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Asian Infrastructure Investment Bank
Integration of climate mitigation and resilience in key sectoral strategies
| Paris alignment | Reasoning |
|---|---|
| Some progress | The AIIB’s sectoral strategies show varying degrees of climate integration. The Energy Sector Strategy demonstrates the most progress in addressing Paris Agreement goals, while other sectors like transport lag behind. The Bank’s approach across sectors is characterised by a recognition of climate challenges, but often lacks specific, time-bound commitments and detailed implementation plans that will support alignment of the Bank’s activities with the temperature goals of the Paris Agreement in practice. Inconsistent integration of climate considerations across sectoral strategies may result in missed opportunities to promote climate resilience and mitigation in its infrastructure investments. |
| Mitigation | Resilience | |
|---|---|---|
| Energy | The AIIB’s Energy Sector Strategy excludes coal and upstream gas financing, while supporting the transition to clean energy systems. However, the strategy continues to allow upstream oil and midstream and downstream gas and oil investments provided they are assessed as Paris aligned. The strategy understandably prioritises energy access in developing economies, recognising the concurrent goals of sustainability and a just energy transition, but without committing to a forward pathway for phasing out fossil fuel financing in line with this. | The AIIB’s approach to climate resilience in the energy sector is limited. The Energy Sector Strategy provides only brief guidelines for considering climate risks in sectoral operations. While the strategy acknowledges the need for energy systems to adapt to climate change, it lacks detailed plans or specific commitments for enhancing the resilience of energy infrastructure in the face of climate impacts. |
| Transport | The AIIB’s Transport Strategy incorporates the “Avoid–Shift–Improve” principle for mitigating GHG emissions, but lacks detailed implementation plans or specific climate targets related to this. The strategy refers to promoting green transport technologies in the context of higher income countries but fails to comprehensively address embedded and induced emissions from infrastructure expansion. | The AIIB’s Transport Strategy shows significant gaps in addressing climate resilience and adaptation. The strategy contains minimal reference to climate risks or resilience measures for transport infrastructure, despite their critical importance. |
| Water | Climate mitigation considerations are present in The AIIB’s Water Sector Strategy acknowledges the mitigation potential of the water sector, including specific reference to wastewater treatment and efficiency improvements in water systems. The strategy is accompanied by a technical sector analysis that further emphasises interdependence with other sectors that are highly relevant for climate mitigation (such as energy, transport, and agriculture). However, neither document makes clear reference to climate mitigation in the context of the Paris Agreement. Moreover, while the strategy mentions hydropower as a potential investment area, this is without explicit reference to the necessary safeguards for its use with regard to social and environmental risks. | The AIIB’s approach to climate resilience in the water sector emphasises improving resilience to water-related disasters and adapting to climate change impacts. The strategy incorporates the Sendai Framework for Disaster Risk Reduction and promotes cross-border information sharing for early warning systems, but lacks detailed commitments or implementation plans for enhancing overall climate resilience in water infrastructure. |
| Cities | The AIIB’s Sustainable Cities Strategy recognises climate mitigation as a key goal, focusing on energy efficiency, low-carbon infrastructure, and sustainable urban development. However, the strategy lacks specific targets or detailed plans for reducing urban emissions, limiting its effectiveness in guiding climate-aligned urban investments. | The Sustainable Cities Strategy acknowledges the importance of urban resilience to both sudden shocks and slow-onset climate impacts. It considers climate adaptation in various urban systems, including water supply and sewage, but lacks concrete commitments or comprehensive plans for enhancing urban climate resilience. |
| Agriculture | The AIIB does not ordinarily finance projects in the agriculture sector. Should the Bank in the future decide to formally extend its sectoral focus area to include rural infrastructure and/or agriculture development, a dedicated sector strategy would be a necessary first step for ensuring climate mitigation considerations are incorporated in the Bank’s strategic approach to sectoral interventions. | The AIIB does not ordinarily finance projects in the agriculture sector. Should the Bank in the future decide to formally extend its sectoral focus area to include rural infrastructure and/or agriculture development, a dedicated sector strategy would be a necessary first step for ensuring climate adaptation and resilience considerations are incorporated in the Bank’s strategic approach to sectoral interventions. |
Energy
The AIIB updated its Energy Sector Strategy (ESS) in November 2022, acknowledging the fundamental need for the region’s energy systems to “entirely change in the coming decades”, in order to achieve the temperature goals of the Paris Agreement. The strategy aims to guide the AIIB’s financing decisions and priorities in the sector, while respecting the energy policy decisions of member countries. To this end, the AIIB’s energy sector strategy is guided by six principles:
- Promote energy access and security.
- Support transition to a clean energy system.
- Realise energy efficiency potential.
- Manage local and regional pollution.
- Mobilise private capital.
- Promote connectivity and regional cooperation.
The ESS commits the AIIB to continue supporting “lower carbon alternatives” as part of member countries’ transition to cleaner energy systems. However, “lower carbon alternatives” are not explicitly defined further, nor does the strategy set out a pathway for the eventual phase-out of fossil fuels (as is explicitly mentioned in their Climate Action Plan).
That being said, the ESS clearly reaffirms the AIIB’s commitment to not support upstream gas exploration and drilling activities. The Bank will continue to support midstream gas infrastructure, natural gas-fired power generation, and downstream facilities, as long as certain criteria are met.[1] The AIIB will not consider the financing of nuclear plants, thermal coal mining, or coal-fired power and heating plants or projects. The Bank will continue to support oil sector investments (upstream through downstream) only in exceptional circumstances to improve basic energy access and reduce greenhouse gas emissions from flaring and leakage. Such investments must demonstrate that a fully renewable approach is neither technically nor financially feasible and commit to minimising the non-renewable component (subject to financial and reliability constraints).[2]
The ESS explicitly reaffirms the AIIB’s commitment to Paris alignment. Since its publication, the AIIB has also published its Methodology for Assessing the Alignment of AIIB Investment Operations with the Paris Agreement (PAA methodology), which provides further details on energy-sector-specific approaches to assessment of Paris alignment. Relevantly in terms of supporting a just transition, this reiterates the AIIB’s prioritisation of increasing overall energy access among its members, suggesting fossil fuel projects that increase energy access in emerging economies may continue to be approved. While there may well be cases where such investments are justified in light of genuine constraints, they must always be accompanied by a robust and forward-looking risk analysis to account for the risk of contributing to emissions lock-in and stranded assets. Examples of such an approach can be seen among peer institutions, such as the safeguards adopted by the European Bank for Reconstruction and Development (EBRD) through its approach to fossil fuel investments.
The ESS underscores the importance of resilience and adaptation as integral components of its energy sector operations. The strategy commits to scaling up adaptation finance to meet member countries’ development needs and achieve AIIB’s 2025 climate finance target, emphasising that adaptation is inherently multi-sectoral. Climate resilience considerations are embedded in the design of energy infrastructure, particularly for hydropower, solar, and wind energy systems, as well as heating, cooling, and electricity transmission and distribution networks. However, the AIIB regrettably lacks comprehensive strategies or explicit pledges to bolster the resilience of energy infrastructure against climate risks.[3]
Transport
The AIIB published its Transport Strategy in 2018. Climate change plays a minimal role in the overall strategic direction of the document: neither the Paris Agreement nor climate change is explicitly mentioned and discussed. In part, this may be a result of the document not having been updated since publication to integrate the Bank’s subsequent climate commitments, including its Paris alignment methodology. The strategy does refer to the three-step “Avoid–Shift–Improve” approach to guide actions to mitigate GHG emissions in the transport sector. However, it is unclear to what extent this approach proactively guides the AIIB’s sectoral interventions.
The strategy states that for “upper, middle and high-income countries where basic transport provision has been met, projects financed by AIIB will come with additional focuses on spreading green transport technologies and uplifting transport productivity”. As such, it is unclear to what extent green transport technologies will be actively considered in the design of projects where basic transport infrastructure is not yet in place. More critically, there is no direct reference to climate adaptation, risk, and resilience in the strategy. Given the document’s focus on long-term infrastructure investment in Asia, this is a notable gap which critically needs to be addressed.
The PAA methodology mentions that “GHG emissions of mobile assets will be considered for understanding the sectoral decarbonization options and trends when financing transport infrastructure”. For road infrastructure projects not universally aligned with the Paris Agreement, the AIIB will undertake a lock-in test to ensure project(s) will not prevent future deployment of other Paris aligned activities. However, there is no explicit reference to critical consideration of the embedded and induced emissions associated with transport infrastructure expansion.
Water
The AIIB’s Water Sector Strategy, published in 2020, recognises the cross-cutting importance of the water sector in the context of the adverse effects of climate change and Asia’s particular vulnerability to impacts on natural water cycles. To this end, the Bank’s investments in the sector are focused on three categories, which include a dedicated focus area on improving resilience to the impact of water-related disasters. Across its investments, the Bank’s approach will be guided by four principles, including promoting sustainable infrastructure to address climate change adaptation and mitigation. The water sector strategy is also accompanied by a technical sector analysis which emphasises the nexus between the water sector and other key sectors of operation (such as energy, agriculture, and urban development).
In terms of climate mitigation aspects, the water strategy makes reference to sustainable support for water usage in both the energy and agriculture sector. This includes specific reference to hydropower, improved efficiency and cooling use. Given the AIIB’s acknowledgment of Asia’s hydropower potential, and the known social and environmental implications of hydropower use, the strategy critically lacks concrete acknowledgement of or reference to the necessary safeguards to prevent and mitigate such risks. Notably, both efficiency improvements and wastewater treatment are included as monitoring indicators in the strategy.
In terms of adaptation and resilience, the strategy acknowledges the need to mitigate “water’s destructive force”. Consequently, the AIIB commits to pursuing the integration of resilience measures throughout the sector to reduce vulnerability and support adaptation. The strategy also features two dedicated resilience monitoring indicators (beneficiaries from water disaster protection, and land protected through flood control infrastructure). The accompanying sector analysis document further acknowledges the cross-border nature of hydrological and meteorological issues in the water sector. Consequently, it outlines the need to support investments that both strengthen disaster early warning systems and weather services and promote information sharing across the region. Notably, it also considers the use of the Sendai Framework for Disaster Risk Reduction for investments in the water sector.
While the water strategy itself makes no references to the Paris Agreement, the PAA methodology includes a section on water sector-specific considerations for direct investment operations. This recognises the complexity of water and supply networks and requires water sector investments to undertake an assessment of climate risks and potential points of failure across the network. Project developers themselves are responsible for this assessment with the AIIB’s role being to verify whether the assessment considers these issues in a way that will “manage expected material physical climate risks”.
Notably, the AIIB’s first Climate Action Plan (CAP) includes wording on increasing funding in the water sector, particularly to promote a holistic approach to integrated water resource management across sectors. The CAP also acknowledges that the water sector is a key component of climate adaptation in Asia.
Cities
The AIIB published its Sustainable Cities Strategy in 2018. The strategy explicitly recognises the need to consider the growth of Asian cities in the context of climate change. Both climate mitigation and resilience are incorporated among the goals of sustainable cities, which are defined as: green, resilient, efficient, accessible, and thriving (GREAT). Mitigation is integrated within the AIIB’s priority areas for sectoral interventions, specifically in the context of urban energy efficiency, sustainable water usage, and low-carbon transport infrastructure. Resilience is defined as the “ability to withstand both sudden shocks (e.g. natural disasters) and slow-onset impacts (e.g. through climate adaptation)”. “Improving basic infrastructure and city resilience” is consequently one of four investment areas identified by the Bank for the sector, with specific reference to urban water and sanitation and flood management investments.
The sustainable cities strategy briefly refers to its GREAT approach aligning with the Paris Agreement. The AIIB’s PAA methodology for its investment operations, published subsequently, includes a section on specific considerations for direct investment operations in the urban development sector. This recognises that urban development projects are multisectoral, and hence pose challenges in risk screening. Specifically, risks from outside the boundary of a project may still have significant impacts and should be addressed. To this end, the document states that the urban climate risks and vulnerability assessments (CRVA) should actively identify and address interdependencies (for example: transport, water supply, energy networks), conduct urban heat map modelling, and identify areas at risk of surface water flooding. It also recognises that cities are drivers of GHG emissions, and thus AIIB-funded urban development projects need to address both adaptation and mitigation.
Agriculture
The AIIB has confirmed that it does not consider the agriculture sector to be a priority focus area for the Bank’s interventions. As such, the AIIB’s Climate Action Plan, Corporate Strategy, and Methodology for Paris Alignment make no specific reference to aligning agricultural or rural infrastructure sector investments and lending to the Paris Agreement.[4]
That being said, the Bank’s project list suggests it has financed one project in the “rural infrastructure and agriculture development” sector in the past. Should the AIIB consider formally extending its sectoral focus areas to include rural infrastructure and agriculture development projects in the future, developing a robust dedicated sectoral strategy or guidance document will be a critical first step to ensuring that climate change considerations are suitably integrated in its approach.
Recommendations:
- As part of mainstreaming Paris alignment throughout its operations, the AIIB should consider reviewing each of its sectoral strategies to ensure dedicated integration of its Paris Alignment Methodology. This should include clear, sector-specific targets and timelines to monitor full alignment with the Paris Agreement goals (both mitigation and adaptation) and clear guidance – in line with international best practice – for treatment of transition assets in a manner that is consistent with the 1.5 °C temperature goal.
- The AIIB’s transport sector strategy should be strengthened through explicit incorporation of adaptation and resilience measures, as well as broader application of the approach to prioritising green transport technologies. On the former, the strategy should reflect the critical importance of building resilience into the often long-term infrastructure investments the AIIB supports, with provisions for screening for opportunities to do so throughout the project cycle. On the latter, while the strategy currently emphasises prioritisation of green transport technologies primarily for advanced economies, a version of this commitment could be extended to cover all transport sector interventions. This would signal the Bank’s intention to prioritise green alternatives wherever possible (in view of limiting embedded emissions), with suitable allowances for technical and financial feasibility in view of the urgency of meeting basic infrastructure needs.
- The AIIB should enhance its approach to energy transition by developing a clear, time-bound plan for phasing out all fossil fuel investments, including midstream and downstream gas, in alignment with its commitment under the Climate Action Plan to support the Paris Agreement goals. While continuing to support energy access, the Bank should seek to prioritise renewable energy and energy efficiency investments, to meet both immediate energy needs and long-term climate objectives. In doing so, the Bank should address the current ambiguous language on “low carbon alternatives” by defining specific criteria for such alternatives to ensure they genuinely contribute to long-term decarbonisation. This would help to mitigate the risk of contributing to carbon lock-in and stranded asset risk.
- Should the AIIB consider extending its sectoral focus areas to include the agriculture sector, the Bank should develop a comprehensive “Agriculture/Rural Infrastructure Sector Strategy”. This should address the sector’s significant climate impacts and opportunities, including clear commitments to eliminate agricultural commodity-driven deforestation and promote climate-smart agricultural practices as part of building resilience in rural infrastructure. Such a strategy should align with the Paris Agreement goals and include specific targets for both mitigation and adaptation in the agricultural sector.
[1] These include not conflicting with the member’s NDCs and LTSs, creating a risk for carbon lock-in or stranded assets, and displacing low-carbon solutions.
[2] For further analysis, see the “Fossil fuel exclusion policies” metric.
[3] This is especially relevant for the Asian continent, which is regularly faced with a variety of disasters whose frequency is increasing due to climate change, such as floods, storms, cyclones, earthquakes, landslides, and volcanic activity.
[4] The AIIB’s 2022 Environmental Social Framework (ESF) does include some provisions relating to the agriculture sector, particularly as relates to forestry. See the “Nature based solutions” metric for further details.
Last Update: April 2025