The Asian Infrastructure Investment Bank (AIIB) opened for business in 2016, as a Chinese-led initiative to finance the construction of large-scale transport, energy and digital infrastructure in Asia, and its connections with the rest of the world. Its financing has since expanded beyond the region, including its first loan to Latin America in 2020.
of the 217 projects the AIIB had approved, proposed or completed since its launch have been in the renewable energy sector, according to analysis in July by a group of Latin American NGOs
While the bank has committed to supporting the transition to a low-carbon economy, its efforts so far appear modest, both in terms of its policy guidance and in relation to the size of its portfolio of clean energy projects. For every US$1 the AIIB invests in renewable energy, it spends almost twice as much on fossil fuels, reports Recourse, a green finance monitoring non-profit. This, the group says, does not include indirect financing from financial intermediaries, so the ratio could be even higher.
According to our own calculations, as of July this year, of the 217 projects the AIIB had approved, proposed or completed since its launch only 10.6% (23 projects) have been in the renewable energy sector (including hydropower projects), representing less than 5% (US$3.2 billion) of the bank’s total financing (US$68.2 billion).
Civil society organisations in Asia have already warned about potential socio-environmental impacts of AIIB-funded projects associated with intensive natural resource extraction, and the future tensions they may create in transboundary areas where shared natural resources are at risk, such as watersheds.
In April this year, the bank published its draft Energy Sector Strategy, a proposal for an institutional policy for the energy sector, one that would support the energy transition of its 105 member states. The consultation stage is now over, but civil society organisations from around the world, including in Latin America, have expressed concerns around the content of the draft and the way the bank managed the consultation process itself.
The AIIB’s description of oil and gas as “transitional” solutions comes as the UN Secretary-General called new funding for fossil fuel infrastructure “delusional”
For example, although the AIIB explicitly announces in its strategy that it “will not finance new coal-fired power” and “will not finance oil sector investments”, it mentions that it will support investments in some fossil fuels, such as natural gas and certain oil-fired power generation and related activities when they are justified as transitional options.
But the strategy does not explain what the criteria will be to consider a “transitional” project, nor disclose a maximum timeframe for fully ceasing fossil fuel financing, and for making the leap to decarbonising the economy.
While the draft effectively rules out financing for coal and nuclear, some of the energy options prioritised are alarming: hydropower, for example, is costly, not climate resilient and often exacerbates impacts from climate change. And its description of sources such as oil and gas (including LNG) as “transitional” solutions comes at a time when the UN Secretary-General has described new funding for fossil fuel infrastructure as “delusional”.
The International Energy Agency (IEA) also concluded that it is possible to reach net zero by 2050 with no investment in new fossil fuel supply, beyond those fields already producing or under development. In short, the AIIB does not have to include such projects in its portfolio.
AIIB safeguards falling short
As Latin American civil society organisations focused on environmental and social justice, we are concerned that certain protections for public participation and transparency around AIIB energy projects are not made explicit in the draft strategy.
The document does not indicate any further commitment from the AIIB to the right to free, prior and informed consent – something that does appear in the bank’s environmental and social framework, but only to be applied in locations that legally require it and not to all projects financed by the bank.
There are also no guarantees that it will adopt due diligence measures to prevent reprisals against human rights defenders that may arise near its projects. It is worth remembering that most countries in Latin America have signed the Escazú Agreement that promotes such measures.
The strategy also does not provide explicit commitment that information on sub-projects financed by financial intermediaries or special funds will be made public before being developed, including details on local redress mechanisms and applicable socio-environmental standards.
The consultation process for the draft energy strategy has been conducted in a superficial manner. While there is supposedly an open attitude on the part of the AIIB, during the online consultation meetings, attendees weren’t satisfied that the bank provided room for substantive discussions; its staff heard suggestions, but didn’t sufficiently engage in a dialogue.
The draft strategy also fails to make provisions for the differing contexts and energy realities of each continent. In these circumstances, many civil society organisations opted out of the public consultation process – at least until the AIIB commits to an open, in-depth and constructive debate.
The draft Energy Sector Strategy fails to make provisions for the differing contexts and energy realities of each continent
In response to this, several Latin American civil society organisations sent two communiqués (see: here and here) to the AIIB urging, among other things, that it develops specific strategies for each region, given that each one has a different energy, ecological, cultural and economic situation and requires differentiated solutions. We also called for safeguards to be put in place to ensure that none of its loans – direct, indirect or syndicated – result in land dispossession, reduced access to water or food sources for local communities, or disrupt the essential ecological processes necessary for life to thrive.
Although the AIIB is just beginning to establish itself in Latin America, governments in the region are already seeking support from the bank to boost conventional extractive activities and infrastructure construction – both of which are seen as drivers of post-pandemic economic recovery.
Moreover, the bank never disclosed all the comments submitted by civil society and other respondents to its consultation, or provided substantive answers as to why they will adopt or reject the feedback provided for the final version of the strategy. Likewise, it has not responded to the request that it put forward a second draft for consultation with civil society. Instead, on 12 September the bank published a summary of the consultation process with very general reflections to its own selected topics.
Following this first consultation process, the next opportunity for organisations such as ours to engage in dialogue on the Energy Sector Strategy is the AIIB’s Annual Meeting, held virtually on 26-27 October. The bank will hold a 90-minute session with civil society organisations and NGOs to discuss their policies, strategies and operations.
AIIB in Latin America
In January 2022, the AIIB approved its first loan to Latin America in the energy sector, a loan to the Development Bank of Minas Gerais (BDMG) for US$100 million. According to the AIIB, the loan will target renewable energy and infrastructure projects that would potentially foster Brazil-Asia trade.
The AIIB financing will allow the BDMG to choose and manage the projects. However, the AIIB has expressed its intention to assist the BDMG in the first stage of project selection, in the evaluation of potential borrowers, and also to strengthen the establishment and implementation of an environmental and social management system.
Notably, the AIIB seems committed, at least in the context of this loan, to focus on solar and wind energy projects, and not to support activities in the mining sectors (including lithium mining), or projects with high socio-environmental risk. Even with solar and wind power projects, it will be necessary to ensure due diligence regarding social and environmental risks, respecting the rights of local communities.
Importantly, this loan may present an opportunity to the AIIB to learn how to work in Latin America, including support for innovative approaches to renewable energy that are socially inclusive. For Latin American civil society organisations, it is also an opportunity to learn about the AIIB.
For more than a year, a group of 17 Latin American organisations have been monitoring the AIIB. Although the bank’s presence in the region is currently minimal, it is critical that more civil society organisations join these efforts. The bank’s finalised Energy Sector Strategy will be reflected in projects it finances around the world, so ensuring its outcomes are safe and just is of crucial importance. Both the consultations on the strategy and the project with the BDMG are opportunities for Latin American civil society to challenge and propose initiatives to the AIIB to achieve a just energy transition.