Climate (ii) the goal to improve the ability to adapt to the adverse impacts of climate change; and (iii) to make financial flows consistent with low greenhouse gas emission and climate-resilient development. First, through direct finance, the AIIB could support these goals or remain neutral towards them, but should never undermine them. Second, and more importantly, the AIIB could support the goals as a setter of global climate standards through its cooperation with govern- ments, regional financial institutions and private sector investors. This report looks at AIIB’s per- formance with regard to the first and the third of the Paris Agreement’s goals, noting that similar work should be done on the second goal. Germanwatch promotes North-South equity and the preservation of livelihoods. As an organisa- tion that focuses on the politics and economics of the North with their worldwide consequences, Germanwatch closely follows the role of Germany in the AIIB as the fourth largest shareholder and advocates for Germany to strengthen the focus on sustainability within the AIIB and to hold the AIIB to account on its commitment to Paris-compatibility. The Center for Participatory Research and Development (CPRD), one of the progressive think tanks in Bangladesh, is engaged in research and political advocacy aiming at directing global climate policies and associated investments towards achievement of the Paris Agreement goals with re- gard to climate justice, as well as reduced inequality and vulnerability. CPRD’s motivation for as- sessing AIIB investments is to facilitate access to information and broader involvement of a wide range of stakeholders, including civil society organisations, so that they can act as a pressure group to hold AIIB to account on its alignment with the goals of the Paris Agreement. Greenovation Hub (GHub) is devoted to encouraging China to play an active role in international climate, environmental and financial governance, and to formulate and implement effective and equitable policies that could channel financial flows towards a green, sustainable and climate- resilient development. GHub has been following the development of policy frameworks and in- vestment strategies of multilateral development banks co-led by China, for example the AIIB, in order to promote the incorporation of sustainability and climate resilience into investment princi- ples and policies, which could help capital markets allocate more resources to environmentally friendly, climate-resilient and low-carbon infrastructure investments. LAYA, together with the Indian Network on Ethics and Climate Change (INECC), has been encour- aged to look at the infrastructure question in relation to AIIB using a lens of equity. Their main interest is to explore and examine how infrastructure investments in India are responding to the infrastructure needs of the population, especially the poor and the most vulnerable. However, considering that 70% of infrastructure has yet to be built in India, the Indian partner organisations to this paper are also interested in engaging in the development of transformative pathways for Aligning the Asian Infrastructure Investment Bank (AIIB) with the Paris Agreement and the SDGs 5 building sustainable, climate-resilient and zero-carbon infrastructure, and to promote respective lighthouse projects to become part of the AIIB portfolio. The Russian-German Office for Environmental Information (RNEI) is an organisation working on environmental research and ecological issues in Russia, especially in St Petersburg. It aims to assess national and international environmental and climate policies and is very much focused on knowledge exchange between Europe and Asia. Despite the fact that Russia is one of the biggest shareholders of AIIB, the bank is little known in Russia or in neighbouring Central Asian countries. Through this publication, RNEI wishes to con- tribute to enhancing understanding of the AIIB, its strategies and policies, potential stakeholders and projects, and the opportunities for green, climate-friendly and resilient infrastructure devel- opment in general, and in Russia and Central Asian countries in particular. Aligning the Asian Infrastructure Investment Bank (AIIB) with the Paris Agreement and the SDGs 6 Abbreviations ADB Asian Development Bank AfDB African Development Bank AIIB Asian Infrastructure Investment Bank BCIM-EC Bangladesh-China-India-Myanmar Economic Corridor BRI Belt and Road Initiative CPEC China-Pakistan Economic Corridor CPRD Center for Participatory Research and Development CSO Civil society organisation EBRD European Bank for Reconstruction and Development EIB European Investment Bank ESF Environmental and Social Framework (of AIIB) ESIA Environmental and Social Impact Assessment ESMP Environmental and Social Management Plan ESP Environmental and Social Policy ESS Environmental and Social Standards FPICon Free Prior Informed Consultation GAP Gender Action Plan GDP Gross domestic product GHG Greenhouse gas IDBG Inter-American Development Bank Group IDFC International Development Finance Club IFC International Finance Corporation IPCC International Panel on Climate Change LTS Long-term Low Carbon Development Strategies MDB Multilateral development bank NDB New Development Bank NDC Nationally Determined Contribution NGO Non-governmental organisation PSI Project Summary Information provided by AIIB SDG Sustainable Development Goal TCFD Task Force on Climate-related Financial Disclosures WBG Word Bank (Group) Aligning the Asian Infrastructure Investment Bank (AIIB) with the Paris Agreement and the SDGs 7 List of tables Table 1: Categorisation of investments in the energy sector in compliance with Paris- alignment Table 2: Categorisation of investments in the transport sector in compliance with Paris- alignment Table 3: Project-level assessment tools applicable for aligning investments with the Paris Agreement goals Table 4: Good practice examples of tools at bank strategy level that support alignment with the Paris Agreement goals Table 5: Main AIIB shareholders Table 6: List of selected AIIB basic documents, policies, directives, frameworks and strat- egies Table 7: Result monitoring framework for the AIIB energy sector strategy Table 8: Result monitoring framework for the AIIB transport sector strategy Table 9: Approved projects in India Table 10: Proposed projects in India Table 11: Approved projects in Bangladesh Table 12: Proposed projects in Bangladesh Aligning the Asian Infrastructure Investment Bank (AIIB) with the Paris Agreement and the SDGs 8 Glossary Carbon budget: The cumulative volume of greenhouse gas emissions, expressed in GtCo 2 equiva- lents, which can be deposited in the atmosphere without overshooting a certain level of global warming, such as a temperature rise of 1.5°C or 2°C. ESP: Environmental and Social Policy (of AIIB): Mandatory environmental and social require- ments for each project. ESS: Environmental and Social Standards (of AIIB): Associated mandatory standards that set out more detailed requirements for projects, in relation to Environmental and Social Assessment and Management (ESS 1), Involuntary Resettlement (ESS 2) and Indigenous Peoples (ESS 3). ILO Convention 169: Convention of the International Labour Organization on Indigenous Peo- ples’ rights. The major binding convention concerning the rights of Indigenous Peoples, estab- lished in 1989, but not yet ratified by the majority of AIIB members. United Nations Declaration on the Rights of Indigenous Peoples: Non-binding declaration outlining the individual and collective rights of Indigenous Peoples, adopted in 2007; supported by most AIIB members. Aligning the Asian Infrastructure Investment Bank (AIIB) with the Paris Agreement and the SDGs 9 Executive Summary The type and quality of new infrastructure investments will define whether pathways compatible with global climate goals will be achieved. Given the importance of infrastructure investments in Asia for keeping the Paris goals within reach, this report evaluates whether the AIIB has lived up to its promise to be ‘lean, clean and green’, which good processes have been established and where challenges or risks remain. AIIB has started its work in 2016 with the mission ‘to improve economic and social development in Asia and beyond through a focus on sustainable infrastructure, cross-border connectivity and private capital mobilization’. By the end of 2018, after three years of operation, AIIB had a multibil- lion (in USD) portfolio of 34 approved projects, with a further 23 formally proposed projects in the pipeline. At the 2017 One Planet Summit, AIIB together with the other major MDBs reconfirmed the com- mitment to align their financial flows with the Paris Agreement. The announcement at COP24 in Katowice in December 2018 to develop a common framework for aligning their activities with the goals of the Paris Agreement in the course of 2019 is another positive step towards operationalisa- tion. The real litmus test is not the political alignment commitment as such, but rather the methods chosen to effectively put that commitment into practice and the level of transparency afforded to shareholders and stakeholders with regard to the current level of implementation and the for- ward-looking financial disclosure. The analysis of the AIIB sustainable energy strategy and the overall bank strategy on Paris- alignment results in a mixed picture. While it formally entails the Paris-alignment commitment, the guiding principles are only partly aligned, and the same is true for the listed investment priorities. While investments in renewable energies are prominently placed in the strategy, natural gas ap- pears to be considered in the strategy as equally relevant although less consistent with the Paris temperature goals, and oil- and coal-fired power plants are not excluded from investments. The strategy is missing clear and verifiable investment criteria to ensure Paris-alignment. While the energy sector strategy mentions alignment with NDCs as part of the implementation strategy, no reference is made to supporting and enhancing individual countries’ long-term strategies. The sector strategy also lacks both a sector-wide emission target and a climate finance target. The outcome and output indicators at portfolio level (energy consumption saved; renewable energy capacity installed; GHG emission reduction achieved) are good first steps, but insufficient to effec- tively monitor whether the Paris alignment commitment is on track to be met. As compared with good practice examples from other MDBs, the AIIB is not yet up to the mark. The AIIB transport strategy does not yet reflect adequately the bank’s Paris-alignment commit- ment. It is less mature than the energy sector strategy, is of a transitional nature, and has much room for improvement. 2019, would be a good year to review the strategy. Such a review and amendment is a matter of urgency, considering that the transport sector appears to be the fastest growing investment sector, reflecting the high demand from clients. The AIIB sustainable cities strategy, although referring to the Paris Agreement, does not yet include the necessary tools to be transparently and efficiently aligned with the Agreement’s temperature goals. For that to happen, the strategy should take on board alignment criteria and alignment tools. In principle, similar instruments could be used as in the energy and transport strategies. The cities strategy was published only at the end of 2018, and the respective project list is still very short. Thus, it is highly recommendable for the bank to revisit and upgrade the strategy now.