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Working Paper 433

The AIIB and investment in action on climate change Darius Nassiry and Smita Nakhooda

April 2016

Overseas Development Institute 203 Blackfriars Road London SE1 8NJ Tel. +44 (0) 20 7922 0300 Fax. +44 (0) 20 7922 0399 E-mail: [email protected] www.odi.org www.odi.org/facebook www.odi.org/twitter © Overseas Development Institute 2016. This work is licensed under a Creative Commons Attribution-NonCommercial Licence (CC BY-NC 4.0). Readers are encouraged to reproduce material from ODI Working Papers for their own publications, as long as they are not being sold commercially. As copyright holder, ODI requests due acknowledgement and a copy of the publication. For online use, we ask readers to link to the original resource on the ODI website. The views presented in this paper are those of the author(s) and do not necessarily represent the views of ODI. ISSN (online): 1759-2917 ISSN (print): 1759-2909 Cover photo: Planet Labs Inc: Rapidly growing solar farms in China

Acknowledgements The authors gratefully acknowledge comments on an earlier version of this paper from Chris Humphrey, University of Zurich and ODI; Anna Locke, Director of Sustainable Resource Management and Climate Change at ODI; John A. Mathews, Professor of Strategic Management at Macquarie University’s Graduate School of Management; David Wheeler, Senior Fellow at the World Resources Institute and Senior Fellow Emeritus at the

Center for Global Development; and, Robert Youngman, Team Leader for Climate Finance and Investment in the Environment Directorate at the Organization for Economic Cooperation and Development (OECD). Sam Barnard provided research analysis, and Graham Banton supported production. The views expressed are solely the responsibility of the authors.

The AIIB and investment in action on climate change  3  

Contents Summary

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1. Introduction

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2. The AIIB’s approach to infrastructure

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3. Chinese leadership in supporting low emission and climate resilient development in Asia

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4. Rationale for action by other AIIB members

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5. Conclusions and recommendations

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References

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Summary The Asian Infrastructure Investment Bank (the AIIB or the Bank) is poised to be an important new actor in international development finance, led by developing countries to scale up investment in infrastructure. The choices that Asian countries make about how to meet their infrastructure needs, particularly in key sectors such as energy and transport, will fundamentally affect the planet’s ability to achieve low emission and climate resilient development, and keep global temperature changes “to well below” 2°C degrees above pre-industrial temperatures, as stated in the Paris Agreement on climate change. As a new multilateral development bank (MDB) conceived to tackle pressing development challenges of the 21st century, the AIIB has an opportunity establish a new approach to infrastructure investment that prioritizes renewable energy, climate resilience and sustainable development. Indeed, the AIIB has the potential to exceed the practices of other MDBs in these areas by finding new approaches that resonate with member needs and priorities. As the founding member of the AIIB and its largest shareholder, there is a strong case for China to support such an emphasis given its leadership in clean energy industries. The AIIB’s investments can help expand markets for renewable energy, and change the narrative around the emphasis

of China’s overseas investments as one focused on clean sustainable development, rather than resource extraction. Asian countries are already emerging as leaders in clean energy with new business models that meet the needs of poor people within poor countries. Most countries in the region are also highly vulnerable to th