MAC/20: Mines and Communities

The Weekend Essay: How AIIB seeks to falsely promote ESG

Published by MAC on 2019-10-26
Source: Centre for Financial Accountability

This is a follow-up to a critique ofAIIB's recent highly-dubious promotion of regional infrastructure building among a clutch of private investors. It's just been published by India's Centre for Financial Accountability [see: AIIB accused of unacceptable developments 

Note that two of the major parties which benefitted only last month from this  "sleight of definition" between old-style investment and aspirational environment, social and governance standards, were India's mining-mega Tata, and Larsen & Toubro - one of the country's most extensive engineers.

 

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AIIB’s newly wrapped ESG investments

By Tani Alex

Centre for Financial Accountabilty

26 Octobe, 2019

Sharing is caring!

After fifty investments being approved and many more in pipeline, along
with much criticism against India’s Infrastructure Fund [IIF], National
Infrastructure Investment Fund [NIIF], IFC Emerging Asia Fund and Asia
Investment Fund, two months ago a new partnership has been announced by
Asian Infrastructure Investment Bank [AIIB] with UK’s Aberdeen Standard
Investments [ASI] for AIIB’s Asia ESG Enhanced Credit Managed Portfolio
Project.

As part of their initiative ‘Sustainable Capital Market’, under which this
portfolio is categorised, AIIB intends to promote investments in
corporate, green and quasi-sovereign bonds in infrastructure related
sectors in Asia. Announced to boost ESG investment and with the target of
returns at a rate of 5-7%, these bonds would be screened, assessed and
managed on ESG principles laid down by the AIIB’s Environmental and Social
Framework and managed by ASI who is globally the leading asset manager in
ESG investments. ESG score, according to AIIB and ASI, would be created
using information provided by corporates and third party rating providers.

According to AIIB, it will evaluate among other factors, a firm’s
trajectory and its willingness to improve its ESG standards, once they
benefit from this fund. Their framework is also designed for AIIB to
engage when triggers such as firm’s reputational risks or strategy shifts
happen and put the securities of these firms under watchlist. Meanwhile,
ASI believes that conditions are “ripe” globally for investments in Asia
over the next five to ten years, since “influential asset owners” have
already started making the transition to ESG investments. AIIB also
intends to invite other financial actors like insurance firms, pension
funds and sovereign wealth funds to invest in this portfolio once it is
established.

What are ESG Funds?

Funds which claim to have environment social and governance aspects
reinforcing all their investment activities are broadly called ESG
investments or funds. Originally launched by the mutual funds industry,
ESG funds have sustainability as the generally underlying theme. Under
SEBI’s guidelines, these funds come under thematic funds and focuses on
non-financial actors like environment, climate, impact investing, best
practices, resource efficiency, employment, supply chain issues,
governance etc. to try to manage a firm’s strengths and weaknesses. In
short, these funds invest in stocks of companies that has no reported
violations of environment damage and social risks. An elaborate list would
be – water, waste, plastics, circular economy, biodiversity,
deforestation, toxic emissions, pollution, clean energy, carbon
footprinting, decarbonisation, transition economy, energy efficiency,
working conditions, health & safety, equal opportunities, staff retention,
training & development, labour relations, talent retention, collective
bargaining, modern slavery, child labour, supply chain issues, inequality,
lack of access to resources, land rights, food & nutrition, data privacy,
community relations, anti-bribery & corruption, audit issues, board
balance, board diversity, remuneration, business ethics, director
independence, shareholder rights, accountability, cyber security and tax.

There are also ESG assessment reports published annually by Principles for
Responsible Investment [PRI], which is a voluntary self-regulation
platform formed in 2006 by corporate and financial actors. PRI is endorsed
by UNEP Finance Initiative and UN Global Impact. According to their
website, “the six principles for responsible investment are a voluntary
and aspirational set of investment principles that offer a menu of
possible actions for incorporating ESG issues into investment practice.”
Reporting is done through the assessment reports based on self-defined
criteria and indices as part of ongoing learning and development. The
report also documents ESG indicators covering asset classes like farmland,
forestry, infrastructure, equity funds, hedge funds etc. The irony is
these principles were created by the investors themselves and more than
2000 companies have signed, including the top ten leading global
investment companies. There has been attempts to integrate ESG investments
in real estate industry as well, since ever increasing rampant
infrastructure projects directly involve capital, labour and especially
land intensive activities. In India, Kotak Mahindra Asset Management Co.
Ltd was the first asset management company to sign PRI in April 2018.

India’s first ESG fund was launched early this year by Avendus Capital
Public Market Alternate Strategies. Avendus Capital, which already manages
India’s largest hedge fund, seeks to raise USD 1 billion through
international and national market for their Avendus India ESG fund to
invest in listed equity companies. Among the members of their advisory
panel is former Deputy Governor of RBI, Dr. Rakesh Mohan.

SBI Mutual Fund renamed its SBI Magnum Equity Fund to SBI Magnum Equity
ESG fund which became first ESG Mutual fund of India. Three months ago,
Quantum Mutual Fund launched India’s first ESG Equity fund, Quantum India
ESG Equity Fund. National Stock Exchange has also introduced NIFTY 100 ESG
and NIFTY 100 Enhanced ESG indices, and Bombay Stock Exchange has S&P BSE
ESG index, as thematic indices.

Yet another evasive investment of AIIB

With its founding principle of being a clean, green and lean multilateral
development bank, AIIB has always been under the scathing review of civil
society and peoples’ groups for non-compliance to its own policies and for
the aggressive pace of investments which they package in different
ornamentations such as their founding principles and as a friendly bank
from the global south.

While it is seemingly appreciable that firms are made to adhere to such
standards in this particular ESG credit portfolio, the larger picture is
strikingly clear – funds and investments are now packaged under the
semblance of ESG to make it more attractive and investible for private
players. We have been stunned earlier by observing multilateral
development banks recklessly aiding the wealth extraction of private
players through many such funds, policy influences and reputational
privileges in the name of development projects globally. We have seen them
sans any accountability also with huge funds channelled through financial
intermediaries which does not require disclosures yet.

AIIB’s recent investments in India were approved last month which focus on
financing renewable energy, power transmission & distribution and water
infrastructure construction projects in India – the Tata Cleantech
Sustainable Infrastructure On-Lending Facility with financing plan of USD
75 million and the L&T Green Infrastructure On-Lending Facility with USD
100 million. Both claim to increase the supply of renewable energy through
mobilizing private capital investments in order to align Government of
India’s plan to reduce carbon intensity under the Paris agreement.

Objections have been raised and it is known that AIIB’s ESF policy itself
is under review. It is nonsensical that they continue expanding, not just
with 100 member countries but with investments already loaned out to the
tune of USD 9.64 billion in a span of four years, while in the process of
getting their policies and directives in place! And talk about not having
a robust ESG system in place, while the larger and older MDBs like World
Bank and IFC continue conducting periodic reviews of their robust
policies!

And here we are, repeatedly manipulated with the branding and wrapping
these funds are allowed to come in to our country, now robed with ‘ESG’.
This is just another contriving moment for AIIB with the initial USD 500
million tied to the bandwagon, beginning to exploit this new ‘investible’
‘green’ opportunity.

AIIB’s newly wrapped ESG investments

CFA (India)

By Tani Alex | October 26, 2019

Sharing is caring!

After fifty investments being approved and many more in pipeline, along
with much criticism against India’s Infrastructure Fund [IIF], National
Infrastructure Investment Fund [NIIF], IFC Emerging Asia Fund and Asia
Investment Fund, two months ago a new partnership has been announced by
Asian Infrastructure Investment Bank [AIIB] with UK’s Aberdeen Standard
Investments [ASI] for AIIB’s Asia ESG Enhanced Credit Managed Portfolio
Project.

As part of their initiative ‘Sustainable Capital Market’, under which this
portfolio is categorised, AIIB intends to promote investments in
corporate, green and quasi-sovereign bonds in infrastructure related
sectors in Asia. Announced to boost ESG investment and with the target of
returns at a rate of 5-7%, these bonds would be screened, assessed and
managed on ESG principles laid down by the AIIB’s Environmental and Social
Framework and managed by ASI who is globally the leading asset manager in
ESG investments. ESG score, according to AIIB and ASI, would be created
using information provided by corporates and third party rating providers.

According to AIIB, it will evaluate among other factors, a firm’s
trajectory and its willingness to improve its ESG standards, once they
benefit from this fund. Their framework is also designed for AIIB to
engage when triggers such as firm’s reputational risks or strategy shifts
happen and put the securities of these firms under watchlist. Meanwhile,
ASI believes that conditions are “ripe” globally for investments in Asia
over the next five to ten years, since “influential asset owners” have
already started making the transition to ESG investments. AIIB also
intends to invite other financial actors like insurance firms, pension
funds and sovereign wealth funds to invest in this portfolio once it is
established.

What are ESG Funds?

Funds which claim to have environment social and governance aspects
reinforcing all their investment activities are broadly called ESG
investments or funds. Originally launched by the mutual funds industry,
ESG funds have sustainability as the generally underlying theme. Under
SEBI’s guidelines, these funds come under thematic funds and focuses on
non-financial actors like environment, climate, impact investing, best
practices, resource efficiency, employment, supply chain issues,
governance etc. to try to manage a firm’s strengths and weaknesses. In
short, these funds invest in stocks of companies that has no reported
violations of environment damage and social risks. An elaborate list would
be – water, waste, plastics, circular economy, biodiversity,
deforestation, toxic emissions, pollution, clean energy, carbon
footprinting, decarbonisation, transition economy, energy efficiency,
working conditions, health & safety, equal opportunities, staff retention,
training & development, labour relations, talent retention, collective
bargaining, modern slavery, child labour, supply chain issues, inequality,
lack of access to resources, land rights, food & nutrition, data privacy,
community relations, anti-bribery & corruption, audit issues, board
balance, board diversity, remuneration, business ethics, director
independence, shareholder rights, accountability, cyber security and tax.

There are also ESG assessment reports published annually by Principles for
Responsible Investment [PRI], which is a voluntary self-regulation
platform formed in 2006 by corporate and financial actors. PRI is endorsed
by UNEP Finance Initiative and UN Global Impact. According to their
website, “the six principles for responsible investment are a voluntary
and aspirational set of investment principles that offer a menu of
possible actions for incorporating ESG issues into investment practice.”
Reporting is done through the assessment reports based on self-defined
criteria and indices as part of ongoing learning and development. The
report also documents ESG indicators covering asset classes like farmland,
forestry, infrastructure, equity funds, hedge funds etc. The irony is
these principles were created by the investors themselves and more than
2000 companies have signed, including the top ten leading global
investment companies. There has been attempts to integrate ESG investments
in real estate industry as well, since ever increasing rampant
infrastructure projects directly involve capital, labour and especially
land intensive activities. In India, Kotak Mahindra Asset Management Co.
Ltd was the first asset management company to sign PRI in April 2018.

India’s first ESG fund was launched early this year by Avendus Capital
Public Market Alternate Strategies. Avendus Capital, which already manages
India’s largest hedge fund, seeks to raise USD 1 billion through
international and national market for their Avendus India ESG fund to
invest in listed equity companies. Among the members of their advisory
panel is former Deputy Governor of RBI, Dr. Rakesh Mohan.

SBI Mutual Fund renamed its SBI Magnum Equity Fund to SBI Magnum Equity
ESG fund which became first ESG Mutual fund of India. Three months ago,
Quantum Mutual Fund launched India’s first ESG Equity fund, Quantum India
ESG Equity Fund. National Stock Exchange has also introduced NIFTY 100 ESG
and NIFTY 100 Enhanced ESG indices, and Bombay Stock Exchange has S&P BSE
ESG index, as thematic indices.

Yet another evasive investment of AIIB

With its founding principle of being a clean, green and lean multilateral
development bank, AIIB has always been under the scathing review of civil
society and peoples’ groups for non-compliance to its own policies and for
the aggressive pace of investments which they package in different
ornamentations such as their founding principles and as a friendly bank
from the global south.

While it is seemingly appreciable that firms are made to adhere to such
standards in this particular ESG credit portfolio, the larger picture is
strikingly clear – funds and investments are now packaged under the
semblance of ESG to make it more attractive and investible for private
players. We have been stunned earlier by observing multilateral
development banks recklessly aiding the wealth extraction of private
players through many such funds, policy influences and reputational
privileges in the name of development projects globally. We have seen them
sans any accountability also with huge funds channelled through financial
intermediaries which does not require disclosures yet.

AIIB’s recent investments in India were approved last month which focus on
financing renewable energy, power transmission & distribution and water
infrastructure construction projects in India – the Tata Cleantech
Sustainable Infrastructure On-Lending Facility with financing plan of USD
75 million and the L&T Green Infrastructure On-Lending Facility with USD
100 million. Both claim to increase the supply of renewable energy through
mobilizing private capital investments in order to align Government of
India’s plan to reduce carbon intensity under the Paris agreement.
Objections have been raised and it is known that AIIB’s ESF policy itself
is under review. It is nonsensical that they continue expanding, not just
with 100 member countries but with investments already loaned out to the
tune of USD 9.64 billion in a span of four years, while in the process of
getting their policies and directives in place! And talk about not having
a robust ESF system in place, while the larger and older MDBs like World
Bank and IFC continue conducting periodic reviews of their robust
policies!

And here we are, repeatedly manipulated with the branding and wrapping
these funds are allowed to come in to our country, now robed with ‘ESG’.
This is just another contriving moment for AIIB with the initial USD 500
million tied to the bandwagon, beginning to exploit this new ‘investible’
‘green’ opportunity.

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