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16 JUN 2017

AIIB faces expectations in Korea to translate its "clean, green" aspirations into good development lending

The energy investment decisions of the new $100bn Asian Infrastructure Investment Bank (AIIB) could signal a dramatic, positive new direction in the fight against global poverty and climate change, says Oxfam.

Oxfam and other NGOs in Korea this week at the bank’s second Annual Meeting are tracking negotiations as it agrees its first Asia-wide energy strategy. This plan will help to frame Asia’s future path of development.

“The AIIB has promised to uphold both the Paris climate deal and the Sustainable Development Goals,” said Oxfam spokesperson Kevin May. “This is a highly-promising start that could potentially set the AIIB apart from its competitors, especially if it can help its most climate vulnerable members achieve their 100% renewable energy ambitions”.

Oxfam says that the AIIB is in a prime position to learn and avoid the mistakes that have beset other major development lenders, such as the World Bank, in making poor decisions on bad projects.

The World Bank Group and other multi-lateral banks, for example, continue to finance too many fossil fuel projects, and still lend to coal “through the back door” via third-party intermediaries. They also remain mired in allegations that too many of their projects continue to harm local communities, especially around forced resettlement and environmental damages.

“To translate good intentions into good policy and from there to good practise, the AIIB must actively resist ‘business-as-usual’. It must chart a new course of how it lends its money, to whom and for what,” May said. “To make good on its support for global goals, the bank must concentrate on projects that will get clean, sustainable energy into the lives of the poorest people.”

Many of the AIIB’s member countries are part of the Climate Vulnerable Forum – a group of developing countries that have pledged to power their economies with 100% renewable energy by 2050. By partnering with these countries the AIIB could provide the finance they need for their renewable energy aspirations, and reinforce the trend of new climate leadership emerging from the Global South.

However, Oxfam warns that powerful mining industries are already lobbying the AIIB to finance coal plants, including by falsely claiming these will help to combat energy poverty.

“Half a billion Asian people wake up each morning without electricity. Nearly half of all people in Asia still have to cook over open fires. Women bear the brunt of this energy poverty and pollution. The fastest way for the AIIB to address this is through decentralised power projects, and also cleaner cooking.”

The AIIB is also experimenting with lending via financial intermediaries. Oxfam says the bank should be wary of this model to avoid the same problems that other lenders have faced in losing control and oversight, and in passing on responsibility for causing harm.

Oxfam says it is “cautiously optimistic” that the AIIB can deliver on its aspirations to champion Paris and the SDGs. To do so, the bank must choose renewable energy over coal. It must learn not to repeat the social and environmental risks in lending on big hydropower deals and to accept responsibility for all lending through third-parties. Crucially too, the AIIB must prioritize off-grid renewable energy projects.