Bangladesh: Infrastructure Development Financing Facility

OBJECTIVE

To promote sustainable infrastructure projects in Bangladesh by providing mid to long-term financing to the private sector, thereby fostering sustainable economic growth.

DESCRIPTION

The proposed project is a non-sovereign-backed on-lending facility of up to USD50 million to Eastern Bank PLC (EBL) to finance multi-sector infrastructure and energy-efficient sub-projects in Bangladesh. EBL will use the loan proceeds from AIIB to extend financing to sub-borrowers involved in infrastructure development and energy-efficient activities across the country.

EBL will be responsible for the origination, underwriting, and appraisal of the sub-borrowers, as well as monitoring of the sub-loans, and will assume the associated sub-borrower’s credit risk.

ENVIRONMENTAL AND SOCIAL INFORMATION

Applicable Policy and Categorization. AIIB’s Environmental and Social Policy (ESP) including the Environmental and Social Exclusion List (ESEL) and relevant Environmental and Social Standards (ESSs) apply to this FI Project. With the arrangement involving the provision of funds through an FI, the Project has been placed in Category FI, whereby AIIB delegates to EBL the decision-making on the use of AIIB's funds in so far as the infrastructure sub-projects meet the conditions to be agreed upon with EBL. This includes the selection, appraisal, approval, and monitoring of sub-projects and oversight of the sub-borrowers and sub-projects in line with AIIB's ESP requirements. Coal mining, coal transportation, coal-fired power plants, and infrastructure services that inclusively support these activities and gas-related sub-projects or investments will be excluded.

Environmental and Social Instruments. EBL has existing Environmental and Social Management System (ESMS), namely, the Environmental and Social Risk Management (ESRM) Procedure for their commercial bank operations and trade finance as part of their Credit Instruction Manual. For the AIIB financing facility (the Project), EBL has agreed to prepare an addendum or a standalone ESMS (enhanced ESMS) to define the process for screening, categorization, appraisal, contracting and monitoring sub-loans supported by AIIB loan proceeds according to the ESP, and specifically the applicability of AIIB ESF for higher activities. EBL’s commitment to enhancing its ESMS has been incorporated into an Environmental and Social Action Plan (ESAP) agreed by EBL which will be part of the loan agreement. The enhanced ESMS for the Project will be submitted to AIIB for review and approval prior to the utilization of the AIIB’s proceeds and the overview of the enhanced ESMS will be disclosed. In addition, a technical assistance grant from the Multilateral Cooperation Center for Development Finance (MCDF) has been approved to support EBL in enhancing its ESMS. This grant will bolster EBL's capacity for infrastructure on-lending by aligning its ESMS with AIIB's ESP.

Environmental and Social Aspects. The AIIB facility is expected to support sub-projects in multiple infrastructure sub-sectors, including energy, water, and digital infrastructure. The sub-projects' potential E&S risks and impacts will be mostly from the civil works/construction activities such as impact to sensitive environmental and social area, biodiversity, physical and economic displacement due to permanent or temporary land and/or right-of-way acquisition, health and safety, impacts from associated facilities and impacts on indigenous communities, among others. Prior review and consent of AIIB will be required for the first three sub-projects and all Category A sub-projects or other sub-projects that involve Higher Risk Activities before funds are allocated to these sub-projects. The categorization of the sub-projects will follow the principles set out in the enhanced ESMS for AIIB loan proceeds. The review and clearance process by EBL and AIIB and follow-up action needed will be a condition precedent to the use of AIIB’s proceeds.

Gender Aspect. EBL's ESMS acknowledges broader and gender-related issues in the country and introduces effective mechanisms to screen, assess and mitigate any gender-related issues in sub-project due diligence and appraisal, including gender-based violence (GBV) during construction and operation of sub-projects. EBL's ESMS explicitly stipulates equal, inclusive and gender-supportive policies, with zero tolerance for any forms of gender, race, social, or other forms of discrimination. Gender-specific opportunities will also be identified during the construction and operation of sub-projects that contribute to the overall socioeconomic development. Moreover, screening, assessing, and mitigating gender-related risks and impacts at the sub-project level will be further mainstreamed in the enhanced EBL’s ESMS.

Occupational Health and Safety (OHS), Labor and Employment Conditions. The sub-projects will conform with the OHS and labor laws and standards of Bangladesh and the enhanced and ESP-aligned ESMS. As agreed in the ESAP, for all solar power sub-projects, EBL will review the sub-borrowers' supply chain information and screen for any potential adverse labor and working conditions involving their suppliers. AIIB’s E&S team will closely monitor EBL's documentation of its due diligence for solar power sub-projects following the ESAP and the Project’s legal agreement terms.

Stakeholder Engagement, Consultation, and Information Disclosure. Stakeholder engagement in the Project will be guided by the stakeholder consultation and disclosure framework under EBL’s ESRM. EBL publishes Sustainability Reports, which provide information about the company's progress in ESG matters. To comply with the AIIB’s ESP, EBL will disclose the overview of enhanced ESMS applicable to AIIB’s financing. Additionally, sub-borrowers will disclose their E&S instruments for Category A at least 60 calendar days before the final approval of the activity. EBL will also continue to disclose its E&S performance on its website in a timely manner, as well as in its Annual Sustainability Report. Its stakeholder consultation and disclosure framework will be assessed as part of the ESMS enhancement review supported by the MCDF grant and will be assessed periodically during the implementation.

Project Grievance Redress Mechanism (GRM). EBL has a Complaint Management Cell (CMC) managed by a selected compliance team to receive complaints and related reports/issues, which will be used as the Project GRM. The enhanced ESMS will include the requirement of EBL’s sub-borrowers to establish a functional sub-project level GRM to receive, evaluate, and facilitate the resolution of the concerns and complaints relating to E&S. This will be undertaken using understandable and transparent processes that are gender-responsive, culturally appropriate, and readily accessible. The information of established GRMs and AIIB’s Project-affected People’s Mechanism (PPM) will be timely disclosed in an appropriate manner.  

Monitoring and Reporting Arrangement. EBL has a dedicated E&S Manager and Risk Management staff who conducts E&S risk monitoring visits and the results of these visits will be documented in monitoring reports. A similar mechanism will be incorporated into the enhanced ESMS for the EBL’s infrastructure sub-projects using AIIB’s loan proceeds, and EBL will be required, based on agreed format, to prepare an annual E&S performance report of its sub-projects for submission to AIIB. In addition, AIIB E&S specialist will undertake regular implementation support missions twice a year as part of E&S capacity support to EBL, especially for the E&S document review and clearance for sub-projects as stipulated in the ESAP.