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Motorcyclists make their way through a flooded street after heavy rains in Karachi on September 12. In climate-hit Pakistan, for example, the AIIB is part of a project to link up the megacity through a network of hybrid buses, partly run on biogas, to make commuting faster and safer. Photo: AFP
Opinion
The View
by Ludger Schuknecht
The View
by Ludger Schuknecht

Amid economic uncertainty, multilateral development banks can lead with sustainable investments

  • Multilateral development banks are uniquely placed to mobilise public and private money to tackle the economic factors stunting growth and sustainable development
  • They can help drive capital towards projects that address the economic impact of climate change or lack of digital infrastructure across emerging economies
Ludger Schuknecht
Ludger Schuknecht
Why you can trust SCMP

Multilateral development banks (MDBs) can play a vital role in tackling urgent economic challenges linked to geopolitics and climate change.

Geopolitical challenges and the energy crisis have put pressure on inflation and public finances – and macroeconomic uncertainty unsettles private investors. MDBs can play a key role in connecting the public and private sectors to tackle the economic factors stunting growth and sustainable development.
MDBs can also show leadership by connecting networks of global investors, driving capital towards projects that address the economic impact of climate change or lack of digital infrastructure across emerging economies.
Emerging Asia, in particular, is in need of increased multilateral support. Pakistan, for example, has been disproportionately affected by an unfolding climate crisis that is costing lives and livelihoods. Bridging the funding gap for climate resilience and adaptation projects will reduce the impact of climate change.

MDBs are well placed to address these challenges and the Asian Infrastructure Investment Bank (AIIB) will do so at its seventh annual meeting this week. With their influence and economic credibility, MDBs are in a unique position: they can improve connectivity within and across countries, build technological infrastructure and accelerate digital innovation.

This includes everything from hard infrastructure, such as roads, railways and energy networks, to digital infrastructure, such as broadband and data centres.

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For example, the AIIB has partnered with Keppel Data Center Fund II, a private equity vehicle managed by Alpha Investment Partners, to support the development of green data centres across emerging Asia.

So far, US$150 million has been committed towards developing infrastructure, including reconverting facilities into greener data centres. It’s one of the biggest investments in data centres ever made by an MDB and is helping to unlock a fast-moving, innovative field of research.

MDBs are also key in mastering the climate crisis. They can mobilise private and state capital across their members and towards regions at the forefront of this crisis. And they can see beyond country and region-specific issues, and encourage public and private investment towards international climate resilience and adaptation.

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Moreover, the role of the private sector needs to be strengthened. As an MDB, we also want to mobilise private capital towards projects that improve lives and make it possible for people and businesses to prosper.

For example, the AIIB is part of a private and state investment partnership to create the Karachi Bus Rapid Transit Red Line Project in Pakistan, a 26.6km (16.5-mile) corridor to link densely populated areas in the city that are in need of better connections.

So far, the AIIB has invested around US$72 million in the project, which aims to boost efficiency across Karachi’s bus networks, reduce journey times, cut the cost of commuting and improve safety for female passengers.

The fleet of hybrid buses will be partly powered by biogas generated from waste to transport an estimated 320,000 passengers daily along a corridor that includes over 20 key stations throughout the city. The project will establish a sustainable commuter network that finally makes it fast, affordable and safe to travel across Karachi.

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It’s an unusual opportunity to invest in a major infrastructure project that could connect diverse regions in one of Asia’s biggest megacities. Public funding is important, but multilateral support and cooperation with the private sector and MDBs is vital to success.

Future-proof, sustainable infrastructure won’t just support businesses and communities throughout Karachi. It could also help drive Karachi’s economic recovery, improving the lives of many who face a deluge of climate-related challenges.

MDBs can also help private investors overcome regulatory obstacles and back innovative projects that unlock growth. Around seven per cent of globally tracked climate finance is being directed towards adaptation and resilience, with almost none of this coming from private sources. It is something that needs to change in the fight to meet international climate commitments.

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Green finance is an exciting growing sector, particularly across emerging Asia, with McKinsey & Company estimating that Asia’s market for green business could reach “between US$4 trillion and US$5 trillion by 2030”. MDBs can make it possible for private investors to gain access to innovative projects in climate mitigation, decarbonisation and energy transition.
Products such as green bonds, which are becoming more widely issued, are a sustainable asset class that make it possible for private investors to join the rapidly growing green business movement. The AIIB has approved US$1.2 billion in green and sustainable bonds in Asia, including the Asia climate bond portfolio and an infrastructure securitisation programme with Singapore’s Bayfront Infrastructure Management.

These are just some examples of innovative initiatives that, through agility and operating to the highest international standards, MDBs, including the AIIB, apply to master the climate crisis, foster sustainable growth and stability, and enhance global connectivity.

There has never been a better time for MDBs to lead the way in solving our challenges, by working with governments and investors. We’re hopeful that collaborative investment in smart, climate-related initiatives and infrastructure projects will benefit future generations long after the dust from today’s geopolitical uncertainty has settled.

Ludger Schuknecht is vice-president and corporate secretary at the Asian Infrastructure Investment Bank, which is hosting its seventh annual meeting on October 26-27

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