each VC Fund, for investee companies financed by AIIB proceeds, to disclose at an appropriate time the required ES information at the investee level, as well as investee-level GRM. The GRMs will be accessible, include provisions for anonymity, and hold no risk of retaliation, to receive and facilitate the resolution of the concerns and complaints of people who believe they may be or have been adversely impacted by the Program. Provision will also be made to inform project-affected people and project-contracted workers of their availability, including VC funds' ECMs and AIIB's Project-affected People’s Mechanism (PPM).