The type and quality of new infrastructure investments will define whether pathways compatible with global climate goals will be achieved. Given the importance of infrastructure investments in Asia for keeping the Paris goals within reach, this report evaluates whether the AIIB has lived up to its promise to be ‘lean, clean and green’, which good processes have been established and where challenges or risks remain.

AIIB has started its work in 2016 with the mission ‘to improve economic and social development in Asia and beyond through a focus on sustainable infrastructure, cross-border connectivity and private capital mobilization’. By the end of 2018, after three years of operation, AIIB had a multibillion (in USD) portfolio of 34 approved projects, with a further 23 formally proposed projects in the pipeline.

At the 2017 One Planet Summit, AIIB together with the other major MDBs reconfirmed the commitment to align their financial flows with the Paris Agreement. The announcement at COP24 in Katowice in December 2018 to develop a common framework for aligning their activities with the goals of the Paris Agreement in the course of 2019 is another positive step towards operationalisation.

The real litmus test is not the political alignment commitment as such, but rather the methods chosen to effectively put that commitment into practice and the level of transparency afforded to shareholders and stakeholders with regard to the current level of implementation and the forward-looking financial disclosure.

The analysis of the AIIB sustainable energy strategy and the overall bank strategy on Parisalignment results in a mixed picture. While it formally entails the Paris-alignment commitment, the guiding principles are only partly aligned, and the same is true for the listed investment priorities. While investments in renewable energies are prominently placed in the strategy, natural gas appears to be considered in the strategy as equally relevant although less consistent with the Paris temperature goals, and oil- and coal-fired power plants are not excluded from investments. The strategy is missing clear and verifiable investment criteria to ensure Paris-alignment. While the energy sector strategy mentions alignment with NDCs as part of the implementation strategy, no reference is made to supporting and enhancing individual countries’ long-term strategies. The sector strategy also lacks both a sector-wide emission target and a climate finance target. The outcome and output indicators at portfolio level (energy consumption saved; renewable energy capacity installed; GHG emission reduction achieved) are good first steps, but insufficient to effectively monitor whether the Paris alignment commitment is on track to be met. As compared with good practice examples from other MDBs, the AIIB is not yet up to the mark.

The AIIB transport strategy does not yet reflect adequately the bank’s Paris-alignment commitment. It is less mature than the energy sector strategy, is of a transitional nature, and has much room for improvement. 2019, would be a good year to review the strategy. Such a review and amendment is a matter of urgency, considering that the transport sector appears to be the fastest growing investment sector, reflecting the high demand from clients.

The AIIB sustainable cities strategy, although referring to the Paris Agreement, does not yet include the necessary tools to be transparently and efficiently aligned with the Agreement’s temperature goals. For that to happen, the strategy should take on board alignment criteria and alignment tools. In principle, similar instruments could be used as in the energy and transport strategies. The cities strategy was published only at the end of 2018, and the respective project list is still very short. Thus, it is highly recommendable for the bank to revisit and upgrade the strategy now.

The Environmental and Social Safeguards should also be reviewed and strengthened, as they are not yet up to the mark, with regard to accountability, information disclosure and complaint handling.

The approved and proposed AIIB projects in Bangladesh, China, India and Central Asian countries seem to follow a business-as-usual trajectory rather than a clear Paris-aligned approach. So far, the AIIB has failed in these countries to promote a different approach than other development banks. It remains unclear whether, or how far, approved projects will contribute to achieving the temperature goals of the Paris Agreement.

The AIIB is a new bank. The review and amendment of its environmental and social safeguards, the further development of its sector strategies and project portfolios, and the elaboration of a Paris-alignment framework jointly with other MDBs, all announced for 2019, provide the decisive window of opportunity to put things on track. Thus, we recommend:

• Develop a joint definition of Paris alignment with the other MDBs, based on science.
• Prove that all projects proposed for approval are aligned with the Paris goals.
• Review the energy sector strategy, transport sector strategy, and sustainable cities strategy with a view to ensuring Paris-alignment by making it operational.
• Document, assess, disclose and discuss pilot experiences from the projects which were initiated between 2016 and 2018. Include stakeholders, seeking advice
• Address the gaps and loopholes in the Environmental and Social Framework (ESF), which is based on principle but lacks clear, mandatory and publicly available implementation rules. Crucial are more substantive exclusion lists for investments, concrete timelines for disclosure, checklists, implementation tools and precise procedural safeguards.
• Strengthen AIIB’s institutional capacity and ensure the effective implementation and supervision of policies and projects. Also for projects implemented by intermediaries, the AIIB should guarantee effective channels for affected communities to raise complaints, and that complaints will be resolved effectively, and it should urge the intermediaries to improve the environmental and social risk management of their projects.
• Create an independent investigation unit that is kept strictly separate
• The Board of Directors should set up clear provisions which ensure that lean and fast decision making will not compromise either the effective implementation of ESF or the development of a project portfolio that clearly reflects the Paris-alignment commitment.
• Ensure publication of all project relevant information 120 days prior to consideration of the project by the Board of Directors, and ensure a multi-stakeholder consultation is undertaken before project approval.
• Adopt a policy for CSO engagement.
• Include climate data and gross GHG emission data in the project information.
• Prioritise low-carbon infrastructure investments in line with the NDC, LTS and SDGs; Exclude coal- and oil-fired power plants and related infrastructure and instead promote lighthouse projects that showcase successful transitionary approaches and technologies.
• Incentivise medium- and small-scale people-centred resilience building and green infrastructure projects. Allocate a certain budget share for these projects
• Put all ‘Category A’ projects under special review.