G:HUB OBSERVATION | AIIB 2nd Annual Meeting & Policy Updates


In this observation, G:HUB delves into some of the changes and differences between the AIIB’s second and final energy strategy, in addition to observations on the grievance mechanism and information disclosure policy.


On June 16 to 18, the AIIB held its 2nd Annual Meeting of the Board of Governors in Jeju, Korea. On the opening day, AIIB approved membership of Argentina, Madagascar, and Tonga, bringing the total AIIB membership to 80. As of June, AIIB has approved 13 infrastructure projects with a total investment of approximately US$2 billion. Nearly 1,000 representatives from the AIIB, private sector, CSOs, and media attended the annual meeting. The meeting focused on "sustainable infrastructure", and arranged forums on the themes of "AIIB Investment Projects, Policies and Procedure", "Bridging the Gap in Renewable Energy Financing: the Role of Banks and Public Funds". It also included a major discussion on how AIIB may meet regional economic infrastructure needs.


Since the formal establishment in 2015, AIIB has been developing and improving its governance structure, mechanisms and policies. In early 2016, the AIIB published the "Environment and Social Framework"; and the AIIB "Energy Sector Strategy" (hereinafter referred to as the "Energy Strategy") was drafted last year and was approved on June 15 after two rounds of public consultation. The "Public Information Interim Policy" is currently in the consultation stage and "Complaints Handling Mechanism" will be drafted by August.


As a new multilateral financial institution, AIIB plays an important role in achieving global sustainable and low-carbon inclusive development. In order to ensure climate, environmental and social benefits of investment, G:HUB is monitoring AIIB developments. 


In this observation, we delve into some of the changes and differences between the AIIB's second and final energy strategy, in addition to observations on the grievance mechanism and information disclosure policy.

via G:HUB

  AIIB's Energy Sector Strategy   

The AIIB has pledged to design its global governance structure based on the 2030 Agenda for Sustainable Development, the Sustainable Energy for All and the Paris Agreement. The Energy Strategy includes six Guiding Principles:

   "1.     Promote energy access and security   2.    Realize Energy Efficiency potential   3.    Reduce the carbon intensity of energy supply   4.    Local and regional pollution management   5.    Catalyze private capital   6.    Promote regional cooperation and connectivity"  

Since the second draft of AIIB Energy Strategy (G:HUB Comments on the Second Draft of AIIB Energy Strategy),  AIIB has incorporated 13 changes based on stakeholder recommendations, including: emphasizing that AIIB will assist its clients to meet their nationally determined commitments (NDCs); that Energy Strategy will comply with the Environmental and Social Framework, which is in place and inform with independent complaints mechanism; the AIIB will seek to ensure that women's needs and capabilities are taken into account in development of its energy portfolio; strengthening environmental and social risk management and project review on cooperating financial intermediaries. Below, we discuss four key subjects of the energy strategy: guiding principle and implementation, coal power investment, hydropower investment, and financial intermediary.

  1. Guiding Principle and Implementation  

Apart from incorporating the SDGs, SE4ALL and the Paris Agreement, the AIIB Energy Strategy added "Promoting Energy Access" as a guiding principle and stated that "Bank support will assist client countries to meet their nationally determined contributions (NDCs) under the Paris Agreement and … reap the benefits of new technologies and innovation." This means that prior to investing AIIB needs to carefully consider the potential carbon emissions of an investment project, in addition to whether the project will help the host country meet national targets. These targerts include reducing regional carbon intensity, lowering percentage of fossil fuels in energy consumption, and increasing percentage of renewable energy.


The AIIB states in the "Implementation" section that the Energy Strategy will be reviewed and adjusted based on investment experience and portfolio development. However,  the timeline for reviewing the Energy Strategy is not outlined. The AIIB states that: "The implementation of the Energy Investment Strategy will be informed with [host countries] national energy investment plans/strategies." Therefore, we suggest that AIIB needs to increase their efforts to promote energy transition in various nations in a timely manner. It should also review and revise the Energy Strategy in 2020 based on the 2050 Low GHG Emission Development Strategies submitted by various nations before 2020, The AIIB would also benefit from formulating specific implementation roadmaps and developing specific time bound targets to realize the goal of meeting the Paris Agreement. At the same time, AIIB should develop specific policies on the energy sector and provide guidance regarding technology, emission standards and clean production in order to ensure that screening, approving, and implementation stages of an investment project are consistent.

  2. On Coal Power Investment Compared with the second draft, no text change was made regarding coal power investment. The Energy Strategy states AIIB's position towards coal power investment, namely, carbon efficient oil and coal-fired power plants will be considered in the following cases:   " - if they replace existing less efficient capacity;   - they are essential to the reliability and integrity of the system;   - if no viable or affordable alternative exists in specific cases."  

In the second AGM opening speech, AIIB President Jin Liqun said: "…AIIB will support countries to meet their goals of global initiatives, like the Paris Agreement and SE4ALL… There are no coal projects in the pipeline, and we will not consider any project if they will have environmental impacts or damage to the reputation of AIIB." Based on the "Energy Strategy" and AIIB responses, we can see that AIIB is well aware of the international sensitivity of coal investment, especially the possible financial and reputational risks associated with coal. Therefore, AIIB is holding a cautious attitude towards coal power investments. However, AIIB also makes room for potential future investments, since coal projects will be considered based on regional development needs.


Three multilateral development banks, World Bank, Asian Development Bank and European Bank of Reconstruction and Development, have all developed specific policies on coal investment. Based on these international president, we believe that AIIB is too general and lacks clear definitions and policy guidance regarding coal, which may lead to ineffective screening process.


During the Marrakech Climate Conference last year, nearly 50 countries from the Climate Vulnerable Forum in Asia committed to achieving 100% renewable energy transformation in 2050. With the accelerated global decarbonization trend, coal investments have become stranded assets not only in developed nations, but also in developing nations due to increasingly strict emission and air pollution controls. Therefore, we recommend AIIB to review and adjust the energy strategy for fossil fuel investment based on 2050 Low GHG Emission Development Strategies submitted by nations before 2020 under the Paris Agreement, and stop investing in coal power as soon as possible.

  3. On Hydropower Investment  

Compared with the second draft, Article 35 of the "Energy Strategy" included a basic description of the criteria to be used for hydropower investments. It mentions that "hydropower investment should focus on improving project quality with more comprehensive consideration on environment and social problems associated." In G:HUB's Comments on the Second Draft of AIIB Energy Strategy, G:HUB proposed that AIIB should "take into account the irreversible ecological impact associated with large-scale hydropower projects, thus we recommend AIIB not to support construction of large hydropower projects and conduct strict Environmental Impact Assessment on small hydropower construction, and EIA implementation methods, contract organizations and key indicators should be specified." 


Because this clause is not incorporated in the final draft, it is notice-worthy that during the "Dialogue with Bank Management on Transparency and Social Responsibility", President Jin Liqun said that "Large-scale hydropower will have a great impact on the environmental ecology, and AIIB will consider investing small and medium-sized hydropower projects … if [any project in the pipeline] failed in our project evaluation, we will drop it." G:HUB recommends that small and medium sized hydropower project, should also be subject to strict environmental impact assessment and information disclosure, before being approved.

  4. On Relations with Financial Intermediary  

At present, the AIIB has cooperated with two financial intermediaries: the Indonesian Regional Infrastructure Development Fund and the Indian Infrastructure Fund. Based on lessons learned from other multilateral development banks, projects developed through financial intermediaries often cause environmental and social problems due to systematic negligence or lack of capacity on part of cooperative financial institutions, which in turn cause economic and reputation losses to banks.


In response to such questions, AIIB supplemented in its final draft of Energy Strategy: "In the case of financial intermediaries, attention will be paid to their capacity for environmental and social management and careful screening of subprojects." We are pleased to see that this proposal is included in the final draft, and we encourage that AIIB follow rigorous screening, tracking and accountability procedures based on AIIB's "Environment and Social Framework" in order to avoid neglecting their own corporate responsibility.

  On Formulating Grievance Mechanism and Improving Information Disclosure Policy  

Establishing an independent grievance mechanism can help financial institutions to resolve or mitigate contentions on environmental and social problems associated with investment projects, and ensure relief measure are taken to affected communities, residents and protect long-term interest of bank’s investments. In early 2016, AIIB conducted initial reviews on some investment projects, but the grievance mechanism had not yet been established. AIIB has established a Compliance Integrity and Effectiveness Unit (CIEU), which oversees accountability, anti-corruption and assessment of internal operational efficiency. To ensure departmental independence, CIEU will report directly to the board of directors and bypass AIIB management. On April 27, 2017, AIIB called a public consultation on Grievance Handling Mechanism through its website, and plans to conduct consultations with stakeholders including communities and NGOs through video or in written form before June 26. After a first round of consultations, AIIB will issue a Draft Complaints Handling Mechanism and facilitate a second round of consultations from August 15 to September 30.


 In January 2016, AIIB published the "Public Information Interim Policy" in which information access and community's right to know are mentioned. However, it still needs to clarify the methods and means of ensuring how to properly create information disclosure channels in the locally appropriate language. It also should clarify the timeline for public information disclosure, and provide guidance on how to balance conflicts between publicly available information and confidentiality. We recommend that AIIB draws on experiences from the World Bank, Asian Development Bank and other multilateral development banks to revise the policy as soon as possible. A good information disclosure policy is a strong basis for better environmental and social performance.


To sum up, we hope that AIIB maintains an open attitude and accepts suggestions from different parties. As the president Jin Liqun said, "Criticisms keep us calm and help us to understand the difficulties to tackle … No institution is perfect, as long as we are willing to listen, we are willing to correct our mistakes, we are willing to change [so] that we can do the maximum, to achieve common objective." As a new multilateral financial institution aiming to be "green", AIIB should strictly implement its policies and strategies in order to become "green" and "lean" at the same time.