Greenhouse gas accounting at project and portfolio level 

Project level GHG accounting

Shortly after being founded in 2016, the AIIB started implementing GHG accounting on a phased basis, beginning with energy sector projects. Although this has not been formally extended to cover any other sectors, the Bank does conduct GHG accounting for projects in other sectors on a case-by-case basis.[1] Accordingly, the Bank’s Environmental and Social Framework (ESF) states that an ex ante gross GHG assessment is required for projects where: (1) the AIIB determines they are expected to produce (or currently produce) “significant levels of GHG emissions”; (2) accounting of such emissions is feasible; and (3) the client has the capacity to do so. There is no reference to the scopes of emissions to be considered as part of this assessment.

In practice, this approach falls far short of instilling confidence that the AIIB will effectively, consistently, and robustly account for project level GHG emissions. On the first condition, the AIIB’s ESF does not align with best practice among peer institutions by providing a more specific quantitative inclusion threshold over which emissions accounting is required, instead relying on a subjective assessment of “significant levels of GHG emissions”. On the second condition, considering accounting “feasibility” as a precondition for gross emissions to be considered as part of a project’s climate risk assessment significantly undermines the practical implementation of this process. There is no acknowledgement that accounting not being deemed feasible does not in any way lessen the potential harm caused by potential emissions. Finally, on the third condition, while the recognition of limited client capacity is indeed valuable, rather than not requiring emissions accounting in such cases the AIIB should instead commit to working with clients to ensure this can be facilitated where necessary.

The ESF states that the client is required to report GHG assessment results to the AIIB, which in turn discloses these “following consultation”. In practice, the AIIB’s reporting of project-level GHG emissions appears limited and inconsistent. While individual project documents, such as the Environmental and Social Impact Assessments (ESIAs), occasionally include specific estimates of anticipated emissions reductions, there is no centralised, consistent reporting of the ex ante GHG emissions estimates required for projects meeting the criteria outlines above. Moreover, the AIIB has not adopted a scorecard or annual reporting mechanism that consolidates and aggregates project level emissions data at the portfolio level in line with best practice among peer institutions (see below for further details).

Since beginning GHG accounting in the energy sector, the AIIB has not provided any progress update or forward timeline regarding how this phased approach has or will be applied to other sectors of operation. Most notably, the 2022 updates to its ESF and Energy Sector Strategy do not provide any substantive details or next steps on the Bank’s project level GHG accounting, continuing to cite energy sector projects as the starting point for a phased approach. That being said, the AIIB is an active member of the IFI technical working group on GHG accounting (alongside MDB peers), and the Bank has suggested it has benefited from applying the harmonised methodologies developed in this forum.[2]

Portfolio level GHG accounting

Previously, in the AIIB’s first Energy Sector Strategy (issued in 2017) gross energy sector GHG emissions were included as a monitoring indicator as part of the sectoral results monitoring framework. In 2022 update to the strategy, this indicator was changed to instead track GHG emissions avoidance/reduction.[3]

During the public consultation process for the 2022 Energy Sector Strategy update, recommendations were made to “include additional results monitoring indicators such as GHG avoided…”. While it is therefore welcome that the AIIB incorporated this in its strategy update, this recommendation explicitly referred to “additional” indicators, and not the replacement of the existing gross emissions indicator.

Portfolio level gross emissions accounting (and disclosure) provides a valuable data point for both the Bank itself and key stakeholders regarding the overall emissions contribution of the Bank’s operations. Having an overview of the overall portfolio emissions trend is a key component to inform forward-looking portfolio steering in line with an aggregated just transition pathway across the Bank’s geographies of operation.

In this regard, the AIIB’s intention to be among the first-mover MDBs in publishing its first International Sustainability Standards Board (ISSB) report in 2025 (covering operations in 2024) is promising. This will include portfolio level information relating to GHG emissions, including scope 3 emissions.[4]

Despite the recent announcement of its first Climate Action Plan, the AIIB has yet to announce any GHG emissions targets for either specific sectors or for its full portfolio.

Recommendations: 

• In view of its commitment to pursue a phased approach to project level GHG accounting, the AIIB should communicate a clear timeline for expanding mandatory project level GHG accounting beyond the energy sector. This could involve extending coverage to the most emissive sectors of Bank lending first in the short-term, with a medium-term timeline for eventual coverage of the Bank’s full portfolio.
• Alongside extending the scope of its project level accounting approach, the AIIB should revisit the details of its current requirements. In particular, the Bank should:
  • Align with peer institutions in establishing a quantitative inclusion threshold above which gross emissions estimation is mandated.
  • Clarify its procedures and safeguards for when emissions accounting is not considered feasible.
  • Commit to facilitate the fulfilment of GHG estimates for projects where client capacity is not deemed sufficient, either through supporting clients with developing this capacity, or through accompanying financing with technical assistance for this purpose.
  • Explicitly clarify the scope of emissions that must be considered as part of the GHG assessment of projects. In doing so, align with best practice among PDBs, such as the Dutch Entrepreneurial Development Bank (FMO), as well as with comparable accounting norms and standards in the financial sector, such as from the International Financial Reporting Standard (IFRS) S2, Transition Plan Taskforce (TPT) and Science Based Targets initiative (SBTi), in considering scope 1 through 3 relevant emissions.
• Portfolio level gross emissions accounting and disclosure can continue to provide a valuable datapoint for the Bank and its stakeholders to inform a forward-looking approach that considers increasing risks of carbon lock-in and stranded assets, particularly for the energy sector. The AIIB should therefore reinstate the indicator for gross annual GHG emissions in the Results Monitoring Framework of its Energy Sector Strategy. Gross emissions accounting is increasingly recognised as a best practice norm among PDBs, adopted by institutions such as the European Investment Bank (EIB), as well as in comparable accounting norms and standards in the financial sector, including from the IFRS S2, TPT and SBTi.
• Given the AIIB’s recent recognition that Asia now accounts for over half of global emissions, the Bank should consider adopting a portfolio-wide GHG emissions reduction target. This could be implemented through a phased approach, initially applied to the energy sector, and extended to incorporate other sectors in line with project level procedures. This would be an opportunity for the AIIB to set a best practice precedent among peer institutions.

[1] Discussions with the AIIB have suggested this is determined depending on project context (and in line with the requirements of the Environmental and Social Framework, as noted in the text). Examples include transport sector projects such as the Tbilisi Metro Modernisation Project.

[2] Information received directly from the AIIB.

[3] See the 2023 Sustainable Development Bonds (SDB) Impact Report for evidence of this figure being reported.

[4] Information received directly from the AIIB. Once the Bank has published this report, E3G will review and update the analysis of this section accordingly.