Non-fossil to fossil energy ratio and scaling up climate investment in all sectors

Explanation

In the fiscal period 2019–2022, for every USD 1 the AIIB provided to fossil fuels, USD 3.2 went to clean energy, USD 2.1 to transmission and distribution (which typically cannot be attributed to any specific energy type) and USD 1.6 to other energy projects (e.g. biomass, nuclear or mixed energy). These figures reflect a major improvement in the distribution of the AIIB’s energy finance relative to the preceding three-year fiscal period (FY2016–FY2018). During this preceding period, for every USD 1 provided to fossil fuels only USD 0.4 went to clean energy, USD 0.3 went to transmission and distribution and USD 0.04 went to other energy projects. Despite this significant progress, the Bank’s non-fossil to fossil lending ratio continues to fall short of that of leading peer institutions.[1]

The improvement is the result of a combination of both decreased levels of fossil fuel finance and increased levels of clean energy finance. While year-on-year trends are not linear, broadly speaking the AIIB´s financing for fossil fuels has decreased considerably since peaking at USD 660 million in 2018. Indicatively, no finance went towards fossil fuel projects in 2020, and relatively (compared to 2018) low volumes in 2021 and 2022 (USD 180 million and USD 110 million respectively).[2] In parallel, financing for both clean energy and transmission and distribution has been increasing relatively steadily. Clean energy disbursements first exceeded fossil fuel financing in 2019, and have remained relatively larger since then, reaching a new absolute high of USD 780 million in 2022.

These trends have resulted in a significant change in the constitution of the AIIB’s energy lending over the past eight reporting years, as shown below.

The following figure provides further insight regarding how the Bank’s energy lending can be broken down by instrument, project country income level, and project type.

Climate finance

The AIIB’s climate finance as a share of total approvals has fluctuated over recent years, peaking at 39% in 2019, before dipping to a low of 12% in 2020 due to the COVID-19 pandemic. Since then, the Bank has established a target of 50% of annual approvals to be categorised as climate finance by 2025. As per its own reporting, the AIIB claims to have already exceeded this target with 56% of projects counted as climate finance in 2022 and 60% in 2023. However, according to the Joint MDB Reports, AIIB’s climate finance as a share of total operations was rather 35% in 2022, before dropping slightly to 29% in 2023.

This discrepancy in figures is due to the joint MDB numbers including projects financed through the AIIB’s COVID-19 Crisis Recovery Facility (CRF) in the Bank’s total operations. E3G’s research suggests the AIIB has not yet provided a detailed justification for the decision to exclude CRF financing when calculating its climate financing share, which it has done since the 2020 Annual Report. As a result, while AIIB’s own reporting suggests it has exceeded its 50% climate finance target, the joint MDB figures that include the full picture of the Bank’s operations suggest the Bank still has some way to go to do so.

In terms of absolute climate finance figures, the AIIB approved a total of USD 3.43 billion in climate finance during 2023 (of which 10% was committed to adaptation, and 90% to mitigation). The Bank estimates that cumulative climate finance will reach USD 50 billion by 2030, but is currently falling short of the annual average level needed. The AIIB would need to increase its climate finance approvals to an average of approximately USD 4.9 billion annually over 2024–2030 to reach the target.

Recommendations: 

• The AIIB should provide a justification for excluding projects financed through the CRF when calculating the share of climate finance of total operations. This should accompany climate finance reporting in the Bank’s annual report or other relevant public disclosures, ensuring transparency and consistency in reporting practices. The AIIB should also ensure this is clear in all communications regarding its climate finance target to avoid any misunderstanding among stakeholders. To ensure comparability and transparency with other MDBs, the Bank should consider setting any future target in the context of overall bank operations.
• To build on its progress in shifting away from fossil fuel financing, the AIIB could consider establishing an approach towards phasing out fossil fuel investments, recognising the challenges that developing countries face in transitioning away from fossil fuels. To support this transition, the AIIB could adopt a framework similar to Dutch entrepreneurial development bank ‘s (FMO) transition criteria, which provide a structured pathway for reducing fossil fuel investments while prioritising clean energy solutions. Simultaneously, the AIIB should aim to increase its clean energy financing ratio, aligning itself more closely with leading MDBs like the IDB and reinforcing its commitment to sustainable development and climate action in the Asia–Pacific region.

[1] For example, over 2019–2022, for every USD 1 provided to fossil fuels, the Inter-American Development Bank (IDB) provided USD 9.21 to clean energy.

[2] All figures quoted from Oil Change International’s Public Finance for Energy Database. Notably, the AIIB´s total energy finance fell to its lowest level in 2020 due to the COVID-19 pandemic but has since rebounded.