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AIIB must do more to meet its environmental & social commitments

Author: Elizabeth Summers, Bank Information Center, Published on: 8 June 2017

Shortly after commencing operations in January 2016, the Asian Infrastructure Investment Bank (AIIB) adopted environmental and social standards that committed to investing in sustainable infrastructure projects, including a pledge to support the human rights of marginalised groups, as well as the advancement of the Sustainable Development Goals (SDGs). The AIIB has now approved a total of thirteen infrastructure projects, and thirteen additional projects are under consideration for financing this year. A review of these initial investments, however, raises questions on the AIIB’s commitment and ability to adhere to its commitments in practice.

Partnering with the World Bank’s flawed approaches?

The AIIB relies on co-financiers to ensure compliance with environmental and social standards, and over 50% of projects are co-financed with the World Bank Group. Reliance on the World Bank Group, however, is not sufficient to ensure that the AIIB’s projects respect human rights and advance the SDGs, especially for projects that involve resettlement. In Pakistan, for example, the AIIB and World Bank are co-financing the Tarbela 5 Hydropower Extension Project, which aims to boost the output of the existing Tarbela hydropower dam. However, serious social issues from the previous Tarbela dam and associated projects, including inadequate compensation for the tens of thousands of people who were displaced by the construction of the dam in the 1970s, remain unresolved. Although the AIIB and the World Bank have committed to address these “social legacy issues,” affected communities are still waiting for justice, and the AIIB risks being involved in the World Bank’s broken promises.

Last week, the World Bank Inspection Panel received a complaint about the Amaravati Sustainable Capital City Development Project, a project proposed for World Bank and AIIB co-financing. The project will support the construction of a new capital city, called Amaravati, for the state of Andhra Pradesh in India, which will span 217 square kilometers and host a population of 4.5 million by 2050. Because the proposed area in which the new mega-city will be constructed consists of primarily agricultural land, the state government created a Land Pooling Scheme under which resident farmers pool their agricultural land and transfer their land titles to the State to develop the land. In return, farmers receive an annuity for ten years, and a smaller plot of land to be transferred back after the land is developed. World Bank documents describe the Land Pooling Scheme as an “innovative” scheme that “seeks to avoid any major displacement,” but the scheme has been the subject of significant opposition and controversy, including concerns that there are insufficient protections in place to prevent impoverishment of displaced farmers and agricultural labourers.

Marginalised groups overlooked by AIIB’s stand-alone projects

The AIIB is also financing several stand-alone projects in Bangladesh, Oman, and India. For these projects, it is applying its own social standards, as opposed to the standards of co-financiers. But the AIIB’s due diligence efforts around these projects appear to give primacy to potential environmental risks over potential social ones instead of treating both as equally important, despite commitments to “promote equity of opportunity and nondiscrimination” and to “embrace action to remove barriers against vulnerable groups.” References to potential project impacts on marginalised groups, including women, are limited and do not take into account problems that other IFIs have encountered, such as the risk of harm that results from sending infrastructure project workers into rural areas. For example, the AIIB has not addressed the potential risk of use of forced labour in the Oman port development project, despite reports of abuses against migrant workers in the Gulf construction industry. Moreover, none of the stand-alone projects identifies potential impacts on persons with disabilities or ways to ensure that persons with disabilities benefit from the projects, such as through access to employment opportunities.

Unclear monitoring of social impacts and lack of a grievance mechanism

The role of the AIIB in monitoring the social impacts of its projects is also unclear; no project monitoring information has been posted on the AIIB’s website so far. Furthermore, no grievance mechanism has been put in place to hear and resolve concerns from project-affected communities. Nearly a year ago, the AIIB hired a Director to lead its Compliance, Effectiveness, and Integrity Unit (CEIU). Although the AIIB announced a consultation process on a proposed grievance mechanism in April, it is still directing all parties with concerns about environmental and social impacts of projects to the grievance mechanisms of its co-financiers. The AIIB cannot rely on its co-financiers to ensure compliance with its own environmental and social standards. It must ensure that persons adversely affected by its projects have access to an AIIB mechanism, even for co-financed projects.

Now that the AIIB is fully operational, it must improve its efforts to meet the social commitments made in its inaugural year. An important first step is to release guidance for staff on implementation of its environmental and social standards, as well as to hire technical experts in specific social issues (e.g., disability rights) to improve project preparation and implementation.