No Paris: How the AIIB’s Paris alignment methodology fails the people and the climate

The Asian Infrastructure Investment Bank (AIIB) has committed to align all of its new investments with the goals of the Paris Agreement on climate change from 1 July 2023.1  As it reached this deadline, the AIIB published its first “Methodology for assessing the alignment of AIIB investment operations with the Paris Agreement”.2 Public finance institutions have an important role to play both as funders and standard setters in the transition away from fossil fuels and towards sustainable renewable energy options, in line with the Paris Agreement’s goals. However, despite the urgency to combat climate change, public finance flows to fossil fuels are still greater than those for climate adaptation and mitigation.3 The AIIB came into operation in early 2016, only weeks after the Paris Agreement was adopted, committing to be “lean, clean and green”.4  Without the fossil fuel heavy legacies of the already established MDBs, it had a prime opportunity to align with the Paris Agreement from scratch in both policy and practice.

But instead, the AIIB largely copied the other MDBs’ ‘business as usual’ approaches, even failing to restrict investments in fossil fuels in its first Energy Sector Strategy (ESS) from 2017. The results were telling: as of the end of 2021 the AIIB had invested almost $2.3 billion in fossil fuels, representing close to half of the energy portfolio, against only a quarter for renewable energy.5  This figure excludes finance through financial intermediaries (FIs). The second iteration of the ESS, approved in November 2022, finally moved the needle in the right direction by excluding financing for coal in most circumstances and by introducing restrictions on oil and gas financing, but still leaves huge loopholes. Significantly, the updated ESS puts a strong emphasis on gas as a ‘transition fuel’ with loose restrictions. The references to renewable energy are, on the other hand, in many cases associated with caution, for example, raising doubts about “availability, process, and secure supply chains of critical minerals”.6 The AIIB’s Paris alignment methodology builds on efforts by a group of MDBs to develop a joint framework and principles for alignment, however, disappointingly these do not contribute to the Paris Agreement’s goal to reduce global warming to 1.5°C in a meaningful way. Instead, they reduce Paris alignment to a box ticking exercise, without accountability to the urgent steps the world must take to avoid catastrophic climate change. First and foremost, they do not prevent investments in fossil fuels, and significant loopholes for other kinds of unsustainable and greenhouse gas (GHG) intensive financing are numerous. Against this background, the individual MDB methodologies present an opportunity to raise the bar and cover these concerning gaps both in the joint approach and in their own policies and strategies, such as the AIIB’s ESS. In March 2023, in the void of a public consultation on the AIIB’s draft Paris alignment methodology, three civil society organisations – Recourse, BRICS Feminist Watch and CLEAN (Coastal Livelihood and Environmental Action Network) – published a report outlining what the AIIB’s Paris alignment methodology should include called Beyond Paris: How the AIIB can align its policy and practice to the Paris Agreement.7  This briefing examines the AIIB’s Paris alignment methodology against some of the main benchmarks in the Beyond Paris report. It finds that the AIIB has failed to seize the opportunity to develop a robust methodology that closes the gaps in the joint MDB principles. Instead, the AIIB’s Paris alignment methodology sets out to justify ‘business-as-usual’, including further widening the loopholes for fossil fuels, in particular for fossil gas. It also fails to include essential rights-based approaches in the alignment methodology, such as gender considerations, despite the particularly negative impacts on women from climate change, while undermining the case for sustainable renewable energy options.