The Beijing-based Asian Infrastructure Investment Bank (AIIB) will hold its sixth annual meeting virtually on October 26–28, a few days before UN climate talks kick off in Glasgow.
Many believe that multilateral financial institutions such as the AIIB play a vital role in developing better environmental, social and governance standards as the world strives to achieve a green recovery from the pandemic and avoid catastrophic climate change. This is a topic the AIIB plans to discuss on the first day of the annual meeting. Meanwhile, after three years of use, the bank has amended its Environmental and Social Framework (ESF), with a new version having gone into effect this month.
Recent investigations and studies, however, have called into question the impact of the AIIB’s investments and whether they are in line with its core values. Many civil society groups worry the bank’s ESF, along with other policies, lacked substantive commitments and clear criteria when first adopted in 2016, and that the new one has not fixed those issues.
Footprint under scrutiny
At the beginning of this year, when celebrating its fifth anniversary as the youngest multilateral development bank, the president of the bank, Jin Liqun, addressed the idea of building green infrastructure to help countries achieve economic transition and carbon neutrality. Green means “not leaving a footprint on the environment and society,” he said.
Back in 2018, the AIIB approved a loan for tourism development on Lombok Island, across the sea from the world-famous island of Bali. The project is part of Indonesia’s plan to build 10 Bali-like tourist attractions. To many observers, the Lombok tourism and development project, which the AIIB categorised as “A” for environmental and social risks – meaning the riskiest – is an example of the bank’s challenge to assess resettlement action plans prepared by its clients.
The project was green-lighted during a wave of compulsory, violent displacement that began in 2018, months before the project’s approval. Investigations undertaken by NGOs in three consecutive years since 2019 have documented families that have lost livelihoods and income, forcing them to take young children out of school. Two villages, including indigenous communities, still dwell in temporary shelters two years after being removed from their homes without consent.
A joint study by the Heinrich Böll Foundation and Just Finance International examined how AIIB’s new green-lighted ESF measures would reduce transparency and accountability. For example, upon the bank’s adoption of the Policy on Public Information in 2018, the AIIB president said: “Transparency and accountability are the two main pillars of AIIB’s governance”. Still, the framework has many exemptions where the list of documents and timebound requirements are not applied. Further, ESF provisions allow the AIIB to delegate disclosure responsibility to its clients in some circumstances. Loopholes in the policy override the stated intention of maximum transparency, the report says.
For many multilateral development banks, such environmental and social harms caused by the Lombok project would have triggered a public evaluation. The AIIB’s response is seen as insufficient. While the bank’s environmental and social due diligence team has written about “applying best environmental and social practices in projects”, it has not disclosed monitoring or investigation reports that respond substantively to those concerns.
Mechanisms not applied
Another report published by Recourse and Urgewald reviewed the AIIB’s accountability mechanism before its annual meeting. Despite 142 projects approved and over US$28 billion invested in its six years of operation, the bank has yet to receive a single complaint.
The study believes that one of the main reasons is more than half of the projects, 72 out of 142, are not eligible for its accountability mechanism. Under the AIIB’s rules, projects co-financed with other multilateral development banks are excluded from the accountability mechanism for redress. “On the exclusion, the AIIB is the only one that does that among all multilateral development banks,” said Kate Geary, one of the authors of the report.
Under the AIIB’s rules, projects co-financed with other multilateral development banks are excluded from the accountability mechanism for redress
In an interview with China Dialogue, Joachim von Amsberg, the bank’s former vice president, now a special advisor to the bank’s president, Jin Liqun, explained that since multilateral development banks share basic principles and have similar policies, it’s more straightforward for clients to follow one policy. He added: “The story does not end by saying go to the other banks. That’s just the beginning. When the accountability mechanism makes a determination, it goes back to both banks to take appropriate action to address any shortcomings.”
According to the report, in some rare cases AIIB’s accountability mechanism could accept complaints on the projects co-financed with the International Finance Corporation (IFC), even when other IFC policies applied. It shows the AIIB is able to ensure affected people have access to its own mechanism.
Another loophole in the new ESF is for capital market projects. The AIIB allows the application of ill-defined environmental, social and governance (ESG) standards to be developed by individual asset managers, in lieu of ESF requirements.
According to von Amsberg, in cases where AIIB purchases bonds from the market, it cannot apply its ESF since there is no contractual relationship between the bank and the bond’s issuer. “It is not a suspension of the ESF, but implementation to a different mechanism…Our board has to approve each of those operations and the framework for implementing the ESF through the ESG framework.”
“This is especially concerning given the serious lack of information the bank has disclosed on its existing capital market projects,” said Mark Grimsditch, China Global Program Director for Inclusive Development International. As the AIIB increasingly expands its lending to and investing in financial intermediaries and capital markets, “it is important that the bank addresses this transparency gap, disclosing information on these portfolios and providing more detailed information on how it manages this type of investment,” he said.
The bank prides itself on using a “lean” approach to management. Compared to many other multilateral development banks, it is quite small. It has just over 300 employees and has opened only one office outside its headquarters in Beijing. On the question of seeking the balance between lean and green, von Amsberg said: “the answer is through careful selection of our partners”. However, many observers question if balancing these values may in practice mean cutting corners on necessary due diligence.
