New report shows how AIIB’s investments in capital market projects evade accountability and support fossil fuels

Investing in capital market projects is one of the ‘innovative’ financing means that the AIIB and other Multilateral Development Banks are using to leverage private finance for development projects.

• Download the full report
• Read the blog by report author, Marjorie Pamintuan, on Linkedin

Mobilising private capital for infrastructure finance in developing economies is at the core of the AIIB’s mandate. To date, the bank has approved investments in eight projects supporting the development of capital markets, amounting to up to $1.94bn.

Key to attracting private investments in capital markets is the lowering of the risks for such investments through the use of securitisation, which creates complex, and often non-transparent financial relationships, which cause difÏculty in exacting accountability for the harms that investments in capital market projects may cause. By excluding capital market projects from the AIIB’s Environmental and Social Policy (ESP) and applying the Environmental and Social Governance Approach (ESG) approach instead, the bank effectively externalises the environmental and social risks of such investments to communities who already face the barrier of non-transparency on who financially enabled the projects. The bank’s lack of accountability is further exacerbated by the ineligibility of any complaints associated with capital market projects to the Project-affected People’s Mechanism (PPM).

By examining the AIIB’s multiple investments in Bayfront, one of the bank’s capital market projects, this briefing paper discusses the failure of the ESG approach in preventing public money from being used to support environmentally and socially harmful projects. Although the AIIB argues that its investments in Bayfront (and other capital market projects) are for supporting the development of capital markets for infrastructure and not individual markets per se, these investments nonetheless enabled more fossil gas projects, including one that violates the bank’s own Energy Sector Strategy, as well as renewable energy projects that are already causing environmental and social harms.

To eliminate the accountability deficit of the AIIB in relation to capital market projects, this briefing recommends:

• Making the AIIB’s Environmental Social Policy (ESP) applicable to investments in capital market projects.
• Applying the Project-affected People’s Mechanism (PPM) to capital markets projects. Ensure remedy for project affected people and communities harmed by capital market projects’ portfolio assets.
• Ensuring transparency in the portfolio assets supported by the AIIB’s capital markets projects.
• Stopping support to financial institutions investing in fossil fuels.

Download the report here or on the right hand side.