This page is part of the E3G Public Bank Climate Tracker Matrix, our tool to help you assess the Paris alignment of public banks, MDBs and DFIs.
| Paris alignment | Reasoning |
|---|---|
| Some progress | The AIIB has made some progress in climate risk management by introducing its Paris Alignment Assessment (PAA) Methodology, which includes project level physical climate risk assessments and vulnerability analyses. While the Bank does incorporate transition risk into its PAA methodology, there is scope to strengthen its consideration across the Bank’s climate risk processes and sectors of operation. The AIIB lags behind peers on adaptation finance, providing only 18% of its total climate finance for adaptation in 2022. While the AIIB has also developed dedicated internal tools for climate risk screening, there is room for greater public transparency regarding these. Moreover, the Bank has yet to establish any target(s) for increasing adaptation and resilience financing, in line with joint MDB commitment to double adaptation finance by 2025. |
| Project-level climate risk management procedures | Scope of coverage of project-level climate risk management | Enhancing client climate resilience | Adaptation finance |
| The AIIB’s PAA methodology establishes climate risk screening and proofing procedures, covering both physical and transition risks. While this provides a robust basis, there is room for improvement in this approach, particularly in terms of ensuring consistent application and clarifying how detailed sectoral guidelines are applied. | Projects are screened for climate risks, and financial intermediaries must have a concrete climate risk management system, or a credible Paris alignment action plan in place. | The AIIB’s Climate Action Plan commits to enhancing clients’ climate resilience, but via specific projects rather than cross-cutting climate resilience programmes. It is unclear what assistance the AIIB provides for the application of the counterparty alignment procedures mandated through its PAA methodology, such as Paris Alignment Action Plans. | Adaptation finance levels are low, both in relative terms (18% of total climate finance in 2022) and absolute terms (compared to its peers). |
Quality and scope of project level climate risk management procedures
From 2019, the AIIB previously used Acclimatise’s Aware for Projects tool to screen infrastructure project proposals for physical climate-related risks. For medium- and high-risk projects, guidance was provided to project teams on how to reduce the climate vulnerability of the project. Since the end of 2024, the AIIB has developed and implemented its own dedicated internal physical climate risk screening tool – ‘PHYST’ – which uses both public and proprietary climate-related databases (such as the World Bank’s ThinkHazard!) to inform risk identification.[1] However, the details of this tool are not publicly available, making it difficult to evaluate its effectiveness.
In 2023, the AIIB published its Methodology for assessing AIIB Investment Operations Alignment with the Paris Agreement (AIIB PAA methodology), making the integration of climate risk considerations an explicit part of the Bank’s project level risk management processes. The AIIB PAA methodology combines the Joint MDB Paris Alignment Approach with sector-specific considerations, covering both physical and transition risks for all operations.
For physical climate risks, the Bank employs a three-step process: (1) establishing the climate risk and vulnerability context; (2) defining climate resilience measures; and (3) assessing consistency with broader climate resilience strategies. For projects deemed medium or high risk by the initial screening, the AIIB requires a detailed Climate Risk and Vulnerability Assessment (CRVA). This must identify and mitigate direct project impacts and vulnerabilities (through measures verified by the AIIB), while avoiding potential maladaptation risks, as well as providing project level climate resilience indicators for monitoring. Notably, despite the important first requirement for all operations to conduct an analysis of sensitivity, exposure, and vulnerability to climate hazards, the Bank does not indicate any standardised process for how this should be implemented. Without this, there is scope for project-by-project variation in the robustness and comprehensiveness of this initial screening process.
An annex of the AIIB PAA methodology details the CRVA process for four of AIIB’s core sectors of operations: energy, water supply and sanitation, transport, and urban development.
Based on the above, the AIIB’s PAA methodology provides a fairly comprehensive framework for assessing physical climate risks, including at the asset, value chain, and systemic levels, with detailed sector-specific guidance for high-risk sectors.
Coverage of transition risks is more mixed. The AIIB PAA methodology does include transition risk screening provisions by incorporating BB1 of the joint MDB methodology. Moreover, annex 2 of the PAA methodology (detailing BB1 application across four of the AIIB’s core sectors of operation) does reference transition risks in these areas. However, it is not clear whether this additional guidance is mandatory, and it does not cover transition risks in areas beyond the four key sectors focused on.
For operations financed through financial intermediaries (FIs), the AIIB PAA methodology adopts the joint MDB prescriptions for either transaction- or counterparty-based approaches to verifying alignment. Provided AIIB financed activities are defined, a transaction-based approach can be used, meaning the AIIB does not require FIs to be aligned with the Paris Agreement at the counterparty level for the Bank to engage with them (in line with the joint MDB approach).
If there is insufficient information for a transaction-based approach (in particular if AIIB financed activities are not defined), a counterparty-based approach is used.
Under the counterparty-based approach, the climate risk management system of a prospective FI is reviewed according to the AIIB’s own climate risk management matrix. If the Bank deems this insufficient and physical and/or transition risk exposure to be high, the AIIB requires FIs to commit to a credible Paris alignment pathway in the form of a Paris Alignment Action Plan (PAAP) before funding is disbursed. The annex of the AIIB PAA methodology includes a suggested outline indicating the content required in a PAAP. Notably, the requirement for an operation to be considered “aligned” and for funding to be disbursed is phrased in terms of a “commitment” from FIs to develop a credible PAAP. Although the AIIB will review the PAAP and periodic reporting against milestones is required, this in theory means that funding can be disbursed prior to FIs having actually implemented sufficiently robust climate risk management procedures.
Beyond the specific climate risk screening processes of the AIIB PAA methodology, the Bank also has an environmental and social risk screening framework in place. The AIIB’s Environmental and Social Framework (ESF) states that the Bank will conduct an initial environmental and social risk screening for projects entering its pipeline (which includes considering climate risk), and assign a risk category accordingly. If the Bank has determined that a project is “likely to have adverse environmental and/or social risks and impacts”, then the Bank will require the client to conduct an environmental and social impact assessment (ESIA) in accordance with its risk category and associated requirements. The client is also required to design measures to “avoid, minimize, mitigate, offset, or compensate” for the risks in the form of an Environmental and Social Management Plan (ESMP) or Environmental and Social Management Plan Framework (ESMPF). This framework applies to all projects financed by the AIIB, with few exceptions.[2]
Notably, questions have been raised by civil society organisations regarding how the ESF and its exclusion list are implemented and monitored for intermediated operations. For example, Urgewald’s AIIB Watch analysis has documented 24 cases where the Bank has failed to effectively ensure its safeguarding standards are upheld. This includes standards around forced resettlement, environmental impact assessments, and meaningful consultation with affected communities. Urgewald’s analysis shows that despite successive ESF revisions (in 2019 and 2021), many real-world scenarios continue to fall outside the standards’ protection, suggesting a gap between policy and practice in the Bank’s safeguarding procedures.
Adaptation finance and enhancing client climate resilience
The AIIB’s inaugural Climate Action Plan underscores its commitment to delivering tailored, client-focused climate solutions that address the specific needs of its member countries, avoiding one-size-fits-all approaches. This approach is reflected in the Bank’s emphasis on enhancing clients’ climate resilience via specific projects, in lieu of cross-cutting climate resilience programmes.
That being said, at COP29 the AIIB established a partnership with the Global Centre for Adaptation (GCA) to strengthen the integration of climate risk evaluations, adaptation, and resilience measures into its infrastructure initiatives across Asia and Africa. This collaboration aims to provide capacity building and technical assistance to bolster resilience and adaptative capacity among the AIIB’s clients, including through facilitating the exchange of best practices, joint solution development, and engagement in global forums.
With regard to adaptation finance, the AIIB is part of the joint MDB commitment to collectively double the total level of adaptation finance provided to clients by 2025 (compared to 2019 levels). Since 2019 – the Bank’s first reporting year in the Joint Report on Multilateral Development Banks’ Climate Finance – the AIIB’s adaptation finance levels have varied year-to-year (in both absolute terms and as a proportion of total climate finance) without any clear trend. In 2019, adaptation stood at 22% (USD 387 million) of total climate finance, before dropping to 12% (USD 142 million) in 2020, rising again to 23.7% (USD 651 million) in 2021, and falling slightly to 18% (USD 423 million) in 2022. As of the latest reporting from 2023, AIIB’s adaptation finance levels stand at 10% (USD 340 million) of its total climate finance levels. This represents an absolute (and relative) reduction compared to 2019 levels, suggesting the Bank is currently significantly off track to contributing proportionally to the joint MDB doubling commitment.[3]
The AIIB’s adaptation finance levels are the second lowest among all MDBs that report as part of the 2023 MDB Climate Finance Joint Report in both absolute and relative terms.[4] [5]
Given the AIIB’s core infrastructure financing mandate, the Bank’s relatively low adaptation finance levels (compared to peer MDBs) could partly stem from the scarcity of large-scale adaptation infrastructure projects. However, given the critical importance of climate-resilient infrastructure in addressing adaptation challenges, strengthening the pipeline of adaptation and resilience projects represents a significant opportunity for the Bank to contribute to addressing the needs of its member countries.
Recommendations:
- In view of the AIIB’s part in the joint MDB commitment to double the total level of adaptation finance levels in 2019 by 2025, the Bank should urgently develop and communicate a roadmap for how it envisions contributing to this commitment. This should consider the AIIB’s infrastructure financing mandate, ways to overcome the scarcity of large-scale adaptation projects, strategies to mainstream climate resilience into infrastructure investments, and mechanisms to provide the highly concessional and grant financing that adaptation projects may require.
- As part of this, the AIIB should adopt an explicit target for adaptation finance, which should reflect the specific characteristics of adaptation finance needs.[6] This could pave the way for the Bank to progressively and significantly increase its adaptation financing, building on existing complementary actions such as the issuance of dedicated climate adaptation bonds.[7] Any adaptation target should be complementary to the Bank’s climate finance target and avoid creating perverse incentives that could limit mitigation financing.
- The AIIB should strengthen its climate risk screening approach by clarifying to what extent the annexed sectoral guidance is mandatory, in particular as relates to transition risks.
- The AIIB should strengthen its climate risk management framework by strengthening the requirements for PAAPs to be implemented prior to the provision of financing, and by detailing how it will otherwise safeguard the alignment of FI activities in the interim period prior to full implementation. This could include provisions for regular monitoring of counterparties and structuring disbursement of funds in FI agreements to ensure adherence. To encourage further ambition, the Bank could consider using incentives (such as results-based financing schemes) in certain circumstances, such as for counterparties that fulfil more stretching components of PAAPs. The Bank could further contribute to market readiness by publicly sharing best practices and lessons learned from these assessments, helping build capacity across the financial sector to pursue Paris aligned financing.
- To ensure the robustness of the PAAPs required of FIs, the AIIB should consider building on its existing outline guidance for their content by developing a mandatory set of universal minimum requirements that aim to guarantee a sufficient level of climate resilience and risk mitigation. In view of the Bank’s own experience in developing the PAA methodology, it could consider offering technical assistance to FIs to meet these requirements.
[1] Information received directly from the AIIB.
[2] On a case-by-case basis, the Bank may use the E&S policies of other MDBs, bilateral development organisations and development finance institutions that are co-financing or administering projects and investments in which the AIIB is also involved.
[3] Notably the AIIB has yet to set any target of its own for adaptation finance, either as part of or separate from the joint MDB commitment.
[4] Of these institutions, the European Bank for Reconstruction and Development (EBRD) reported the lowest absolute volume of adaptation finance in 2023 at USD 248 million.
[5] In terms of notable dedicated initiatives to boost adaptation finance, the Bank successfully issued its first climate adaptation bond issuance in 2023 (worth AUD 500 million) under its Sustainable Development Bond Framework . For further coverage, see the “Promotion of green finance” metric.
[6] For example, private sector involvement is more advanced for many mitigation sectors, providing greater opportunities for blended finance and successful use of debt instruments. For adaptation, grant and concessional finance must be prioritised.
[7] For further details, see the “Promotion of green finance” metric.
Last Update: April 2025