A legal study of the Asian Infrastructure Investment Bank's new Environmental and Social Framework

• Published date: 01 April 2023
• Author: Bin Gu
• Date: 01 April 2023
• DOI: http://doi.org/10.1111/reel.12461

ORIGINAL ARTICLE

A legal study of the Asian Infrastructure Investment Bank's

new Environmental and Social Framework

Bin Gu

Beijing Foreign Studies University, Beijing,

China

Correspondence

Bin Gu, Beijing Foreign Studies University,

Beijing, China.

Email: gubin@bfsu.edu.cn

Funding information

National Social Science Fund of China,

Grant/Award Number: 19BFX210

Abstract

The Asian Infrastructure Investment Bank's (AIIB) new Environmental and Social

Framework (ESF) features a relationship of heritage and innovation, compared with

the ESF of the World Bank and other multilateral development banks (MDBs). The

innovative elements are not only embodied in a few specific institutions shiny with

traditional Asian wisdom of ‘voluntarism, flexibility and incremental progress’but are

also observed in the AIIB's frontier environmental, social and governance portfolio

investments in global capital markets. Drawing upon the World Bank, the alternative

use of client systems enables the AIIB to maintain high and feasible standards, with-

out having to intervene in national politics. In the Project-affected People's Mecha-

nism, three-complaint resolution functions are streamlined under one roof, catering

for the nature and degree of seriousness of the dispute involved and marking a major

innovation in the design of an accountability mechanism among leading MDBs. The

two requirements of exhaustion of project-level remedies and free, prior and

informed consultation expect to function equivalently to the World Bank standards

in effect, although they appear to reduce the protection of project-affected people.

1|INTRODUCTION

In May 2021, the Asian Infrastructure Investment Bank (AIIB) promul-

gated the new Environmental and Social Framework (ESF). It is a legal

tool to regulate the behaviour of AIIB staff, as well as of AIIB clients,

in an AIIB-financed project, and the purpose is to safeguard project-

affected people from possible negative impacts or risks in regards to

environmental and social aspects. In effect as of 1 October 2021, this

new ESF is a major legal instrument to help the AIIB to achieve the

‘highest possible standards’,

1

as embodied in its trademark corporate

culture of ‘lean, clean and green’.

2

The original ESF of the AIIB came into force in February 2016, as

one of the very first few legal documents identified as ‘major poli-

cies’.

3

The ESF was immediately put into use, applying to the first

batch of four projects that were prepared even before the AIIB went

into operation in January 2016.

4

The ESF was revised in February

1

The quote is from a statement by then AIIB President-designate Jin Liqun; it has been

reiterated both in AIIB official documents and on the AIIB's official website. See AIIB,

‘Statement by Jin Liqun at a Press Conference in Tbilisi’(26 August 2015) <https://www.

aiib.org/en/news-events/news/2015/Statement-by-Jin-Liqun-at-a-Press-Conference-in-

Tbilisi.html>.

2

The three words are commonly defined as follows: ‘lean’, meaning with a small, efficient

management team and highly skilled staff; ‘clean’, meaning an ethical organization with zero

tolerance for corruption; and ‘green’, an institution that is built on respect for the

environment. Nevertheless, the technical definitions vary across AIIB official documents.

3

‘Major policies’is a legal term defined to explicitly include the ESF, and they require a

higher three-quarters majority of total voting power within the Board of Directors for

approval. By comparison, ‘other policies’require a simple majority of the votes cast within

the Board of Directors for approval. AIIB, ‘Articles of Agreement’<https://www.aiib.org/en/

about-aiib/basic-documents/articles-of-agreement/index.html> (AIIB AOA) art 26.2 and

Explanatory Notes on Article 26 as attached to the ChiefNegotiators' Report on AIIB AOA.

4

Of the first batch of AIIB projectslocated in Bangladesh, Indonesia, Pakistan and Tajikistan,

totallingUS$509 million in loans, three projects were co-financed with peer institutions

includingthe World Bank, the Asian Development Bank (ADB), and the European Bank for

Reconstructionand Development (EBRD), and thoseprojects applied the co-financers' ESFs,

respectively,with each considered to be ‘materially consistent’withAIIB's ESF; the only

projectusing the AIIB's own ESF was the standalone one in Bangladesh. The AIIB 2016 ESF

explicitlyauthorized the use of the co-financier's ESF, stating that ‘[t]heBank may agree, on a

case-by-casebasis, to the application of the environmentaland social policies and procedures

of multilateraldevelopment banks and bilateraldevelopment organizations who are co-

financingthe Project, provided that the Bank is satisfiedthat they are consistent with the

Bank'sArticles of Agreement and materially consistent with the ESP andESSs, and that

appropriatemonitoring procedures are in place’. AIIB, ‘2016Environmental and Social

Framework’(February2016) (AIIB 2016 ESF) ‘Environmentaland Social Policy (ESP)’para 10.

Received: 20 March 2022 Accepted: 28 August 2022

DOI: 10.1111/reel.12461

92 © 2022 Wiley Periodicals LLC. RECIEL. 2023;32:92–104.wileyonlinelibrary.com/journal/reel