The Asian Infrastructure Investment Bank has been urged not to finance projects that burn fossil fuels as the multilateral funder holds its annual meeting in Mumbai
The Gazipur power plant in Bangladesh that is fired by heavy fuel oil (Photo by Summit International)
The Asian Infrastructure Investment Bank (AIIB), which is holding its third annual meeting in Mumbai on June 25-26, has been criticised for indirectly funding projects in Myanmar and Bangladesh that lead to an increased burning of fossil fuels, which causes global warming.
The Beijing-based multilateral bank has maintained that it would help member nations to meet their environmental and development commitments made under the Paris Agreement. These are aimed at keeping the global rise in temperatures under 2 degrees Celsius compared with preindustrial times.
However, a report released ahead of its annual meeting says that AIIB is funding — through a financial intermediary — an energy company in Bangladesh that relies exclusively on fossil fuels, and a cement plant in Myanmar that plans expansion through burning more coal.
AIIB, established in 2016 hot on the heels of the Paris climate pact, in September 2017, approved an investment of USD 150 million in IFC Emerging Asia Fund (EAF), a financial intermediary promoted by the International Finance Corporation, a member of the World Bank Group.
Investments by EAF in Bangladesh and Myanmar projects will lead to an increased use of fossil fuels, says the report, Moving Beyond Rhetoric, by global non-profit organisations Bank Information Center Europe (BIC) and Inclusive Development International (IDI).
In January 2018, EAF said it would invest USD 20 million in the expansion of the Shwe Taung cement plant in Myanmar that would entail doubling the output of a coal mine that supplies the cement factory. Prior to the AIIB funding, EAF invested in Singapore-based Summit Power International, which runs 13 power plants in Bangladesh that use heavy fuel oil and liquefied natural gas.
Backdoor investment
The report warns that AIIB’s “backdoor” investment in projects that increase the use of fossil fuels is a worrying sign that the multilateral bank will not stick to its green commitments, even as it prepares to invest USD 100 billion in new infrastructure projects in Asia and beyond.
“It’s taken just two years for the AIIB to step into coal,” said Petra Kjell, Campaigns Manager of BIC. “It is all the more disappointing because the AIIB went into this highly controversial deal with its eyes wide open.”
The majority of the world’s planned new coal-fired plants are located in Asia, where greenhouse gas emissions grew by 3.6% per year from 2006-14, 3% more than the global average. The AIIB is focused on realising Asia’s infrastructure demands, including for energy. Industrial processes, such as cement production, are a growing source of emissions, contributing over a fifth of direct global GHG emissions.
“The AIIB’s Shwe Taung deal via a financial intermediary… uses a highly risky model in which money is funnelled into controversial projects in a way that sidesteps environmental and social oversight by the bank,” said Natalie Bugalski, Legal Director of IDI.
AIIB and IFC officials have argued that the Shwe Taung deal does not involve coal for energy but rather for industrial processes, “but the world’s climate doesn’t distinguish between the two,” Kjell said.
The Moving Beyond Rhetoric report says the AIIB has the chance to leapfrog its peers like the World Bank to more sustainable lending practices since it was founded in the wake of the Paris climate pact and is not lumbered with the high carbon infrastructure legacy of other development banks.
The AIIB has in fact made investments in countries such as China that aims to lower carbon footprints. It has, for instance, approved a USD 250 million loan for a project that will reduce China’s coal use by about 650,000 tonnes every year by connecting 200,000 households in 500 villages to the natural gas distribution network. AIIB President Jin Liqun has said it would prioritise green deals.
Despite these assurances, the new report says that the AIIB has not explicitly excluded coal power projects from its future investments. The AIIB should stop financing oil and gas extraction and phase out remaining fossil fuel investment by 2020, the report said.
In its annual meeting, AIIB is likely to consider investing USD 200 million in India’s National Investment and Infrastructure Fund (NIIF), which could potentially revive a slew of stalled projects, including coal, power, petroleum, railways and roads, many of which are currently shelved because of high social and environmental risks and opposition by local communities.
“It is time for the AIIB to move beyond rhetoric, and take concrete actions to deliver on its promises to promote a green, low-carbon future,” Bugalski said.
