A second review of the AIIB’s draft environmental and social framework (ESF) is currently ongoing, and the bank’s Articles of Agreement require its Board of Directors to approve the final version before any formal decisions can be taken on policies or projects. In the absence of a functioning board, the AIIB has nonetheless leapt into the process of lining up its project pipeline for 2016, including naming infrastructure projects in Pakistan as forthcoming investments for the institution.

The AIIB’s loan book, which has a capital base of USD 100 billion, is to be capped in the short- to medium-term at USD 100 billion. Other multilateral development lenders such as the Asian Development Bank have agreed to identify projects for co-financing with the AIIB, while the European Bank of Reconstruction and Development (EBRD) says it will be ready to present the AIIB with several projects ripe for immediate co-financing from next year.

Just last month, an official from Indonesia’s Ministry of Finance was quoted praising the AIIB’s readiness to provide USD 1 billion in loans to Indonesia over the next four years, including for coal-fired power projects. This was backed up by a reported assertion that “… AIIB imposes looser environmental requirement in disbursing its loans, making it the preferred creditor for financing Indonesia’s coal-fired power plant projects”. This statement was retracted and replaced with “AIIB – as opposed to other multilateral lenders like Asian Development Bank or the World Bank – allowed its financing to be used for Indonesia’s coal-fired power plant projects.”

Such sweeping and conflicting statements about the AIIB’s future financing of coal projects in Indonesia prior to the approval of a functioning Board of Directors – which has yet to be elected into office – are highly alarming. Yet they chime with China’s previous suggestion that a technical panel will make expert decisions on AIIB funded projects rather than the bank’s board in tandem with the guidance of an internal sector investment policy.

Indeed, during one of the few effective dialogue sessions held with civil society organisations via video conferencing, the AIIB’s chosen format for conducting a succession of hurried public consultations on its first ESF back in September, the bank was unable to either clarify in principle or in detail its procedures for project approval and for time-bound information disclosure related to investments which will have ‘significant’ to ‘irreversible’ environmental and social impacts.

Currently, at the time of writing, the final draft of AIIB’s environmental and social policies is being negotiated behind closed doors. What remains critically missing is a sector investment policy for coal, or an analysis of the known and irreversible environmental, social and health risks specific to coal, enabling quantification and avoidance strategies that could offer guidance on the viability and prudence of planned coal projects.

The EBRD, the World Bank, as well as the European Investment Bank have all adopted climate and energy policies in recent years which limit their funding of highly polluting coal-fired power plants. Some shareholder countries within these public development banks which have effectively stopped financing coal projects are also founding members of the AIIB, including 14 EU member states. While the non-regional/European members of the AIIB make up a small percentage of the total shareholders, it is unclear whether these EU countries have acted during the AIIB’s set-up negotiations to support restricted financing of unabated coal projects, consistent with the policies they have supported at the other multi-laterals. Regrettably, the apparent lack of tough talking on the issue of coal at the AIIB negotiating table would suggest that policy incoherence can be tolerated.

Similarly, the European countries concerned risk forfeiting their relevance by muting their agreed climate and energy policy targets to fit in with the new kid on the block’s intention to help drive forward more unabated coal projects at precisely the wrong moment. This is unacceptable in the wake of the Paris climate summit’s historic agreement which many observers have viewed as spelling the beginning of the end for the fossil fuels era.

Jin Liqun has meanwhile gone on the record to suggest that coal power is a human rights issue for people living in poor countries with no access to power, and that the AIIB therefore ought to make exceptions for the funding of new coal. However, a recent study from the Overseas Development Institute (one of many published recently) shows that in practice new generation capacity does not translate directly into new electricity connections or – even – lower prices for existing poor consumers. In short, the construction of new coal plants is no silver bullet for solving energy poverty.

As the AIIB appears to be set on autopilot mode for providing funding for big-ticket energy and transport infrastructure projects, doubts persist about whether sustainable development goals will be hamstrung by unwarranted, unfit policies which fail to protect communities and the environment in which they inhabit from the predictable, well-documented and irreversible harms associated with mega-scale infrastructure projects, including coal.

How can the latest entrant to the multilateral development lender sphere plan to uphold the ‘clean and green’ agenda and foster sustainable economic development, as prescribed by its founding articles, if not through the adoption of measurable policies compatible with the type of environmental and social due diligence standards already practiced by other multilateral development banks?
Without some rapid-fire injection of ambition and responsibility into its policies and procedures, the new beginnings under way at the AIIB threaten to see a return to the darkest, unregulated days of international development finance.

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