Level of climate finance transparency

Transparency of climate finance data

The 2023 DFI Transparency Index ranks the AIIB 6^th (of 9 assessed institutions) for its sovereign operations, and 9^th (of 21 institutions) for non-sovereign operations in terms of overall portfolio transparency. The Index’s analysis of both of the Bank’s portfolios reveals that although the AIIB discloses a relatively large amount of data on its website, much of that is released in a PDF format and not machine-readable. This renders the data relatively inaccessible in comparison with ideal disclosure formats, such as bulk downloadable format, and to the IATI standard. The Bank also does not explicitly tag which projects underly its submission to the Joint MDB Report on Climate Finance.

Separately, the AIIB provides an adequate level of information in its submission to the OECD-DAC (Development Assistance Committee) climate-related development finance database.

Since 2020, the AIIB has reported its aggregate climate finance figures, as well as mitigation and adaptation finance breakdown, as part of the Joint Report on Multilateral Development Banks’ (MDBs) Climate Finance. The Bank also discloses aggregate climate finance figures as part of its own Annual Reports. Notably, there were discrepancies in reporting in 2022: the AIIB announced in its 2022 Annual Report that it had exceeded its corporate strategy target of 50% of overall approved financing towards climate (mitigation and adaptation), with 56% of total approved regular financing going toward climate, while the 2022 Joint Report on MDB Climate Finance put climate finance at 39% of total AIIB operations. 

This discrepancy was due to the different scope the Bank and Joint Report used to calculate the share of 2022 climate financing. The AIIB’s self-reported figure excluded projects financed through its COVID-19 Crisis Recovery Facility, while these were included in the AIIB’s total operations for the Joint Report. The AIIB has not justified its decision to diverge from the Joint MDB reporting scope on this occasion.  

Transparency of financial intermediary lending

The AIIB’s Environmental Social Framework (ESF) ordinarily gives its projects an environmental and social category rating.[1] However, projects funded through a financial intermediary (FI) are given a separate category (Category FI), with no further information on the subproject’s level of exposure to environmental and/or social risks.

The ESF does not explicitly mandate FIs to release information regarding subprojects financed, although FIs are required to monitor these. The FI must disclose an overview of its environmental and social policy to the AIIB, including of the environmental and social management system (ESMS) relevant to the specific investment(s) supported. However, the full policy and ESMS themselves are not disclosed to the public unless it concerns FI projects with higher-risk activities. In those cases, a draft environmental and social assessment report (and its associated documents) should be disclosed.[2] Private equity funds are an exception to this general approach, and are required to “disclose the name, location and sector of the client’s portfolio companies supported by the Bank’s financing within 12 months following financial closure of the investment”.

Despite these policies being enshrined within the ESF, an investigation by AIIB Watch has suggested 6 FI projects funded by the AIIB have not met these safeguard policies. Moreover, the investigation suggests that there is no mechanism or recourse in place in the event of FIs’ failure to comply with the Bank’s safeguard and disclosure standards.

Robust FI disclosure standards are critical to mitigate the risk of AIIB funds being used in activities that are unaligned with the Bank’s Paris Agreement commitments. Oversight of subprojects financed by FIs is consequently a critical component of safeguarding the implementation of the AIIB’s climate commitments at the investment level.

TCFD reporting

The AIIB has so far not undertaken any TCFD reporting, for either its sovereign or non-sovereign operations. However, discussions with the AIIB have suggested the Bank’s first ISSB report is forthcoming. Going forward, disclosure should be in line with the International Sustainability Standard Board (ISSB) standards, as the TCFD has been absorbed into these. Of particular relevance for MDBs such as the AIIB is alignment with ISSB’s IFRS S2 climate-related disclosure standard, both for the Bank’s own portfolio and for dissemination as a norm across its countries of operation. 

Recommendations:

• In line with best practice examples from peer institutions (such as the Intra-American Development Bank, IDB), the AIIB should release its project level climate finance data in machine-readable format, including clear identification of projects that contribute to its joint MDB climate finance reporting.
• In view of the potential risks posed by unaligned FI subprojects, particularly in the context of the AIIB’s Paris alignment commitments, the AIIB should aim to strengthen its FI disclosure requirements. This should include mandatory public disclosure of subproject information, clear mechanisms for monitoring and enforcing compliance with environmental and social safeguards, and regular reporting on the climate impact of FI investments.
• The AIIB should consider committing to undertaking comprehensive climate-related financial disclosure, aligned with the ISSB IFRS S2 standard, for its portfolio. This could initially be tested for the non-sovereign portfolio, where transparency is currently slightly lower and where this reporting standard may be best suited. This would serve to enhance transparency around climate-related risks and opportunities in its portfolio.
• Given that all higher-ranked institutions in the DFI Transparency Index (for sovereign operations) adhere to the IATI standards, the AIIB should consider adopting IATI reporting standards to improve the accessibility and comparability of its climate finance data.

[1] Rating is given from category A to C, A being projects with the most social and/or environmental risks.

[2] This is to be developed by the FI and approved by the Bank. According to the ESF, “higher risk activities” include: (a) all Category A activities; and (b) selected Category B activities, as determined by the Bank, that may potentially result in: (i) land acquisition or involuntary resettlement; (ii) risk of adverse impacts on Indigenous Peoples and/or vulnerable groups; (iii) significant risks to or impacts on the environment, community health and safety, biodiversity, and/or cultural resources; (iv) significant retrenchment of more than 20% of direct employees and recurrent contractors; and/or (iv) significant occupational health and safety risks.