Representatives from civil society organizations from all over the world have written a letter this week to the AIIB, drawing urgent attention to rising concerns of AIIB’s investments through Financial Intermediaries (FIs). This is in context of AIIB developing its strategy to invest more in equity and funds, without formulating robust policies and systems around FI investments regarding transparency, accountability and efficient channels of communication with all stakeholders. FI investments mean a “hands-off” or third-party lending, with which comes potential risks – the clients of FIs are not held accountable for the environmental and social safeguards.
The letter urges AIIB to learn from International Finance Corporation’s (private lending arm of World Bank Group) lessons on FIs from the recent past. The Compliance Advisor Ombudsman (CAO), which is IFC’s accountability mechanism, and various CSOs had submitted their own findings regarding the high risk of lending through FIs. Accordingly, the CAO addressed the highly problematic relationship between IFC and the FIs’ clients, wherein it is not assured whether the FIs’ clients ESMS is leading to the implementation of the Performance Standards (of IFC) at the subproject level. IFC’s CEO has already announced that IFC has cut its high-risk lending from 18 to just 5 investments, and has committed such projects to climate mitigation and women-owned SMEs.
Studies carried out by CSOs tracking IFC investments in FIs support these findings. The letter explains that the study examined a small segment IFC’s FI portfolio, wherein more than 130 projects and companies funded by two dozen FIs are causing/likely to cause critical environmental harms and human rights violations. The projects spread over 24 countries come from a range of high-risk sectors which includes private military contracting, mining, infrastructure, energy, industrial agriculture, transport and infrastructure. Few of the demands put forth in the letter to AIIB on policy, investment decision-making and contracts with FIs include: high scrutiny on project portfolio, track record of ESF policy, aligning with AIIB’s own ESF even for sub-projects, monitoring FIs’ clients’ ESF due diligence and ensuring project-affected communities have access to redress including the AIIB’s accountability mechanism. Moreover, FIs should also adhere to disclosure of its investments, which should reflect in AIIB’s website. A provision for this should also be included in AIIB’s upcoming Public Information Policy. The letter concludes reminding AIIB of its promise delivered by its VP DJ Pandian to CSOs during the AGM Meet at Jeju in 2017, that AIIB will disclose high-risk sub-projects supported by equity funds.
Among the FIs, AIIB has approved and invested in India is India Infrastructure Fund, targeting investments in infrastructure, energy and transport sectors. This project is partnered with the General Partner and its investment team, a global infrastructure investment and management platform, for a period of eleven years. AIIB has approved 150 mn USD, out of the total project cost of 750 mn USD. Another FI project in pipeline for India is the National Investment Infrastructure Fund (NIIF), considering to invest in roads, airports, ports, power and urban infrastructure. NIIF is established by the Government of India (GoI) who owns 49% stake. Out of the target project fund of 2.1 bn USD, AIIB is considering to invest 200 mn USD, over an implementation period of 19 years, while GoI invests 1 bn USD.