The 16th issue of the alert covers the previous news about AIIB, mainly including commentaries made by its stakeholders on its draft of Environmental and Social Framework , and a brief analysis of the safeguard policies of several representative development financial institutions. AIIB has made a huge progress over the past six months, including the enforcement of the Articles of Agreement of the Asian Infrastructure Investment Bank, the successful organisation of its opening ceremony, and the appointment of its president and five vice presidents, etc. Meanwhile, AIIB has taken actions on establishing partnerships with other development banks. Recently, AIIB has signed the first co-financing framework agreement with the World Bank, and MOU on cooperation with the Asian Development Bank (ADB) and the European Bank for Reconstruction and Development (EBRD), paving the way for future co-financing. As for the first projects, AIIB will sponsor inaugural projects in Pakistan, Tajikistan, Uzbekistan, and Kazakhstan, which are infrastructure projects related to transportation.
Recently AIIB has released a series of operational policies, including Environmental and Social Framework, Operational Policy on Financing, General Conditions for Sovereign-Backed Loans, Procurement Policy, Policy on Prohibited Practices, Sovereign-Backed Loan and Guarantee Pricing, etc. The final version of the ESF partially adopted the suggestions offered by stakeholders in a round of consultation from September to October, 2015. Generally speaking, the ESF has been improved, compared to the draft, in terms of environmental and social standards. For example, the final version indicates that AIIB stands ready to assist its Clients in achieving their nationally determined contributions through its financings.It also declares that AIIB supports the aims of the Paris Agreement of December 2015 to strengthen the global response to the threat of climate change. What remains a concern, however, is that the operational policies applied to sectors that are environmentally and climatically sensitive have not been released along with the announcement of the first projects. The mock application of the Framework on extant projects with environmental and social controversy indicates that, the likelihood of AIIB investing in these projects exists.
On the 49th Annual Meeting of the Asian Development Bank (ADB), President Jin Liqun, highlighted that AIIB would select and invest in qualified projects that meet its standards - "financially sustainable, environmentally friendly and socially acceptable”. Cooperation with the existing multilateral development financial institutions may provide AIIB with an opportunity to better practice and improve its existing environmental and social policies, and to establish a more effective accountability mechanism.
This alert presents information on its first batch of projects, a brief analysis of the final Environmental and Social Framework, as well as commentaries from stakeholders including civil organizations, scholars and commercial bank managers, concentrating on the three standards - “financially sustainable, environmentally friendly and socially acceptable”.
The Inaugural Meeting Held
The Articles of Agreement of the Asian Infrastructure Investment Bank entered into force on December 25, 2015, before which, the signing ceremony of The Articles of Agreement was held on June 29, 2015 in Beijing. According to AIIB official website, among the 57 prospective founding members of AIIB, 37 have already ratified the Agreement, the other 20 including France, Brazil, Malaysia have not ratified the Agreement yet. On January 16, 2016, the Board of Governors of the Asian Infrastructure Investment Bank (AIIB) convened its inaugural meeting, declaring the Bank open for business and electing Mr. Jin Liqun as President for a five year term.The 1st Annual Meeting of the Board of Governors of AIIB will be held in Beijing on June 25-26, 2016.
On February 5, 2016, AIIB appointed 5 vice presidents, who are from Britain, Korea, India, Germany and Indonesia respectively. On April 14, AIIB appointed Hamid Sharif as Director General of the Compliance, Effectiveness and Integrity (CEI) Unit. The position reports to the Bank's Board of Directors . The CEI Unit's mandate includes monitoring and evaluating the Bank’s portfolio, ensuring policy compliance, and overseeing internal and external grievance procedures. This action is a fulfillment of “Clean” addressed in Jin’s speech on August, 2015.
Cooperation Partners Expanded
AIIB has said it would enforce governance standards on a par with those at the World Bank, ADB and other development banks in its financing projects.On the 49th Annual Meeting of the Asian Development Bank (ADB), President Jin Liqun highlighted that AIIB would select and invest in qualified projects that meet its standards- "financially sustainable, environmentally friendly and socially acceptable”. On April 3, 2016, AIIB and World Bank signed a co-financing framework agreement. Under the agreement, the World Bank will prepare and supervise the co-financed projects in accordance with its environment and social safeguards. The two banks are currently discussing nearly one dozen co-financed projects in sectors that include transport, water and energy in Asia . On May 2, President Jin Liqun and ADB President Takehiko Nakao signed a memorandum of understanding (MOU) in Frankfurt, Germany on the sidelines of ADB’s 49th Annual Meeting of the Board of Governors. The MOU aims to strengthen cooperation for sustainable growth. Takehiko Nakao stressed that the two banks would further strengthen the cooperation in promoting sustainable growth, reducing poverty, and combating climate change. On May 11, a memorandum of understanding (MOU) that sets out a framework for strategic and operational cooperation was signed by AIIB President Jin Liqun and Sir Suma Chakrabarti, the President of the EBRD, during the 25th Annual Meeting of the EBRD in London. Cooperation with the existing multilateral development financial institutions may provide AIIB with an opportunity to better practice and improve the existing environmental and social policies and establish a more effective accountability mechanism.
First Financing Projects Announced
It is reported that AIIB will sponsor inaugural projects in Pakistan, Tajikistan, Uzbekistan, and Kazakhstan. AIIB will help fund a highway in Pakistan, an expressway in Tajik, and a ring road in Almaty, Kazakhstan, according to people with knowledge of the projects and tender documents. AIIB expects to approve about $1.2bn in financing this year, including about a dozen projects with the World Bank that have not yet been announced. According to reports, AIIB will join the ADB and DFID (UK Department for International Development) in funding a 64 km stretch of motorway connecting Shorkot to Khanewal. In Tajikistan, similarly, AIIB will work with the ADB and the EBRD to finance an expressway project, which connects Dushanbe, the Tajik capital, to the Uzbek border. The third transport link that AIIB is expected to help fund is the Bakad Ring Road, a joint World Bank-EBRD project in Kazakhstan’s commercial capital, Almaty. Apart from the project in Pakistan, the others are co-financed by AIIB and other experienced development banks. AIIB indicated that it would adopt high environmental and social standards during the financing process. Further attention is required, however, when it comes to how AIIB is going to coordinate and cooperate with other development banks in managing social and environmental risks and reducing the impacts on the environment and the society.
Apart from the projects above, it has been reported by AIIB that the Government of Bangladesh has requested AIIB to consider providing financial support for the Distribution System Upgrade and Expansion Project (the Project) in Bangladesh. What interested the stakeholders was that it would be the first project of AIIB without a co-financer, which would reflect how AIIB would apply its operational policies in its projects in detail, especially its ESF. According to the news, the Project was classified in Category B under the Environmental and Social Policy (ESP) of the Bank, and the provisions of Environmental and Social Standard 1. Consistent with the ESP, the Bank conducted field based environmental and social due diligence, using a qualified independent specialist, as an integral element of its Project preparation. The ESR for Component 1 and the IEE for Component 2 have been disclosed at EAs’ websites respectively.
Operational Policies Released
According to AIIB official website, the currently released operational policies include Environmental and Social Framework, Operational Policy on Financing, General Conditions for Sovereign-backed Loans, Procurement Policy, Policy On Prohibited Practices, Sovereign-Backed Loan and Guarantee Pricing etc. Operational Policy on Financing sets out the Bank’s policy on providing Sovereign-backed Financing and Non-sovereign-backed Financing for Projects. General Conditions for Sovereign-backed Loans generally sets forth certain terms and conditions generally applicable to the Loan Agreement and to any other Legal Agreement. Procurement Policy aims to support borrowers to achieve the implementation of Bank-financed Projects through efficient, fair, ethical and transparent procurement processes that optimize both value for money, and social and environmental sustainability. Policy on Prohibited Practices is to ensure that the Bank does business with trustworthy parties who adhere to the highest integrity standards, to help the Bank meet its requirement only for the purpose for which it has been granted. For this purpose, AIIB also set the Compliance, Effectiveness and Integrity (CEI) Unit.
Commentaries on the Final Version of the Environmental and Social Framework
In order to better practise the environmental and social standards, as well as the "green" principle proposed by President Jin, AIIB released the draft of the Environmental and Social Framework (referred to as ESF), and initiated the stakeholder consultation procedure in the early September, 2015, which ended in late October. Green watershed, NGO Forum on ADB (NGO Forum) and many other international institutes and NGOs were involved in the consultation and proposed opinions and suggestions in terms of the consultation procedure and the content of ESF. For more information please see AIIB Updates: Environmental and Social Framework.
In February 2016, AIIB synthesized the commentaries from stakeholders and released the final version of ESF. GHUB compared the final one with the draft. Comprehensively, the final ESF has been improved, especially in terms of combating climate change and conducting the environmental impact assessment. As for the energy policy, the final version mentions that "Energy strategy that underpins the ESF will be developed", which indicates that AIIB will probably make policies in areas like coal and nuclear energy, etc. The final version states that “the Bank supports the three aims of the Paris Agreement of December 2015 to strengthen the global response to the threat of climate change, which are related to mitigation, adaptation and the redirection of financial flows… It supports the global adaptation goal of enhancing adaptive capacity, strengthening resilience and reducing vulnerability to climate change…”In terms of INDC alignment, the final version of ESF declares that "In the context of sustainable development, the Bank stands ready, through its financings, to assist its Clients in achieving their nationally determined contributions… It may, through its financings, support Clients’ formulation of long-term low greenhouse gas emission development strategies… ". From these statements above, it could be inferred that AIIB would fund projects in response to climate change in the future.
For the potential environmental and social impact assessment of Category A and B projects, Green Watershed gave AIIB the following suggestions. First of all, AIIB should require its clients to conduct environmental and social impact assessment for all Category A and B projects, and to allow sufficient time for public notification of the assessment report. Meanwhile, AIIB should ask the clients to disclose the information on the grievance mechanism and respond to the complaint makers in an active and timely manner. In addition, Green Watershed also proposed a project-level grievance mechanism to be set so as to provide relief and remedy for the affected individual and community. As for the ‘exclusion list’, Green Watershed pushed for a clearer and more specific wording. For example, ADB has made a clear rule that “The following do not qualify for Asian Development Bank financing”.
The international organization Greenpeace made a comparison of the final version and the draft, finding 18 obvious changes, of which 16 items are more strict than the draft and 1 change reduces the requirement and the left one change’s potential effect is yet unknown. Nevertheless, the final ESF is of higher standards compared to the previous draft.
To have a better evaluation of the efficacy of AIIB’s Environmental and Social Framework and the gap between the ESF and that of other development banks, Greenpeace re-assessed four projects that had produced negative environmental and social impact, which were respectively financed by China Development Bank (CDB), International Bank for Reconstruction and Development (IBRD), the World Bank (WB) and International Finance Corporation (IFC), by conducting mock application of the final ESF of AIIB. The four projects were: a coal mine project in Indonesia, a hydro electric project in India, a coal-fired power plant project in South Africa and a coal plant in India. Through the analysis of the mock application, Greenpeace concluded that no solid evidence showed that AIIB would not finance these four projects, which further led to the inference that projects that are not environmental friendly are still probably to get support from AIIB. Apart from the coal project, which might not be funded by AIIB, the rest three were within the AIIB’s investment scope. If AIIB funded the rest three projects, it’s current policies implied that AIIB could not guarantee a proper treatment of their environmental and social impact. For example, AIIB could not provide a sound solution to reduce the impact of a hydro-power project on the upstream side. It should also be noted that the effective implementation of ESF would be crucial to the project’s final result. Greenpeace suggested a regular communication mechanism between AIIB and NGOs on environmental issues. Thus, the ESF would be dynamically adapted by drawing experience from projects financed by both AIIB and other development banks.
Oxfam expressed its welcome to the additional details provided in the final version related to FI client reporting requirements yet the language on due diligence should be strengthened further in the article named Comments on the Second Draft of the Asian Infrastructure Investment Bank Environmental and Social Framework. It also indicated that Oxfam was glad to see that AIIB recognized the potential role for third parties in monitoring FI subprojects, and recommended that AIIB commit to carrying out due diligence, monitoring and supervision of all high risk sub-projects, and strengthen the language to ensure that independent third party (including civil society) is used in high risk FI subprojects. Oxfam highlighted the importance of public participation in the ESF during consultation even though it had been finalized.
In its recent article named AIIB Must Guarantee a Highly-Effective Accountability Mechanism, Center for International Environmental Law Studies expressed concerns regarding the consultation process, supervision mechanism and project-level grievance mechanism, etc. of AIIB. The Center further proposed suggestions on AIIB’s supervision mechanism, which, according to the article, should balance legality and convenience with fairness and transparency. The Center also added that the establishment and operation of AIIB’s supervision system should be based on conversations with multiple participants and stakeholders.
- AIIB and World Bank sign first Co-Financing Framework Agreement
- AIIB, ADB sign MOU to strengthen cooperation for sustainable growth
- China’s AIIB seeks to pave new Silk Road with first projects
- The infrastructure cooperation of countries along the Belt and Road facing challenges
- BRICS Development Bank Plans To Issue Green Bonds Worth Up To $384 Million
- First Set of Loans Approved by the Board of Directors of the New Development Bank
Michael Cernea, Vinod Thomas, Rob van den Berg The controversy over safeguard policies:“The World Bank now proposes replacing its safeguard policies with weaker and aspirational ‘standards’, that may be met ‘flexibly’ during a project’s execution, and the Asian Infrastructure Investment Bank reflects the same approach. Standards that are discretionary are not standards, except in name. The World Bank, all multilateral donors, and borrowing states have embraced the United Nation’s Sustainable Development Goals and signaled support for the objectives of the 2015 Paris climate summit. But the pursuit of sustainability is under pressure from the mistaken notion that applying safeguard policies delays unnecessarily project processing, and thus would slow growth.”
Bill Laurance, Research Professor and Australian Laureate, James Cook University:“In these contexts, new infrastructures such as roads can open a Pandora’s box of environmental problems, by promoting widespread deforestation, habitat fragmentation, poaching, fires, illegal mining and land speculation. For instance, our research in the Brazilian Amazon has shown that 95% of all deforestation occurs within 5.5 km of a legal or illegal road. In Brazil, 12 new dams planned for the Tapajós River (and their associated road networks) are expected to increase Amazon deforestation by nearly a million hectares. Across the Amazon, more than 330 dams are now planned or under construction. In the Congo Basin, an avalanche of new logging roads has opened up vast areas of rainforest to poachers armed with rifles and cable snares. As a result, the past decade has seen two-thirds of all Forest Elephants slaughtered for their valuable ivory tusks.”
Kevin P. Gallogher University Professor Global Development Policy:“It is too early to tell whether the new multilateral funds and new multilateral development banks will steer such finance toward infrastructure that is more environmentally sustainable and socially inclusive. China has put green finance as a major focus of its G20 presidency, co-chairing a Green Finance Study Group that will look to “green” global finance. A developing country-led effort to green global development finance in a manner that is inclusive, accountable, and green would be a welcome addition to the global development-banking regime. Such an outcome is not inevitable however, and should be the goal of policy-makers and civil society alike.”
- Framework: Environmental and Social Framework--AIIB
- Institutional documents: Public Information Policy - AIIB
- Report: Research on Internatinal Experience of Environmental and Social Management Framework for Multilateral Development Banks - WWF
- Report: Financial market regulation for sustainable development in the BRICS countries（CH） - WWF
- Report: Glass Half Full? The State of Accountability in Development Finance– The centre for research on multinational corporations (SOMO)
- Report: China’s Belt and Road Initiative Motives, Scope, and Challenges - Peterson Institute for International Economics
- Bulletin: China&Latin America Economic Bulletin 2016 Edition—Global Economic Governance Initiative of Boston University
- Report: A Comprehensive Critique on the Draft Environmental and SocialFramework (ESF) of the Asian Infrastructure Investment Bank (AIIB) - NGO Forum on ADB
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