Nature based solutions

Nature based solutions

The AIIB endorsed the Joint MDB Statement on Nature, People and Planet at COP26 in 2022 and the MDB Common Principles for Tracking Nature-Positive Finance at COP28 in 2023. In parallel, the Bank has been exploring the use of nature based solutions (NBS) in key infrastructure sectors since 2021, including water and sustainable cities.[1] So far, this has involved strategic-level planning and scoping, but has not yet translated into concrete projects approved as of 2024.[2] At the strategic level, the Bank’s Climate Action Plan (CAP) states that the Bank will finance more NBS and that “integrating nature-based solutions into infrastructure design and operations is a key objective”. The CAP also notes that the AIIB is currently considering private and public nature bonds, debt-for-nature swaps, nature linked incentive mechanisms, and using concessional finance to integrate NBS into traditional infrastructure design. However, no targets or commitments regarding the deployment of these instruments, or NBS projects more broadly, are detailed.

Beyond the CAP, NBS are also referenced across other AIIB strategic documents, such as the Bank’s Sustainable Cities Strategy. This refers to operations that “enhance resilience against climate change and natural disasters, including through nature-based solutions where feasible, within urban boundaries” among the targeted investment areas.

As part of its strategic-level scoping for the potential of NBS, the AIIB is also undertaking thought leadership efforts on NBS for infrastructure development. Specifically, during COP28, the AIIB launched a report on Nature as Infrastructure, which defines, measures, and quantifies nature as a form of infrastructure and asset class. Among other key messages, the report acknowledges that MDBs can provide the data and conditions conducive to improved governance for nature-focused financial instruments and markets. As a first step, the report accordingly provides valuable insights and data on nature as an asset class and as a vital form of infrastructure. The Bank has since followed up on this initial flagship report with a subsequent brief entitled “Investing in Nature as Infrastructure – The Opportunity”.

While the AIIB has made important strategic commitments regarding NBS, it does not appear to have a dedicated systematic screening process in place to identify and evaluate potential NBS opportunities. That being said, the Bank’s standardised project screening process (which includes review by a Screening Committee) does provide a mechanism for the AIIB to review strategic, thematic, and policy alignment (including increasingly pertinent nature and biodiversity considerations) for projects within the pipeline.[3] A more targeted screening process could help to systematically identify where NBS approaches could offer cost-effective alternatives or complements to traditional infrastructure solutions. In doing so, this could help to operationalise the Bank’s strategic commitment to NBS by ensuring these are consistently considered during project development.

Biodiversity

The AIIB’s CAP states that the Bank will “actively support its members to meet their commitments under the Global Biodiversity Framework” and plans to promote the use of NBS (including through the measures referred to above) and mobilise concessional finance for developing natural infrastructure. The CAP also states the Bank will aim to promote wider awareness of NBS effectiveness to further incentivise their uptake.[4] However, specific targets to this effect (including relating to mainstreaming biodiversity considerations across the Bank’s operations) are absent.

In terms of operational safeguards, the AIIB’s  Environmental and Social Framework’s (ESF) exclusion list states that the Bank will not knowingly finance “trade in wildlife or production of, or trade in, wildlife products regulated under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES)”, as well as activities prohibited by international conventions that protect biodiversity resources. The Bank has not ruled out financing operations situated on nationally or internationally protected land, but such projects are required to “implement additional programs to promote and enhance the conservation objectives of the protected area”. The ESF also includes provisions to avoid and/or mitigate adverse impacts in line with applicable laws and regulations in such cases.

More broadly, the ESF also requires the demonstration of net gains for critical habitats and no net loss for natural or modified habitats within the scope of a given project, in order to qualify for financing.

Agriculture and livestock

Although the AIIB has been supporting standalone projects in sustainable agriculture, it lacks an overarching agricultural strategy document to guide its investments in the sector.[5] Without this foundational strategic orientation, there is very limited publicly available information regarding the Bank’s approach to agriculture sector investments. Given standalone projects in sustainable agriculture are actively being financed, the lack of evidence to suggest the AIIB has any specific environmental standards or safeguards in place to govern investments in the sector is concerning.

During COP28, the AIIB signed a Memorandum of Understanding with the Food and Agriculture Organization (FAO). This newly established partnership aims to unlock new financing in AIIB member countries for water resource management, agricultural productivity, and climate-resilient infrastructure. This strategic move aligns with the AIIB’s broad mission to fund “infrastructure for tomorrow” while indicating an expansion of the Bank’s existing investment areas to include agricultural and rural development. Notably, the partnership specifically focuses on digital innovation and the social development needs of vulnerable groups, suggesting the Bank is positioning itself to play a larger role in addressing both technological advancement and social equity in rural areas.

Forestry

The AIIB has not financed any dedicated forestry projects. The AIIB’s Environmental and Social Framework’s (ESF) exclusion list prohibits the financing of “commercial logging operations or the purchase of logging equipment for use in primary tropical moist forests or old growth forests” and the “production or trade in wood or other forestry products other than from sustainably managed forests”. Although these are welcome measures, they fall short from a zero net deforestation pledge and there is little operational guidance to allow scrutiny over how they are implemented in practice.

The exclusion list also notably does not include any specific prohibition on funding projects which involve the conversion of primary natural forests for other land uses. Considering the prevalent and environmentally harmful practices of forest conversion (such as to establish oil palm plantations) across Asia, this represents a significant potential shortfall of the Bank’s safeguards. The definitions of the ESF do ensure that such projects would undergo additional scrutiny as “Category A Projects”. This includes assessing viable alternatives for activities that result in “significant conversion or degradation” and if none are available, take measures to ensure: (1) the project’s overall benefits “substantially” outweigh environmental costs; and (2) any conversion or degradation is mitigated through available measures. While these additional safeguards are undoubtedly welcome, they fall short of fully prohibiting deforestation or conversion of natural forests in such cases.    

In terms of specific initiatives, the AIIB’s CAP indicates a focus on supporting forest protection through market-based mechanisms (such as carbon markets) to mobilise private sector financing for high-integrity forest initiatives. However, no concrete evidence of this being implemented could be identified. There is also no evidence that the AIIB’s commitment to the GBF (in the CAP) translated into any targeted financial support for country-specific forest goals. That being said, the Bank’s aforementioned Nature as Infrastructure report does usefully illustrate how forests can provide critical infrastructure functions, with case studies on China’s Sanbei Program, Indonesia’s mangroves and Bangladesh’s wetlands.

The AIIB currently does not explicitly mention peatland conservation and restoration across any of the Bank’s institutional documents. Southeast Asia, a key region of AIIB operations, contains approximately 24 million hectares of peatlands, providing vital ecosystem services such as flood control and water regulation. Moreover, research shows that degraded peatlands in Southeast Asia have become major global greenhouse gas emitters due to intensive land use and high emission factors, making their protection and restoration an urgent climate mitigation priority for the region. As a result, their omission across the Bank’s institutional documentation is a notable missed opportunity. By expanding its nature based solutions framework to include peatland conservation, AIIB could address both climate and infrastructure resilience objectives in its core operational areas.

Recommendations:

• The AIIB should aim to develop a comprehensive biodiversity strategy. This could be focused on mainstreaming biodiversity considerations into infrastructure planning and development, in line with the Bank’s mission. Such a strategy should map out concrete actions to support member states in meeting their Global Biodiversity Framework commitments, and establish specific, measurable targets for biodiversity protection across the AIIB’s portfolio against common definitions. The strategy should also outline a plan to enhance the Bank’s technical and financial expertise in infrastructure-linked biodiversity conservation. In pursuing this, the AIIB could draw on leading examples among peer institutions (such as the IDB).
• In aiming to expand its promotion of NBS, the AIIB should develop a dedicated process (or integrate in existing project screening processes) for the systematic and targeted screening of its project pipeline for opportunities to integrate NBS, as has been implemented by leading peer institutions in this space (such as the IDB). The Bank should also draw on its involvement in the MDB Common Principles for tracking nature-positive finance and its own specialist expertise on Nature as Infrastructure to further establish its position as a knowledge leader in infrastructure-related NBS finance. This could include: (1) socialising the MDB common principles among regional financial institutions, with a focus on infrastructure financiers and developers; and (2) developing a plan for how it can leverage this expertise to mobilise increased private finance for NBS for infrastructure development in Asia.
• The AIIB should strengthen the provisions relating to deforestation in its ESF through expanding the exclusion list to explicitly prohibit financing projects that involve conversion of primary natural forests. Ultimately, this could be achieved through adopting a zero net deforestation pledge, either as part of the ESF or as part of the Bank’s CAP.
• The AIIB could enhance its support for environmental priorities by developing an action plan for assisting member countries in managing peatlands and achieving forest-related goals under the Paris Agreement. In doing so, the AIIB could partner with other MDBs (such as the Asian Development Bank (ADB), which has a dedicated peatland strategy featuring technical assistance and capacity-building programs) to deliver tailored financial support and expertise. Such a collaborative and strategic approach would align with regional environmental priorities and bolster sustainable development and climate resilience in the Asia–Pacific region.

[1] Information received directly from the AIIB.

[2] Notably, there are NBS projects in the AIIB’s pipeline, such as for nature based approaches to urban climate resilience in China. The Climate Action Plan also includes concrete reference to the Bank financing a nature based solutions project in Inner Mongolia during 2024.

[3] Discussions with the AIIB have suggested that projects supporting nature and/or biodiversity protection and/or applying NBS are considered favourably as part of this decision making process.

[4] The AIIB refers to ensuring that “results are widely disseminated” for this purpose but does not provide concrete details regarding how this is fulfilled in practice.

[5] See the “Integration of climate in sectoral strategies” metric for further coverage.