AIIB to invest $500m in sustainable infra-related bonds in emerging Asia

Through this initiative, the multilateral development bank is aiming to promote infrastructure as an asset class, develop debt capital markets for infrastructure and promote ESG in emerging Asia.

The Asian Infrastructure Investment Bank has announced it will invest $500 million in infrastructure-related bonds from emerging Asian countries. The AIIB Asia ESG Enhanced Credit Managed Portfolio will focus on quasi-sovereign, corporate and green bonds, and will include a strong ESG component.

“We are trying to promote infrastructure as an asset class, deepening the capital markets in Asia, and with a very strong sustainable angle to it,” Thomas Walenta, the project’s team leader, told Infrastructure Investor.

“We’ll do this by having an ESG framework, that we are developing together with the [selected] asset manager, so we can really say that we are investing in sustainable infrastructure via the capital markets.”

Walenta revealed that the portfolio, which will be managed by an asset manager as a separate account, is aiming to invest an average of $10 million in around 50 different bond issuers. The rating average across securities will be BB+, with opportunities ranging from single A to single B grade, he said.

He noted that the average maturity of the investment will be five years and predicted that “a majority” of investments will focus on corporate bonds.

“The [investable] universe is quite large right now and it’s a very vast region, so I think we will be able to select very good issuers, not just those with very high ESG ratings, but also issuers that show a willingness to improve on ESG,” Walenta said.

AIIB has already selected an asset manager to manage the separate account and expects to finalise a legal agreement during the first quarter of this year, according to Walenta. AIIB declined to name the asset manager before the legal arrangements are finalised.

Walenta said AIIB is aiming to contact “like-minded investors”, such as pension funds and insurance companies within the next two years to encourage them to pursue a similar strategy using AIIB’s ESG framework.

The bank has also engaged with index providers to create an index focused on infrastructure-related bonds in the region in the long term. “The larger vision is to also establish a benchmark for this particular universe, where you can put ETFs on it, and reach retail investors as well,” Walenta said.

Launched in 2016 by the Chinese government, the Asian Infrastructure Investment Bank is a multilateral development bank focused on financing Asian infrastructure. It currently has 93 member states worldwide.