Will AIIB Be 'Lean, Clean and Green'?

During a recent public speech, the incoming head of the new China-led Asian Infrastructure Investment Bank (AIIB) vowed to run a "lean, clean and green" institution operating to the highest international standards. He also promised to do all of the above with greater speed than its rivals.

AIIB is currently hastily developing internal processes so that it may become operational in early 2016. One of these processes is the adoption of its first ever environmental and social policies. These policies ultimately will decide how clean and green this new multilateral development bank will be. On Sept 7th, AIIB released a 38-page draft of these policies for consultation purposes. The consultation session was extremely short when compared with the processes other banks have carried out, yet this wasn't the only problem with the process.

Civil society observers and representatives from nongovernmental organizations have expressed concern about the consultation process and the provisions of the framework. One of the gaps these groups have identified in the draft is a lack of a clear policy prohibiting support for coal-fired power plants.

Coal is not a 21st century energy solution. It is the largest source of planet-warming greenhouse gases. Research has shown that there is no room in the carbon budget for new coal plants. Coal also kills large numbers of people and causes serious disease and illness. Coal is responsible for over 800,000 premature deaths per year globally and many millions more serious and minor illnesses. In addition to pollution originating from power plants, the mining and transport of coal, as well as the disposal of coal ash waste, can have significant impacts on human health. Coal has also proven to be a risky financial decision due to significant cost overruns, the likelihood of stranded assets in the future, and uncertainty in any future price of carbon, which has caused investors to move away from it.

International financial institutions and many governments have acknowledged the inconsistency between funding coal-fired power plants and development objectives. The joint announcement on climate change and clean energy cooperation between the US and China, the world's biggest emitters, confirmed the on-going paradigm shift. Among other things, "China agreed to work towards strictly controlling public investment flowing into projects with high pollution and carbon emissions both domestically and internationally."

AIIB's article 1 establishes sustainable economic development as the first of its purposes, and its Environmental and Social Framework further sets a vision of "meeting the challenge of sustainable development in Asia." Yet, by funding coal-related activities these commitments will be compromised, along with AIIB's credibility.

Civil society groups request AIIB to be consistent with sustainable development goals. We are demanding AIIB to include an exclusion policy in its new environmental and social policies that limits financing of coal-fired power plants to only those that meet an emissions performance standard (EPS) of less than 500gCO2/kwh. Such a policy is already in place at the European Investment Bank and groups are asking AIIB to adopt it in order to harmonize its policies with that of the other financial institutions. A promise to harmonize these policies with that of the other banks was given in late September during the visit of Chinese President Xi Jinping to the United States.

Financing of infrastructure must be well balanced with environmental and social care. When looking for a solution to feed the billions of people hungry for energy it is necessary to see not only the financial cost, but more importantly to weigh the environmental and social consequences. While coal may have been the fuel of the 19th century, there are now alternatives that have proved to be affordable, reliable, competitive, clean and with much smaller environmental and social costs. If AIIB intends to be clean and green, its first test is to show it will walk the talk by including a coal prohibition in its environmental policies. Time will show if this will be the case and that time is just around the corner.