Integration of climate change into country level work

Explanation

The AIIB operates without predefined country level strategies, structuring its engagement around case-by-case project demand. Accordingly, the Bank will “review any project that is aligned with the Bank’s thematic priorities and will bring clear benefits to Asia”. AIIB President Jin Liqun has emphasised that the Bank’s approach differs from the traditional practice of MDBs at the country level. Citing inefficiency and cost concerns as justification to not open AIIB offices in all countries of operation, President Jin reaffirmed the Bank’s commitment to working through a regional hubs structure.

While this approach enables efficiency and allows for case-by-case consideration of issues at the country level, it also means that the AIIB does not systematically align its country level engagement with national development strategies or climate commitments from the outset. Country strategies could provide significant value in orienting the Bank’s engagement in member countries to maximise benefits and synergies, both across projects and with countries’ own climate and development plans.

Discussions with the AIIB have suggested that the Bank has, since its inception, been actively cooperating with MDB peers and/or development partners to leverage pre-existing country analysis and diagnostics to maximise synergies and avoid duplication of effort. This has provided a base from which the Bank has sought to systematise its own country engagement in recent years through the development of multi-year rolling pipelines at the country-level.[1] The Bank has reaffirmed that its Corporate Strategy, Thematic Priorities, and “climate considerations” (i.e. the Climate Action Plan) are all taken into account for pipeline development.[2] While these practical efforts are certainly welcome, they are not an equivalent substitute for the dedicated, tailored country strategy frameworks to guide medium- to long-term country engagement that are standard practice among peer institutions.

Specifically in terms of considering country climate commitments, since July 2023 the AIIB evaluates how individual operations align with a country’s NDC, in line with its own commitment to align operations with the Paris Agreement.[3] However, NDC considerations do not yet guide project selection at an early stage and there is no clear formal engagement mechanism for the AIIB to encourage greater ambition.

Notwithstanding this, the AIIB’s consideration of alignment with NDCs suggests an increasing recognition of the role national climate commitments play in shaping sustainable infrastructure investment, and as an important investor in the region with a green mandate it has a clear interest in its members having strong enabling environments for ambitious climate action. Further, given the Bank’s growing membership – including countries beyond Asia – the AIIB’s role in shaping infrastructure financing has expanded, creating important opportunities to enhance country level engagement.

Accordingly, the AIIB engages with national counterparts through dedicated financial mechanisms. The Project Preparation Special Fund (PPSF) supports lower-income members in developing viable infrastructure projects, while the Global Infrastructure Facility Special Fund enhances co-financing opportunities. Additionally, the Bank’s approach to partnerships helps bridge investment gaps in member countries. In 2024 the Bank notably approved a new Climate-Focused Policy-Based Financing (CPBF) mechanism to add to its set of sovereign-based financing instruments. The CPBF will support country-led policy and institutional reform programmes that target scaling up climate finance and accelerating a low-carbon and climate-resilient transition. The mechanism is intended to focus particularly on adaptation, along with supporting the creation of an enabling environment for private capital, and climate-related infrastructure.

Given the AIIB’s focus on infrastructure sectors which have strong policy and regulatory dependencies, deepening engagement with member governments through the development of country strategies could bring considerable advantages. Fundamentally, this could better enable the Bank to support creating the enabling conditions for sustainable investment at country level, enhancing long-term climate and development outcomes. Doing so could allow the Bank to further align its investments with national and regional sustainability objectives, better leveraging its existing funds, partnerships and co-financing mechanisms, and reinforcing its leadership in financing resilient and low-carbon infrastructure.

Recommendations:

• The AIIB could significantly enhance its development and climate action impact by developing high-level country engagement frameworks or dialogues that identify strategic infrastructure priorities and opportunities building on national development plans and climate commitments. These frameworks would not constrain the Bank’s operational flexibility but rather provide useful context for project origination, selection and development. This could help to maximise synergies across investments, aligning with the AIIB’s overall mandate to improve economic and social development in Asia through financing green infrastructure. Such an approach could strengthen AIIB’s ability to respond to country-specific needs while maintaining its operational model.
  • This could include expansion of the CPBF and/or greater collaboration with existing initiatives to which the AIIB has access, such as the Joint MDB Long-Term Strategy Facility or NDC Partnership.[4] Focus areas could include the development of green finance frameworks and enabling environments for green investment, building on the Bank’s strength in this area.

[1] See for example, in Uzbekistan.

[2] Information received directly from the AIIB.

[3] For coverage of the AIIB’s approach to Paris alignment, see in particular the “Climate risk, resilience, and adaptation” and “Climate and overarching strategy” metrics.

[4] For further coverage, see the “Technical assistance for implementing Paris goals” metric.