The Asian Infrastructure Investment Bank’s (AIIB’s) focus on Infrastructure for Tomorrow (i4t) supports the development and deployment of emerging technologies for climate-resilient and low-carbon infrastructure. AIIB’s investments are resilient to physical climate risks and contribute to the strengthening of climate resilience among the Bank’s project beneficiaries. Through i4t, the Bank’s commitment to climate finance has become the centerpiece of its emphasis on sustainable development. Sensitivity to the environment and climate change are integral parts of the Bank’s investment decision-making process. AIIB supports projects and investments that will deliver net positive environmental and social impacts, and those where possible impacts are well managed, mitigated, disclosed or offset.
From July 1, 2023, AIIB only invests in transactions that are aligned with the Paris Agreement on climate change, consistent with the joint MDB methodological principles and AIIB’s methodology for assessing the alignment. The Bank’s initial target for climate finance was to reach 50% of new projects by 2025. AIIB exceeded that objective by approving 56% in climate finance (including both climate mitigation and adaptation) in 2022. By 2030, the Bank expects its cumulative climate finance to reach USD50 billion. AIIB’s investments in climate adaptation finance are comprised of projects in water, urban development, transportation, and energy, which may be stand-alone projects, co-financed projects, or sub-components of projects. As an infrastructure-focused multilateral development bank (MDB), climate finance is a natural investment sector for AIIB to commit to. The Bank’s sectoral and geographical concentrations are well aligned with the climate finance needs of Asia.
Given that Asia has an estimated USD1.7 trillion annual infrastructure financing gap1 building sustainable infrastructure and promoting intraregional collaboration are more important than ever before. AIIB has been working with clients and partners to explore the potential to integrate technologies into infrastructure projects to enhance the climate resilience of assets and their services. AIIB’s loans and investments are already playing a role in expanding the marketplace for renewable energy and in changing the narrative about the importance of sustainable development.
As examples, AIIB made a USD30 million equity investment in Lightsmith Climate Resilience Partners, the world’s first climate resilience solutions-focused fund, to support growth stage companies with climate resilience solutions. AIIB launched the AIIB-Amundi Climate Change Investment Framework with French asset manager Amundi, whose objective is to speed up the transition to a low-carbon economy through the capital markets. The Bank also provided financing to L&T Infrastructure Finance Company Limited (LTIF), the largest lender to greenfield renewable energy projects in India. It is now on-lending or using the proceeds of AIIB financing to finance new solar and wind energy infrastructure projects in India.
In 2023, AIIB successfully priced its first Climate Adaptation Bond, issued under the AIIB Sustainable Development Bond Framework. The 5-year bond raised AUD500 million. The proceeds will be allocated to projects that have an estimated climate adaptation finance portion of 20% or greater of the total project financing. The purpose of the bond is to raise awareness about climate-resilient and adaption enabling infrastructure investments.
AIIB’s first Climate Action Plan (CAP) for the period 2024-2030 is its direct response to the global call for action, articulating how, as a client-demand-driven financier, the Bank translates its climate ambition into key actions for a more effective partnership to meet the needs of its Members. The CAP consolidates AIIB’s climate action commitments as set out in its key strategies and policies, clarifies its climate financing principles, and identifies key actions to guide its investments in support of its Members. The CAP builds on AIIB’s operational experience, increased understanding of climate change globally (and in Asia particularly), and evolving Member needs and lessons learned, while keeping a strong focus on aligning climate actions with the implementation of the Bank’s Corporate Strategy.
With the “polycrisis” and escalating climate change impacts as the backdrop, the 28th Conference of the Parties (COP28) to the United Nations Convention on Climate Change (UNFCCC), to be held from November 30 to December 12, 2023 in Dubai, the United Arab Emirates, will be a key moment for the world to unite and devise new ways to accelerate urgent climate action. As outlined by the COP28 Presidency the Conference aims to fast track a just and equitable energy transition; establish a transformative approach to climate finance, with a greater onus on MDBs working together to help deliver the additional finance required to tackle climate change; promote a people, lives and livelihood-centric approach to climate action; and pursue inclusive and gender-responsive initiatives that ensure no one is left behind.
Zooming in onto the climate finance agenda, the COP28 seeks to mobilize investment into the climate transition in developing countries from public and private stakeholders in the UAE and globally, support creation of markets that can mobilize the required scale of resources, reform the international financial architecture through which climate finance can flow with speed and scale, and deliver more climate finance to key sectors in mitigation and adaptation.
In particular, MDBs are called to take action in three areas: (1) Increasing capital for climate action in developing countries through MDB shareholders endorsing the 2022 G20 Capital Adequacy Review recommendations to unlock much needed public finance; (2) Taking bold steps to use public finance more effectively to catalyze much greater flows of private capital for the net zero transition; and (3) Working more collaboratively with one another as well as with other sources of public and private capital. In addition, COP28 calls for bold action to develop innovative and holistic solutions that move private capital at scale towards climate action in developing countries. COP28 is an opportunity for AIIB to communicate the crucial role that infrastructure financing plays in climate action and where it must be directed to help those that most need it, as well as share the important work AIIB is currently undertaking to tackle climate change.
To play its part as a leader in supporting climate action, AIIB became a partner of COP28 early in 2023, and seconded the author to COP28 Presidency’s Finance Partnership team for the duration of the year and actively engaged with the COP28 preparations. The Bank and COP28 jointly sponsored a lead-up event to AIIB’s eighth Annual Meeting in August 2023, where seminars were held on project bankability/project pipeline development and mobilizing finance.
At COP28, AIIB, represented by a sizeable delegation led by the President and for the first time, has put together a rich programme at its own pavilion. Discussions will be held on a range of key issues, including a flagship event on Bridging the Gap for Digital Infrastructure and Climate Tech (livestream here), a session on Scaling Up Blended Finance for Climate Solutions: Challenges and Opportunities for Emerging Markets (livestream here) and Catalyzing Investments in Resilience – Trailblazing Investors and Pioneering Bond Issuers (livestream here). Other sessions on nature and infrastructure, seizing business opportunities for adaptation, and financing partnerships for energy transition, among others are also scheduled.
Key partners from member country governments, peer financial institutions, academia, the private sector as well as civil society organizations will come together to exchange insights and explore ways to deliver climate finance and action at scale and speed through learning, collaboration and innovation. In addition, senior AIIB staff will actively engage in dialogues hosted by partners, and hold bilateral discussions with strategic partners throughout the conference.
With the urgency for bold action ever more acute and the call for MDBs to step up ever louder, AIIB is answering the call with concrete action. A strong presence and active engagement at COP28 reflect its determination and commitment to playing its part in finding and delivering solutions to the most pressing challenge that humanity ever faces. It has made reform of international financial institutions (IFIs) a priority and is working with a variety of key stakeholders to push for ambitious reforms. COP28 supports the Bridgetown initiative and its call to strengthen the operating model of IFIs and wants IFIs to work better together as a system, mobilize much higher multiples of private finance, and increase concessional financing for adaptation.
COP28 is working on clear sustainable finance frameworks, disclosure standards, and incentives and supports issuances for green bonds and green sukuks which have emerged as powerful tools to mobilize capital for climate-related projects. It is also focusing on creating an enabling policy and regulatory environment that fosters sustainable investments and working closely with governments, regulators, and international organizations to develop frameworks that incentivize private capital flows toward climate projects. This includes mechanisms such as green finance policies, tax incentives, and regulatory reforms that reward sustainable investments and embed climate considerations into financial decision-making.
Finally, COP28 is also exploring new ways to deploy capital at scale into climate transition in the global south. Through collaboration with institutional investors and key stakeholders, COP28 is exploring innovative financial instruments and risk-sharing mechanisms that can unlock capital and facilitate large-scale investments. It is promoting the narrative that sustainable investments offer not only environmental benefits, but also attractive financial returns.
*With contributions from Xianfu Lu, AIIB Consultant on Adaptation and Climate Resilience, Oxford, xianfu.lu@aiib.org
1 Meeting Asia's Infrastructure Needs | Asian Development Bank (adb.org)
