New report asks the AIIB to move beyond Paris, as it responds to the climate challenge

A new report by Recourse, BRICS Feminist Watch and CLEAN (Coastal Livelihood and Environmental Action Network) asks if the Asian Infrastructure Investment Bank (AIIB) is up to the challenge to address the climate crisis in policy and practice, including the urgent need to accelerate the shift from fossil fuels to sustainable renewable energy that puts people and the planet at the heart of development.

Public finance is scarce and must be used efficiently and effectively to target priority sectors to enable the just energy transition. Apart from providing project finance, multilateral development banks (MDBs), like the AIIB, are triple A credit rated and bring confidence for other investors to contribute. MDBs’ private sector operations mobilise capital from other lenders and investors – both private and public. MDBs also act as standard-setters – bringing social and environmental safeguards into development project implementation.

The AIIB is currently developing a methodology to align its investments with the Paris Agreement on climate change, with a deadline of July 2023. While the goal of the Paris Agreement – of keeping global warming to below 1.5°C – is essential, the content of the Agreement and the country pledges that contribute to it are insufficient as they would result in at least 2.4°C warming. This is why this report calls for the AIIB – and other MDBs – to go ‘beyond Paris’.

The report finds several obstacles for the AIIB to realise its stated climate ambitions, in both its policies and practice, including several missed opportunities to be truly transformational. As of the end of January 2023, the AIIB had invested almost $2.4 billion in gas projects, excluding indirect finance, representing almost 40 percent of its energy portfolio. The AIIB’s newly-agreed updated Energy Sector Strategy paves the way for further support for fossil gas, classifying it as a transition energy source. In December 2022, the AIIB’s President approved an investment of $110 million for the Unique Meghnaghat IPP, a 584 Megawatt (MW) greenfield gas power plant in Bangladesh. The AIIB labelled this huge new fossil fuel project ‘Paris aligned’.

As the AIIB finalises its Paris alignment methodology, it is critical that it learns from these concerning developments. The AIIB’s methodology should be based on the premise that public finance must prioritise sustainable renewable energy, stop funding fossil fuels and end consideration of gas as a transition fuel. The time left to achieve this shift necessitates urgent action, and scarce public funds should no longer prop up dirty and outdated technologies.

But the methodology must also be built on principles of climate justice and rights. Given the limited scale of public investment resources for sustainable development and climate finance, it is a matter of efficiency, effectiveness and equity that it needs to set the highest bar with respect to good governance; applying, safeguarding and advancing environmental and social standards; and actively promoting social inclusion and poverty reduction, gender-responsiveness and human rights.

For climate finance and truly Paris-aligned investments should fulfil three fundamental criteria:

• It must not support fossil fuels;
• It must do no harm by preventing human rights abuses and negative social and environmental impacts;
• It should aim to do good by addressing inequalities and generating broader benefits for affected people and communities, creating accountability for sustained climate impacts and contributing to larger paradigm shifts in the financial system.

Read the report, including the full set of recommendations, here.