The sixth annual meeting of the board of governors of the Asian Infrastructure Investment Bank, a three-day-long event held this year in the United Arab Emirates, kicks off today.
Before it started, Euromoney sat down with AIIB president Jin Liqun. We discussed the multilateral’s commitment to climate and private-sector financing, how the bank has changed, and Jin’s hopes for a return to business as usual after Covid.
Here are five takeaways from the conversation.
Ambitions
Since its launch in 2016, the AIIB has approved 144 projects worth $28.5 billion in 31 countries. It started with 57 founding members and now has 103. Covid caused logistical headaches, but projects continue to be approved and funded: as of October 17, those total cumulative investments of $28.5 billion, stood against $12 billion at the start of 2020.
But that’s just the top-line detail.
Jin says the bank’s aim is “to reach or surpass, by 2025, a 50% share of climate finance in our financing approvals. We prioritize green infrastructure and help to support our members to meet their environmental and development goals. It is done by financing projects that deliver local environmental improvements and investments dedicated to climate action.”
The AIIB is well on its way: at the end of 2020, Jin says, climate finance accounted for 41% of all approved bank-wide financing commitments.
If ESG (environment, social and governance) is at the heart of the bank’s ethos, so is a commitment to acting as a catalyst to embed more private-sector capital in emerging-market infrastructure.
Another driving ambition, by 2030, is to ensure that at least 50% of approved financing is comprised of private-sector capital.
Our SCMI framework helps us to fund smaller projects in emerging Asian countries that may otherwise not be so cost effective
Jin tips the UN Climate Change conference, which kicks off in Glasgow on Sunday, to be “a milestone, a landmark, in terms of the international commitment to implementing the Paris Agreement. It will be a great event.”
Other multilateral development banks are geared toward private-sector capital, including the International Finance Corporation and European Bank for Reconstruction and Development.
But the AIIB’s focus on infrastructure sets it apart from the crowd. Its Sustainable Capital Markets Initiative (SCMI), launched in April 2019, enables it to work in harmony with private-sector firms on ESG-related projects.
“This is an area where we continue to develop our capital-markets operations,” adds Jin. “Our SCMI framework helps us to fund smaller projects in emerging Asian countries that may otherwise not be so cost effective. It also helps us to deepen capital markets in smaller member states.”
Partnerships
The AIIB may only be five years old, but it moved fast to bring in new member countries and to forge partnerships with the private sector.
Jin points to the $500 million AIIB Asia ESG Enhanced Credit Managed Portfolio. A tie-up with UK investment firm Abrdn helps it to channel debt-market capital into sustainable infrastructure projects in Asia and beyond.
“It’s doing well, and we also have our Climate Change Investment Framework, a bond portfolio with [French asset manager] Amundi that targets emerging-market corporate debt opportunities,” Jin notes. “Partnerships like these demonstrate we have a broad space to work with private-sector companies, particularly on projects that are focused on ESG and climate-change financing.”
Adapting to the pandemic
Covid has affected us all, MDBs included.
Soon after it became a pandemic, the AIIB created a Crisis Recovery Facility to support members and clients; as of October 17, the board had channeled $10 billion to 41 Covid-related projects in 24 member states. Among the leading sovereign recipients are India, Indonesia, Turkey and Bangladesh.
The pandemic’s personal dimensions are deeply felt. Jin points to the staff members who have been unable to travel for nearly two years: in some cases, being unable to be at the bedside of family members or to mourn their passing in person.
While the AIIB’s basic mandate is unaltered, Covid forced it to change in certain ways.
At birth, the bank’s aim was to build good, sustainable infrastructure.
“But Covid helped our shareholders to understand that when we develop infrastructure for tomorrow, we should not neglect healthcare systems,” Jin remarks. “The key is to strike a balance between physical infrastructure and a well-balanced healthcare system.”
Over the last two years, a large share of AIIB funding has been directed into projects that deliver vaccines to member states and strengthen healthcare systems.
Covid also created logistical problems, not least because bank executives couldn’t visit sites.
“This pushed us to use modern technology to supervise projects using technology,” Jin adds. “It saves costs dramatically by reducing the number of boots on the ground – but without undermining the implementation of projects.”
Business as usual?
Jin says the bank “stands ready to return to business as usual”. But to a great extent the timing of that is out of his hands.
“It is also a function of the readiness of our client members, given their Covid situations,” he admits. “We have to deal with delays in pipeline preparations as governments are bogged down in dealing with the pandemic. But we do have a pretty strong pipeline of projects.”
Jin reckons 2022 will be a year of transition, after which activity will pick up sharply. “By 2023, we will [ramp up] infrastructure project approval quite substantially without reducing vaccine purchases for certain countries. And by 2024 things will be 100% normal again.”
