Road to COP26: Taking on Climate Change With Infrastructure for Tomorrow
In January 2016, the Asian Infrastructure Investment Bank started operations as the first new multilateral development bank (MDB) of the 21st century. Five years on, the bank has evolved from “a new kid on the block” to a thriving international financial institution. We have strong multilateral governance, an AAA credit rating, and we maintain high international standards in our rapidly growing project portfolio. We have over $22 billion of approved loans and investments in 108 projects across 28 members.
As chief secretary to the United Kingdom Treasury from 2010-2015 — and part of the ‘quad’ of senior ministers that led the government at that time — I was at the heart of the U.K.’s decision to join the new bank. And so, I was greatly honored 5 years ago to take up office as vice-president and corporate secretary of the AIIB.
AIIB was established to help foster sustainable economic development, create wealth, and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors. Our core values are “lean, clean, and green” and as AIIB was created just a few weeks after the Paris Agreement was signed, supporting our members to become more sustainable is a top priority for us. Tackling climate change and ensuring sustainable economic growth is the most pressing medium-term challenge for humanity and this will be a major focus for AIIB over the next decade.
Our green investment objectives focus particularly on climate change mitigation and adaptation. Tackling climate change effectively will require huge investment in clean power and sustainable infrastructure all over the world. Enhanced investment in climate change mitigation calls for financing projects that lead towards carbon neutrality. For example, in the energy sector, we are supporting countries facilitate their transition to a less carbon-intensive energy mix. What is critical is the transition to renewable energy to ensure that growth and livelihoods will not be adversely affected throughout the entire process.
Global efforts are very encouraging including the cooperation we have with other MDBs. In fact, AIIB and a few MDB’s have begun to collaborate annually, to make public MDB tracking methodologies and publish climate finance numbers. Indeed, there is a global momentum in investments in low-carbon, climate resilient infrastructure, but the actual volume of investment is still well below the needs envisaged in the Paris Agreement to enable mankind to avoid irreversible catastrophic consequences due to climate change.
To play our part, AIIB has set an ambitious target of ensuring that 50% of our approved financing will be directed toward climate finance by 2025. This target is one of the most ambitious among international institutions and was agreed as part of our new Corporate Strategy “Infrastructure for Tomorrow” (I4T) that was unveiled in September 2020. We hope this ambitious goal will contribute towards a successful outcome of the vitally important COP26 meeting on climate change being hosted in by the U.K. later this year. In additional to green infrastructure, Infrastructure for Tomorrow focuses on digital technology, connectivity, and private capital mobilization as inter-linked drivers of future sustainable growth.
I4T reflects AIIB’s firm commitment to sustainability by requiring that all investments be environmentally sustainable in terms of addressing direct and indirect impacts on the physical and biological environment such as water and air quality, biodiversity, local pollution, climate change and land and water use. Indeed, with China hosting the UN summit on biodiversity and the U.K. hosting the COP26 on climate change — and the U.S. rejoining the Paris Agreement — we will see a concerted global effort to set more ambitious goals to protect the natural environment and reduce carbon emissions, in which AIIB will play its full part.
AIIB supports projects that deliver local environmental improvements and investments dedicated to climate action. This covers a range of investments and sectors including renewable energy and low-carbon public transportation as well as better water management and sanitation, pollution control and enhancing ecosystem services. From 2016 to 2018, AIIB provided $2.5 billion climate finance in cumulative terms (an average of approximately 35% of AIIB’s total financing during that period) according to international standards. In 2019, AIIB’s climate finance reached $1.7 billion (39% of total financings approved in the same year).
Below are some examples:
• Wind: the development, construction, and operation of a 100 megawatt (MW) wind farm in Kazakhstan, approximately 9 kilometers southwest of Zhanatas in the Zhambyl region, which will be the largest wind power plant in Central Asia. The project aims to promote energy access and security, reduce the carbon intensity of energy supply, and catalyze private capital investment in renewable energy infrastructure. The project will contribute to Kazakhstan’s Nationally Determined Contribution (NDC) by providing approximately 319 gigawatt hours of renewable energy to the country per annum, thereby reducing greenhouse gas (GHG) emissions equivalent to 260,623 tons of CO2 equivalent per year.
• Solar: the construction of the first utility scale solar project in Oman with a total capacity of 500 MW, to address the increased demand for power brought about by sustained economic and population growth and the expansion of heavy industry. The country has one of the highest solar densities in the world, providing a great development potential for solar energy resources. Currently, almost all the installed electricity capacity in Oman is fueled by natural gas, leaving huge potential for renewable energy. Also, the construction of a 250 MW solar project in India being developed by a special purpose vehicle. The project will add 250 MW of solar capacity — equivalent to approximately 519,776 tons of annual CO2 emission savings in its first year of operations in 2022 — as well as help India meet its overall renewable energy capacity target.
• Connectivity: The Karachi Bus Rapid Transit (BRT) Red Line Project will help to reduce traffic congestion, air pollution and noise resulting from the rapid population and economic growth of Karachi. The use of a compressed natural gas (CNG)-hybrid bus fleet and a waste-to-fuel scheme will help to mitigate climate change by reducing GHG emissions by 77,979 ton of CO2 equivalent per year. The project will also promote the use of renewable energy through the installation of solar panels at stations. The project also considered the impact of higher temperature and increased rainfall resulting from climate change, and integrated climate resilience measures (lane strips pavement, planting of vegetation, permeable pavement on pedestrian paths, and rainwater collection and grey water systems) into the project design accordingly.
The pandemic has forced a rethink of investments and how we do business in the future to ensure growth, durability and sustainability. This means that incorporating environmental, social and governance (ESG) standards in business activities is now an absolute necessity. Greater and more strategic investments in the health sector are needed if we are to safeguard ourselves and our families against the next pandemic.
Fortunately, MDBs, policymakers and leading thinkers recognize this urgent need and are responding to it. AIIB understands that we can only improve our health systems by addressing climate change simultaneously. We need to probe the intricate emerging pattern of the relationship between climate and health outcomes.
There will be existential consequences if policymakers are not able to tackle climate change and build better public health resilience. Left unchecked, it will exacerbate the challenges to our health, social and economic systems whose boundaries have already been overstretched by the impacts of Covid-19.
At the same time if we also have to successfully overcome the infrastructure gap and reboot the global economy, we must deploy a more innovative approach and solve all these challenges holistically. This will include using the latest technological innovations, both in terms of how we solve these challenges and the solutions we adopt and importantly, that they are environmentally and ecosystem smart.
As a young multilateral development bank located in Asia — a region that is at the forefront of technological innovation — we are well-positioned to seize the opportunity to invest in infrastructure that capitalizes on the latest developments in infratechnology. We have seen and will continue to see this trend of an increasingly interdependent world, where digital connectivity helps boost our efficiency significantly. New technologies can also level the playing field for low-income countries — enabling them to leapfrog on their development journey — areas where our financial assistance can make a remarkable value addition to their economies in both the infrastructure and healthcare arenas.
We are constantly looking at innovative ways to uncover new financing and risk sharing models to work with the private sector to take on such projects and we will aim for a target of 50% of AIIB’s approved financing to be in the private sector by 2030. To support this shift, we launched the Sustainable Capital Markets Initiative in 2019.
To date, we have launched two portfolios under the initiative. One is the ESG Enhanced Credit Portfolio with Aberdeen as asset manager and the other is the Asia Climate Bond Portfolio with Amundi as our asset manager. The latter aims to provide a standard for investors to pick investments that are actively contributing to the three objectives of the Paris Agreement: climate change mitigation, climate change adaptation and alignment of financial flows towards a low carbon and climate resilient future.
The way forward is green infrastructure with sustainability, innovation and connectivity all intricately intertwined at its core. AIIB will continue to be at the forefront unlocking new capital, new technologies and new ways to address climate change and connect Asia with the rest of the world. If we can develop Infrastructure for Tomorrow, we will help to ensure a better, healthier, and more sustainable life for people all over Asia.
Danny Alexander is vice president and corporate secretary at the Asian Infrastructure Investment Bank and a former U.K. cabinet minister.
This article is part of a series of commentaries, in collaboration with the British Embassy in Beijing, in the run-up to the 26th U.N. Climate Change Conference of the Parties (COP26), scheduled to take place in Glasgow in November 2021.
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