On July 12-13, 2019 in Luxembourg the AIIB hosted its first annual meeting to be held outside Asia. The theme was “Cooperation and Connectivity” with regards to reach better economic, social and ecological benefits within and between Europe and Asia. CICA participated to the AIIB’s panel discussions and business events such as the Asian Infrastructure Forum (AIF). CICA did also receive a special invitation for a roundtable partly chaired by EIC on Improving Environmental & Social Governance Performance in Infrastructure.
Governors’ Seminar: Digital Connectivity
The opening roundtable reiterated the importance of digital infrastructure as one of the most important infrastructure asset classes to ensure digital connectivity and inclusiveness.
It was stated that there is a 1 trillion USD gap in funding concerning digital infrastructure connectivity. However, between 2012-2016, Multilateral Development Bank (MDB) investments in the digital infrastructure sector only accounted for around 1% of their total commitments. The mythos still prevails that the private sector will take care of developing and financing Information and Communication Technologies (ICT).
The AIIB explained that they want to proceed differently and asked the panelists how to dedicate more financial resources and capacity building for the development of digital infrastructure.
Blended Finance: Bridging the Climate Adaptation Investment Gap
The panel discussions focused on the main challenges that prevent the expansion of blended finance in the context of climate adaptation.
Blended finance is defined by the OECD as “the strategic use of development finance for the mobilization of additional finance towards sustainable development in developing countries”, blended finance is one approach that permits to mobilize and leverage private finance towards climate related investments. By effectively blending public and private financing, the risk-return profile of these investments can be improved, which can thus permit to mobilize additional capital.
Roundtable for Improving Environmental & Social Governance Performance (ESG) in Infrastructure
Recently, there has been a growing trend for large Engineering, Procurement and Construction (EPC) contracts in the Asian region to seek investor stakeholder opportunities in project financing. Firms with EPC capabilities and financial capacity now have more opportunity to benefit from collaborating with multinational companies and financiers. MDBs should now see them as potential investor sources for crowding in private sector financing and explore new modalities of engagement.
Among these infrastructure investors, there has been a growing willingness to adopt high ESG standards. Some industrial associations have been capturing the trend to provide support to promote sustainable infrastructure standards and practices (TCA, OCAJI, CHINCA, ICAK, AIIB, GIZ).
Governors’ Seminar: Asia & Europe Connectivity through Cooperation
Links between Asia and Europe are strong and broad-based. With an annual trade flow of over 1.6 trillion USD, the two regions together account for over 70% of global trade. More than 200,000 collaborations between Asian and European research institutions take place each year and every day around 1,000 students move between the two continents. It is assumed that deepening connectivity between Asia and Europe will contribute to improving global growth and prosperity.
There are two forms of connectivity: tangible, where there is a physical driver of integration; and intangible, which refers to a degree of integration and harmonization of legal and regulatory frameworks, institutions, political systems, financial markets or even social and cultural practices. It was agreed that all forms of connectivity require commitment and cooperation.
Asian Infrastructure Forum (AIF) – Opening Session: Connecting with Neighbors: How to Create Partnership through Infrastructure
Cross-border connectivity is central to the economic development. Globally, the poverty ratio has declined from 42% in 1981 to 10% in 2015, coinciding with a period of rising cross-border connectivity and trade.
The EU-Asia Joint Communication on “Connecting Europe and Asia: Building blocks for an EU Strategy” in 2018 made mutual connectivity between people, businesses and institutions a top political priority. This is said to represent opportunities for the business community in a wide range of areas, from investing in the cross-border connections to business activities facilitated by the enhanced connectivity. There is however, a lack of bankable projects for the long-term development. Besides, more money is needed for project preparation. Many Development Finance Institutions (DFIs) / bilateral finance institutions already commit many resources to it. This is considered to be emphasized by MDBs such as the AIIB.
AIF Business Development Workshop: Private Equity for Sustainable Infrastructure
Private equity investments are part of AIIB’s mandate and a great opportunity to bring managers and investors together to take stock of the asset class’s contribution to private capital mobilization for infrastructure.
The Asian private equity sector is a fast-moving space where numerous innovative financing structures evolve and are tested. The roundtable dealt with the growing interest from European institutional investors on Asia’s private equity and potentially attract additional private capital into the region. The roundtable also considered how the participation of development finance institutions in private equity funds can enhance the environmental and social aspects of portfolio investments, an area that investors have growing interest in. It was noted that the AIIB finalized its private equity strategy.