The Asian Infrastructure Investment Bank (AIIB) opened for business in 2016 as a China-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. the world. Its financing has since expanded beyond the region, including the first loan to Latin America in 2020.
10.6%
of the 217 projects the AIIB has approved, proposed or completed since its inception have been in the renewable energy sector, according to analysis in July by a group of Latin American NGOs.
While the bank is committed to supporting the transition to a low-carbon economy, its efforts so far appear modest, both in terms of policy direction and 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 non-profit organization that monitors green finance. This, the group says, does not include indirect funding from financial intermediaries, so the ratio could be even higher.
According to our calculations, as of July this year, of the 217 projects the AIIB had approved, proposed or completed since its inception, 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 funding (US$68.2 billion).
Civil society organizations in Asia have already warned of the potential socio-environmental impacts of AIIB-funded projects related to the intensive extraction of natural resources, and the future tensions they could create in transboundary areas where shared natural resources are at stake. hazard, such as watersheds.
In April of this year, the bank published the draft Energy Sector Strategy, a proposal for an institutional policy for the energy sector that would support the energy transition of its 105 member countries. The consultation phase has now ended, but civil society organizations from around the world, including Latin America, have expressed concerns about the content of the draft and how the bank managed the consultation process itself.
The AIIB’s description of oil and gas as a “transitional” solution comes after the UN Secretary-General called new financing for fossil fuel infrastructure “fraudulent”.
For example, although the AIIB explicitly states in its strategy that it “will not finance new coal-fired power” and “will not finance investments in the oil sector”, 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 does it reveal a maximum time frame for completely ending fossil fuel financing and taking the step towards decarbonizing the economy.
While the draft effectively excludes funding for coal and nuclear, some of the priority energy options are alarming: hydro, for example, is costly, climate inelastic and often exacerbates the impacts of climate change. And his description of resources such as oil and gas (including LNG) as a “transitional” solution comes at a time when the UN Secretary-General has described new funding for fossil fuel infrastructure as an “illusion”.
The International Energy Agency (IEA) also concluded that it is possible to reach net zero by 2050 without any investment in new fossil fuel supply, beyond those fields that are already producing or under development. In short, AIIB should not include such projects in its portfolio.
AIIB safeguards fail
As Latin American civil society organizations have focused on environmental and social justice, we are concerned that some safeguards for public participation and transparency around AIIB energy projects have not been made clear in the draft strategy.
The document does not show any further commitment by the AIIB to the right to free, prior and informed consent – something that appears in the bank’s environmental and social framework, but only to be applied in countries that legally require it and not to all projects. financed by the bank.
There is also no guarantee 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 a clear commitment that information on sub-projects financed by financial intermediaries or special funds will be made public before they are developed, including details on local compensation mechanisms and applicable socio-environmental standards.
The consultation process for the draft energy strategy was developed superficially. While there is supposed to be an open attitude on the part of the AIIB, during the online consultative meetings, the attendees were not satisfied that the bank had room for substantive discussions; her staff listened to suggestions but did not engage sufficiently in a dialogue.
The draft strategy also fails to anticipate the different energy contexts and realities of each continent. Under these circumstances, many civil society organizations withdrew from 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 anticipate the different energy contexts and realities of each continent.
In response, several Latin American civil society organizations sent two communiqués (see: here and here) to the AIIB asking, among other things, that it develop specific strategies for each region, since each 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 expropriation, reduced access to water or food sources for local communities, or disrupt processes ecological essentials necessary for life. flourish.
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 building – both seen as drivers of post-pandemic economic recovery.
Furthermore, the bank never revealed all the comments submitted by civil society and other respondents to its consultation, or gave substantive answers as to why they would approve or reject the comments given on the final version of the strategy. Also, it has not responded to the request to submit 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 on its chosen topics.
After this first consultation process, the next opportunity for organizations like ours to engage in dialogue on the Energy Sector Strategy is the AIIB Annual Meeting, held virtually on October 26-27. The bank will hold a 90-minute session with civil society organizations and NGOs to discuss their policies, strategies and operations.
AIIB in Latin America
In January 2022, the AIIB approved its first loan for 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 could boost Brazil-Asia trade.
AIIB funding will allow BDMG to select and manage projects. However, AIIB has expressed its intention to assist BDMG in the first phase of project selection, in the evaluation of potential borrowers, as well as to strengthen the establishment and implementation of an environmental and social management system.
In particular, 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 high-risk socio- environmental. Even with solar and wind energy projects, it will be necessary to ensure due diligence regarding social and environmental risks, while respecting the rights of local communities.
Importantly, this loan could present an opportunity for 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 organizations, it is also an opportunity to learn about the AIIB.
For more than a year, a group of 17 Latin American organizations have been monitoring the AIIB. Although the bank’s presence in the region is currently minimal, it is essential that more civil society organizations join these efforts. The bank’s finalized strategy for the energy sector will be reflected in the projects it finances around the world, so ensuring its safe and fair results 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.
