Q: What are the Asian Infrastructure Investment Bank’s (AIIB’s) general priorities for the remainder of 2023 and into 2024?
A: Much more of the same. We’ve stopped being a young bank, [now] we’re all about growth. As of September 2023, AIIB has 236 projects amounting to $45.04bn in investments across 36 members. Every year now we’re doing more projects than the year before. Last year, we did around 42 projects. This year, our ambition is to do somewhere between 50 and 60.
Q: AIIB says the climate fight will be won or lost in Asia. What can we expect from the bank?
A: We have announced the Climate Action Plan, which is rightly ambitious. If you look at the climate-related financing goals that we set several years ago — for 50% of the projects to be climate related — we set the target for 2025 and have already achieved that. As of 2022, the stats were 56%. It’s really a strong message both to ourselves and to the wider multilateral development bank (MDB) community that we should — and rightfully have — really ambitious goals in something that is a global challenge.
If you look at those 236 projects, you’ll see that in the renewable space, the bank has been doing a lot of work, has made a lot of commitments, invested a lot of capital, and also has a significant pipeline there. When you think about renewables, what often comes to mind is solar, wind and so on, but the real key question for all MDBs, including AIIB, is: ‘how do we create an environment and run projects that enable the private sector to enter?’
We have $100bn that our 106 shareholders have given us, but the infrastructure challenge in Asia is a $5tn challenge, notwithstanding the climate challenge. Common sense tells you that you’ve got to find mechanisms that enable the public and the private sector to work together.
Q: In the bank’s Climate Action Plan, which commitments will be prioritised?
A: The bank has gone from 57 founding members to 109. We’ve almost doubled the membership in seven short years, so you'll see us doing work in new countries as they join. AIIB’s board of governors recently approved the applications of three economies: El Salvador, the Solomon Islands and Tanzania.
The board agreed a 10-year strategy for 2020 to 2030, which emphasises the fact that by 2030, 50% of our financing should be into the sovereign space and 50% into the non-sovereign. We’ve largely exceeded that in the sovereign space, and the bank will be very focused on the work that we do on the non-sovereign.
One of the thematic priorities that the bank has always had is green financing. We’re staying consistent with the strategy that was identified by the bank and the board, which already emphasises climate and green, and there will be more work in those areas that have that impact. The Climate Action Plan will stretch the bank in terms of those targets, and rightfully that’s the focus of the bank.
Regionally, looking at the 34 countries that we’re already in, over the next year that will expand. There'll be greater volume diversification across those countries and the bank will essentially stay consistent with its name.
Q: Can you talk specifically about the bank’s sustainable development bond?
A: The $2bn bond received $4.8bn of orders. That tells you that there’s an enormous supply of capital that wants to come in to support the focus on infrastructure, the focus on Asia, and what AIIB is doing. Investors are really proving the concept by wanting to put their capital to work.
It’s not just the absolute size of the bond, it’s also the number of investors. We had a record number of investors wanting to come in and participate — 110 investors put orders in to try and participate in that bond, which is all around sustainability and what the bank does as a complete whole. This goes nicely into 2024 as we think about where we raise capital, how we give opportunities to investors, and recognise that there’s an extraordinary demand to want to partner, participate and be involved with AIIB again.
We’re looking for projects, we want to be impactful, and we want to make a contribution in the climate space as a catalyst.
It probably comes back to my original point that the bank’s all about growth. One hundred and six shareholders have given us sufficient capital. We’re looking for projects, we want to be impactful, and we want to make a contribution in the climate space as a catalyst. These recent announcements show that you’ve got to have the ambition and you’ve got to have the aspiration, and then you match that with the ability to deliver.
If you look at our ambitions around climate financing, we want to have 50% of our projects [be climate focused] by 2025. In 2023, the stats were 56% — this is fantastic discipline in the MDB space that [shows] these ambitious goals, which we have, can be met, especially within climate financing, which impacts our projects not just in cost and longevity, but also ultimately the people [whose lives] we’re trying to improve.
Q: What challenges do you anticipate?
A: Infrastructure these days is an even bigger ticket item than it has been in the past. One of the reasons for that is a consequence of climate change; when you’re building a piece of infrastructure and you want it to last for 30–35 years, the impact on the climate is so significant now that it leads to greater levels of cost escalation and the probabilities of climate events that you have to manage.
The obvious ones are flooding and storms — those are coming around much more frequently than they did and the size of those events is so much larger. Insurance costs rise and the cost of what you have to protect the infrastructure against rises. Those are all key components of the reaction the bank has in the climate space. It’s also thinking about how we provide capital for the transition, which is a really challenging and difficult area for our shareholders or investors, for civil society, and for other MDBs.
Q: Why was Abu Dhabi chosen as the bank’s first overseas office and what can we anticipate from there?
A: I was involved in that decision and it was carefully thought through over several years and was debated extensively. We’ve been given $100bn from 106 shareholders, who expect us to put the money to work and infrastructure; the origination of transactions in the infrastructure space is challenging. It’s difficult because it’s an asset class that has a significant impact, [but] that’s why we do it.
The office in Abu Dhabi is much more of a regional hub, rather than a specific office. It’s a long-lasting commitment because geographically, it’s an amazing point where east meets west, where Asia meets Europe, where the Middle East is involved, where sub-Saharan Africa can also be engaged. While the bank is very Asia focused — the title of the bank gives it away — we’re also looking to build regional connectivity between Asia and other regions. So, the physical location of Abu Dhabi and the financial ecosystem that exists there goes very much toward that hub strategy of building critical mass in key locations.
If you look at the staff that we’ve put in there, this proves that strategy. Ninety-five percent are in operations, 74% of whom are in investment operations. It’s investment operations that are at the front end of the organisation: working with our clients, preparing projects, getting them ready to go through the investment committee process, sourcing and origination — it’s really around that focus of the bank.
Q: Regarding the bank’s recent deal with the World Bank, what types of new development can be expected?
A: The question makes a really important point about MDBs, of which the World Bank is one and AIIB is another — asking: ‘How can we collectively work together?’ This goes very much to the G20 Capital Adequacy Frameworks review which is really looking at the collective balance sheets of the largest MDBs.
When you look at the global challenges that we have, when you look at the resources that exist within the balance sheets of the MDBs — particularly and uniquely in AIIB because we’re very well capitalised for growth — the G20 are trying to answer: ‘How do you use that environment? How do you use that ecosystem? How do you use that community of practice which people sometimes refer to, to work together?’
When you look at this transaction, essentially it frees up capacity for the World Bank to do more business in the countries that we’re essentially taking exposure from. And it also helps AIIB diversify our exposure and increase lending and capital that we’re putting to work in countries where we have plenty of capacity.
So the benefit here is double: it enables the World Bank to do more, and it also then enables us to do more, specifically and particularly in low-income countries, because that’s where need is felt the most.
Q: Given present geopolitical tensions and economic challenges, how will the bank continue to manage uncertainty?
A: We’re living in an increasingly fragmented world. There’s many challenges around inflation, debt sustainability and growth. There’s challenges in some countries around ageing populations and, equally, challenges in some countries in Asia around youthful populations.
The MDBs rightly became very busy in this environment because it’s the consistency of approach which brings many different countries and actors together in an environment where they can work on a common good and a clear purpose, with a vision of wanting to deliver. MDBs get busier the more difficult the times are.
We've got 109 members as shareholders of the bank. Our day to day is dealing with countries that rightfully have national priorities that might differ from others’ in focus or emphasis. Our day to day is working in that environment, where you look to build a consensus around a vision. So, although it feels like we have a more geopolitically fragmented world, this is a norm for the MDBs of which AIIB is a really proud, active, and very busy member.
Q: What trends do you foresee are on the horizon?
A: Everybody talks about private sector mobilisation and how to bring the private sector in. We’re all constantly trying to find and experiment with ways to trigger these. If you think back to the evolution of the green bond space, the first few transactions there to get to critical mass were done by the MDBs. The same rationale applies to private sector mobilisation.
I’ll give two examples of possible trends. We’ve invested in vehicles in Singapore and Hong Kong, which essentially take project finance loans off the balance sheets of commercial banks, convert those loans into bonds, which we can then buy, and enable those commercial banks to create capacity on their balance sheets for doing more climate-appropriate project financing.
We’ve now done a few transactions with that vehicle in Singapore and this enables private sector investors — think asset managers and pension funds — to come into this space, utilising their vast pools of savings.
We’ve taken that model and then worked to do something similar, but a little bit different, recognising the unique [circumstances] of Hong Kong and China, and replicated the same idea in Hong Kong: create a vehicle, which takes loans off the balance sheets of commercial banks, enables those to be essentially securitised and converted into bonds, and allows new investors.
My hope is that those types of transactions act as catalysts for more, because you’ve proven the concept and you’ve proven the investor demand. The bank will stay committed because this is not a space where you can just do one thing and hope that it will be a sufficient catalyst, you have to stay committed. That’s why AIIB, like other MDBs, is uniquely qualified because we’re a generational organisation.
Part of the reason we’re triple-A is because we know this balance sheet has to be robust to last many generations. And if you’ve got a generational commitment to a particular project, particular business, a particular segment, you’re more likely to achieve the bigger goals.
Q: Do you have any closing thoughts?
A: None of what the bank has been able to achieve has been possible without the complete motivation and commitment of its now almost 500 staff. None of the 236 projects, none of the 34 countries, none of the impactful infrastructure has been possible without really dedicated, committed and focused staff.
My second point, which is related, is that the bank is now well established. The bank is all about growth and about putting its capital to work, and it’s unique in that ability within the MDB community for being incredibly well capitalised and having the financing available to do more impactful projects, [which is] consistent with being a very active player in climate financing.
