Lean, clean, and green?
An appraisal of the Asian Infrastructure Investment Bank’s green approach to infrastructure projects. How environmentally sustainable is infrastructure development?
This contribution looks into the ‘green’ aspect of infrastructure projects in Asia, specifically those of the Asian Infrastructure Investment Bank (AIIB) compared to the Asian Development Bank (ADB). The newly created AIIB does not portray itself as a traditional development bank, but as a commercial, investment, and financial sustainability promoter. Is this true? Based on an analysis of both banks, we draw attention to the environmental sustainability of infrastructure development. While the ADB has already committed to extinguishing coal-based projects, the AIIB supports the role of fossil fuels, as seen from the projects in Myanmar and Indonesia. Nevertheless, the difficulties surrounding green energy production in developing countries and the conceptual vagueness around sustainable development have prompted the AIIB to advocate for the greenness of these projects.
The amount of official development assistance (ODA) from Organisation for Economic Co-operation and Development (OECD) donors has risen to an all-time high of USD 178.9 billion, a rise of 4.4 per cent compared to 2020. Meanwhile, sustainable development has gained considerable attention in development cooperation, with aid targeted at environmentally friendly projects attracting the attention of donor states over the years. Additionally, ODA focuses on improving the human development of the vulnerable through the implementation of the United Nations Sustainable Development Goals’ (UN-SDGs) overarching objective which is “leave no-one behind”. In this context, this analysis dissects the ‘green’ aspect of the AIIB’s infrastructure financing in the Asian context, where the ADB is already a significant player. While the ADB was set up in 1966 to foster economic growth and cooperation in the Asian region, the AIIB focuses solely on infrastructure development.
Structure and project implementation
The UN Agenda 2030 and the SDGs have gained prominence in the ADB’s Strategy 2030, a policy document specifying the institution’s areas of concentration for the next decade. In contrast, the newly created AIIB does not portray itself as a traditional development ‘aid’ agency, but as an institution that promotes an equilibrium between commercial, investment, and financial sustainability.
Studies on both institutions circumscribe comparisons regarding structural features and project implementation performances. A comparative analysis of road construction projects funded by the ADB and the AIIB proved that, although the bank has institutional similarities to the rest of the multilateral development bank (MDB) family, the AIIB benefits from ‘higher efficiency in project operations’ due to simplified risk assessments and project procurement. Additionally, while MDBs commonly mobilise conditionality to intervene in policy implementation in borrower-states, the AIIB operates on a principle of project-based conditionality, i.e. non-intervention in governance.
These unique features of the AIIB were only possible because of its institutional particularities. For instance, while the ADB guarantees checks and balances with every project being approved by all board members, the Board of Directors of the AIIB delegates authority to the President to support projects based on pre-determined criteria, making the project approval process more efficient. Nevertheless, this process implies a trade-off with less strict control from the institution on its project selection. Regarding social and environmental impact safeguards, the AIIB implemented the Environmental and Social Framework (ESF), which sets out the requirements to be fulfilled by the AIIB in implementing each project. Although this framework is mainly based on the practice of other MDBs, ‘civil society organisations have raised concerns of forced evictions, and the protection of rights and interests of indigenous peoples’ (Basri 2019, p. 617).
Green infrastructure under the AIIB
The greenness of the AIIB refers to its commitment to ‘enhancing its sustainable operations both in terms of project investments as well as corporate practices’ (AIIB 2020, p. 7). Following international expectations that ‘infrastructure development in the future will need to embed sustainability’ (World Economic Forum 2020, p. 19), the bank is committed to green-financing and has adopted an ESF aligned with the standards of other MDBs. However, critics perceive the AIIB’s narrative regarding sustainability as ‘an attempt to legitimise itself in terms of both procedure and performance’ (Uhlin 2019, p. 9). Therefore, a closer examination of the projects financed by the bank becomes necessary.
While the ADB has already committed to extinguishing coal-based infrastructure projects from its portfolio, the AIIB’s funding agenda supports ‘fossil fuels, including gas and heavy fuel oil, and even coal’. Accordingly, for every dollar invested in renewable energy, the AIIB has decided to disburse ‘twice as much on fossil fuels’. The Myingyan Combined Cycle Gas Turbine Power Plant Project (Myanmar, 2016) and the East Java & Bali Power Distribution Strengthening Project (Indonesia, 2021) are justified by the AIIB due to economic necessities – the development of such countries is dependent on improvements in the production of energy. Advocates in favour of the greenness of these projects argue that ‘improving the transmission and distribution system, cutting systemic loss’ are embedded in the sustainable commitments of the bank.
The concept of sustainable development was further refined at the World Summit on Sustainable Development in 2002 to embrace three pillars: environmental protection, economic development, and social development. Nevertheless, the concept’s vagueness, despite the 17 SDGs and its 169 Targets, has led to some strong criticism over its substance. The emphasis here is that the broad definition of sustainable development permits different stakeholders to put radically opposing projects under the same umbrella of sustainable development. In the context of ‘SDG-7’ on affordable and clean energy, renewable energy is presented as an important goal under ‘Target 7. A'. However, some room is left for ‘cleaner fossil-fuel technology’. Thus, the argument put forward by the AIIB’s President could be said to still fit within the concept of sustainable development under the UN framework.
Nevertheless, there are two important caveats to be noted while taking into account the premises of the argument of the President: the difficulties surrounding greening energy production in developing countries and the mobilisation of a broader definition of sustainable development.
The first may be considered a fallacy as the reduction in the cost of manufacturing, rise in the efficiency of the production process, and expansion of the market for the production of green energy sources have already been acknowledged as features of green infrastructure. The costs involved in this technological transition dramatically reduce these investments' economic impact and raise the feasibility of these projects for developing countries.
The second issue draws attention to a more symbolic problem of the development aid regime: ambiguity around the definition of sustainable development. The concept’s vagueness allows any state or organisation to mobilise the narrative of sustainable development to support its actions. In this case, the AIIB demonstrates how the idea may be used according to its interests to justify operations that would otherwise be strongly criticised.
Many moral judgements may be formulated, not least with the scientific support of UNFCCC reports flagging the need for a reduction of, and end to, fossil fuel-based energy production. However, legal analyses often fall short because the definition of sustainable development under international law remains unsettled.