The Board of Directors is nonresident in line with our lean culture, exercising all powers delegated to it by the Board of Governors. The Board of Directors meets regularly and frequently, as often as business requires—in physical meetings and through videoconferences—and maintains regular communication with Management between meetings. Under the direction of the Board of Directors and as its Chair, the President conducts the Bank’s business and is held accountable for efficient day-to-day operations.

Prevented by COVID-19 from holding in-person meetings, the Board of Directors held more frequent virtual meetings, ensuring that it could continue to guide AIIB in deliberations over risks, strategies and visions. AIIB was thus able to rapidly bring projects forward—particularly those under the COVID-19 Crisis Recovery Facility—for Board approval. The Board of Directors held 19 meetings in 2020, all electronic, compared with 2019, when it held nine meetings, of which four were physical and five electronic.

As part of its agile response to COVID-19, the Board of Directors had many virtual engagements with members.

We held virtual regular elections for the Board of Directors in June 2020, one month before the expiration date of the term of the incumbent Directors. Nine regional and three nonregional Directors were elected to serve a regular two-year term, from July 1, 2020 to June 30, 2022.

Accountability Framework

In April 2018, the Board of Directors approved the Accountability Framework. The document clarifies the division of responsibility between the Board of Directors and Management, including for AIIB’s strategy and approval of investment operations. The framework provides additional tools for the Board of Directors to hold the President and Management accountable.

Following a transparent process, the President may approve projects that fulfill predefined requirements and shall submit to the Board of Directors the summaries of projects based on predetermined criteria. First, beginning in 2020, the projects must have passed concept review by the Investment Committee, composed of the Chief Risk Officer, Vice President for Policy and Strategy, Chief Financial Officer and the Vice Presidents for Investment Operations, who serve as Co-Chairs. Second, the projects must have been determined for approval within the President’s authority. Third, any Director can call any of these projects before the Board of Directors if deemed necessary. In 2020, the President approved three projects: (1) Bangladesh: Dhaka and West Zone Transmission Grid Expansion Project, (2) Bangladesh: Rural Water, Sanitation and Hygiene for Human Capital Development Project and (3) India: Ayana Anantapumaru NTPC Solar Project.

Oversight Mechanism

The Complaints-resolution, Evaluation and Integrity Unit (CEIU) was established in 2016 as an independent body within AIIB and is part of its Oversight Mechanism, created by the Board of Directors under Article 26(iv) of AIIB's Articles of Agreement. The provision empowers the Board of Directors to regularly supervise the management and operation of the Bank and establish an oversight mechanism for that purpose, in line with principles of transparency, openness, independence and accountability. CEIU is led by the Managing Director, who reports directly to the Board of Directors.

The primary responsibilities of CEIU are to (1) selectively assess the quality and results (for completed projects) of the Bank’s ongoing and completed investment portfolio, (2) serve as the focal point for external requests or complaints regarding compliance with AIIB’s Environmental and Social Policy under the Project-affected People’s Mechanism (PPM) Policy and (3) investigate project-related fraud and corruption cases under the Policy on Prohibited Practices.

Board Committees

To ensure that we perform our mandate based on sound strategies and practices, three committees under the Board of Directors give us guidance: (1) The Audit and Risk Committee reviews the financial statements, reporting practices, the Bank’s financial and risk policies, the effectiveness of internal controls and the internal audit plan as well as reports from the external auditors. (2) The Budget and Human Resources Committee assesses the proposed annual budget and implementation of our compensation and benefits policies and considers any other aspects of the budget and human resources as the Board of Directors may request. (3) The Policy and Strategy Committee reviews the financial and operational policies (such as environmental, social and procurement policies) and advises on strategy development.

In 2020, new members were appointed to each of the Board committees as part of their succession plans. Ai Phing Cheng and Elisabeth Stheeman were appointed external members of the Audit and Risk Committee. We reviewed the terms of reference of the Board committees to ensure consistency with the Bank’s policies and alignment with the latest committee practices.

2020 was an extremely busy year for funding operations. Like many peer organizations, we responded to the call for help to tackle the effect of the pandemic by significantly increasing our financings. Hence, the capital market funding target, which was initially planned to grow to USD6 billion in 2020, was increased to USD9 billion later in the year and successfully executed.

The United States Securities and Exchange Commission–registered Global Program was accessed twice in the year, with benchmark issues in three- and five-year maturities. Highly favorable investor reception allowed us to price USD3 billion in both cases, further contributing to the liquidity of AIIB benchmarks.

In June 2020, we issued our first renminbi-denominated Sustainable Development Bond in the China Interbank Bond Market. AIIB was the first internationally rated AAA issuer to have entered this market since the release in 2018 of the panda bond guidelines governing international issuers. This transaction benefited from extremely strong demand, attracting two-thirds of the orders from overseas investors, underscoring the internationalization of China’s capital markets. The bond carried the “Combating COVID-19” label approved by the National Association of Financial Market Institutional Investors.

We launched our debut bond in the pound sterling market. The GBP800 million five-year Sustainable Development Bond was 1.5 times oversubscribed and contributed to opening more funding channels for AIIB. The issuance met with strong demand, with interest from a broad range of investors, including bank treasuries, official institutions and real money accounts.

We remain committed to establish a presence in major markets as a frequent issuer in line with our mandate as a multilateral financial institution, achieving competitive funding levels that can benefit our borrowing clients.

Our Sustainable Development Bonds will be used to fund the Bank’s investment operations, which are guided by our policies and strategies, including the Corporate Strategy and other strategies covering energy, transport, sustainable cities, water and digital infrastructure, among others.

Our Sustainable Development Bond Framework summarizes and presents the policies and strategies, processes and mechanisms that govern AIIB’s sustainable financing activities. The framework supports our members’ efforts to meet their commitments under the Paris Agreement on climate change and to achieve their targets under the Sustainable Development Goals.

A key component of this framework is our application of Environmental and Social Policy principles and requirements to every project AIIB has financed since our inception.

From 2020 onward, every AIIB financing will ordinarily be aligned with one or more thematic priorities—green infrastructure, connectivity and regional cooperation, technology-enabled infrastructure and private capital mobilization—while building upon our sustainability requirements.

Formats of the Sustainable Development Bonds are intended to include but not be limited to benchmark public bonds and private placements.

The concentration risk metrics are linked to portfolio risk concentration limits that are part of the key risk indicators as per the Risk Appetite Statement. These concentration limits target the top-three and top-five concentrations on a portfolio basis rather than single name and member limits, giving us more flexibility to maneuver and operate where there is demand for our involvement.

Stress testing capital adequacy is used to monitor limits and manage capital adequacy and efficient use of capital. The capital adequacy and economic capital framework captures key portfolio risk attributes, including exposure size, correlation, concentration and credit quality.

The stress testing on capital adequacy analyzed in 2020 included scenarios with one-in-25-year shock events, such as a pandemic, trade war or cyber disruption. Even in the extreme scenarios (low likelihood, high impact), AIIB would still maintain extraordinarily strong capital adequacy ratios and withstand the crisis stress, although profitability ratios would be impacted.

Credit Risk

During 2020, we performed various cross-functional assessments of project risk in collaboration with departments involved in relevant areas such as risk management, strategy, finance, investment operations and economics. Collaboration reinforced a comprehensive approach to risk management and increased risk awareness and culture within AIIB.

For example, our bottom-up assessment included analyzing sovereign and nonsovereign portfolios every quarter, with the participation of project team leaders and credit risk teams, to evaluate the impact on each individual exposure with respect to underlying risks such as oil price, foreign exchange and interest rate movements, equity market drop, gross domestic product growth slowdown and unemployment surge.

The assessment was complemented by top-down analysis of the impact of the current macroeconomic scenario on impairment provisions, credit risk quality and other indicators of the investment portfolio, including capital adequacy and other key risk indicators. These assessments accompanied regular portfolio supervision meetings.

As the Bank has a relatively new portfolio and strong capital base, the above-referenced analysis indicated that expected credit losses under IFRS 9 would result in an increase in impairment provisions by AIIB in 2020 but did not suggest that a significant part of our clients would face serious credit problems.

In anticipation of credit deterioration that might require workouts and restructurings, we built capacity before the credit events materialized. We designed an early-warning system and set out criteria to identify problem credits and responsibilities for their management.

Despite the challenging economic landscape and the growth in operations, AIIB had no nonperforming loans as of end-2020, largely because of the prudent risk management approach, close oversight, frequent monitoring and in-depth due diligence and origination process, resulting in strong counterparty selection.

Operational Risk

In 2020, there were no significant operational risk losses. Our experience during this period helped us improve our processes and procedures to reduce exposure to operational risk events, albeit by incurring higher costs. We activated business continuity plans and remote work-from-home arrangements to maintain operations and controls, including strategies to mitigate cybersecurity risk. Heightened risks required innovative solutions: we used technology to carry out supervision missions (drones to monitor construction schedules) and partnered with local banks and entities to carry out on-site due diligence and supervision.

For critical procurement packages, risk assessment is an integral part of procurement evaluation for supplier selection and contract negotiation. Our procurement unit worked with requesting departments to engage qualified suppliers and subscription providers to build the risk management framework and systems for the Bank. Procurement contracts were negotiated to minimize and mitigate associated risks (legal, financial, commercial, reputational and operational).

In view of the increasing risk impacts caused by third-party suppliers to the Bank’s operations, we developed compliance requirements for suppliers, including security, quality assurance and a business continuity plan in bidding documents and imposed an evaluation score for input from bidders, and documented the supplier’s commitment in the contract. To mitigate various operational risks, we established a corporate insurance program that covers the most critical operational and staff liability insurance, as well as insurance for the Bank’s property, as needed.

One of 2020’s primary accomplishments is the approval of the Corporate Strategy. The exercise of examining our past and present to inform our future presented an ideal opportunity to think extensively about the role culture should play in shaping AIIB’s impacts. Knowing that the right corporate culture could be the linchpin that enables us to achieve our 2030 goals or impede our success, culture was identified as one of five key pillars of the Corporate Strategy.

Under the Corporate Strategy, a key element of our corporate culture is a renewed focus on our clients. Clients should feel that AIIB is agile and responsive to their financing requirements, with an approach that is innovative, efficient and responsible, crowds in other financiers and is motivated by an urgent desire to achieve project outcomes.

Our success is predicated on our ability to attract and retain the best people from around the world. Creating a workplace that is high-performing, open, inclusive and international is a top priority. We will build an environment where staff are supported and empowered to achieve their potential, encouraged to share ideas and are appropriately trained—a place where innovation is encouraged and Management lives up to the Bank’s leadership principles.

In the midst of many other challenges we faced during the pandemic, the Culture Steering Committee, which is made up of leaders from across AIIB, recommitted itself to shape the direction of our corporate culture, guided by the Corporate Strategy. As a sounding board and culture-building champion, the committee began developing an action plan.

In 2020, we prioritized three additional areas of culture building by embedding principles and policies to support (1) diversity and inclusion, (2) efficiency and (3) the digitization of AIIB’s operations.

AIIB began working on these priorities in 2020 and was awarded EDGE Certification for ensuring equal access to career opportunities for all staff. Under the lean core value, we established two working groups to explore separate but related areas. One is dedicated to improving processes and reducing bureaucracy and takes both a bottom-up and top-down approach to tap staff’s ideas and suggestions. The other working group is examining how technology and digital tools can enable staff to work smarter and faster. By looking at the experiences of other financial organizations, the working group will identify the best approach to transform our corporate and investment operations by leveraging more new streams of digital technology.

Mission to Green

In 2016, we planned to relocate to permanent headquarters in Beijing. On June 1, 2020, we finally moved in. By the time most staff returned to Beijing, they reported to our new headquarters. The change was massive but our Mission to Green Project ensured that internal communications were sufficient and that staff fully understood the new office environment, which mitigated operational risks and interruptions. Our new headquarters provided us with an opportunity to implement our institutional carbon emission management plan, which is in its early stage. We have set up systems to collect data and analyze building facilities and energy consumption.

In 2020, we accelerated the digitalization of core business processes (especially investment operations, project procurement, financial market investment and loan administration), helping streamline our end-to-end investment capabilities. By building Bank-wide shared IT foundations, we ensured that application systems can talk with each other, share common data assets and resist cybersecurity threats. Our Information Technology Department is taking the lead in providing reliable, innovative and efficient AIIB-wide IT solutions, including investing in data encryption tools. As a result, roughly 50 percent of our core business processes are now online.

Managing Our Investments

As our core business becomes more complex, we have adopted suitable IT solutions to manage our investments and support our investment portfolio and operations. By 2020, we had moved many of our investment management business operations online. Our Investment Operations dashboard provides an overview of our portfolio and pipeline projects. Accurate data and reporting help the Board of Directors and Management team get a better view of business insights and contribute to data-driven decision-making and strategic planning.

By end-2020, our Treasury Department was conducting its core business functions digitally and has been able to achieve automatic information flows across different departments through an integrated downstream finance and risk system. We have strengthened the digital capability of Treasury’s support functions by introducing the SWIFT payment system, with initiatives for increased security and compliance control. Several digital tools, such as the Loan Management System for nonsovereign loans and Investment Monitoring Tools, went live in 2020, and work on a solution for sovereign loans commenced. The Office of the Controller initiated the Robotic Process Automation system, which automated three processes, reducing workload and lowering operational risks.

Investment management and servicing continues to be the focus of our future IT road map. We aim to bring end-to-end investment management and servicing functions to several centralized platforms to replace the current interim and manual solutions.

Managing Risk

We have developed a platform to obtain a consolidated view of risk indicators from different systems or tools so that we can comprehensively manage risks and efficiently allocate and utilize capital. The Risk IT Platform enables us to analyze raw data and measure, monitor, calculate and automatically report risk and ensure our capital adequacy according to the Financial and Risk Management Framework. We are developing similar tools to measure nonfinancial risks, including operational risk and compliance risk.

We focused on IT risk management. We initiated a series of projects under the Cyber Resilience Program to maintain our ability to deliver intended outcomes despite adverse cyber events. We implemented IT outsourcing and cloud risk management frameworks to manage the risks associated with the involvement of third parties and cloud vendors.

Supporting Our New Initiatives

We continued with a program to use innovative technologies to help business operations, with various new technologies being evaluated for fitness for business use. Following the successful rollout of Robotic Process Automation, we organized the Innovation Lab guided by the Innovation Management Framework, which defines the methodology for innovation initiatives and experiments within AIIB.

Ensuring Continuity of Daily Operations

The COVID-19 pandemic accelerated the need for a more digital way of working and operating. We provided flexible and secure remote support to staff working outside headquarters. Digital signature functionality was rolled out for contracts, recruiting and onboarding document signing. We launched the Digital Archives to centralize the filing of records online, ease data retrieval and reduce paper filing for environmental sustainability. We developed solutions for offshore payroll payment processing and paperless claim processing so that our staff could receive their benefits on time and seamlessly, no matter where they were.

The advancement and scalability of artificial intelligence technologies offered us an opportunity to face audit challenges. These included the need to remotely systematize a high volume of structured and unstructured data, the need for better linkages between reports across systems and time, such as repeated procedures resulting in repeated risks, the growing number of controls and other silo-related challenges.

To meet these challenges, the Internal Audit Office (IAO) explored the use of iBots to assess accurate and timely public disclosure. IAO deployed automated process mining to gain insights on automated processes, locate bottlenecks and mitigate the absence of project audit visits because of pandemic restrictions.

IAO tapped the vast quantity of geospatial data that is openly available through public, private and voluntary initiatives and developed a proof of concept, where we were able to track and correlate the physical progress of our project monitoring reports submitted by implementing entities. The availability of these technologies in audit will significantly reduce travel time and costly travel expense and increase probity and transparency in our projects.

Thanks to the timely development of two e-procurement systems (one for firms and another for individual consultants), our corporate procurement team was able to support AIIB’s operations without any interruption during the work-from-home period. We took measures to ensure compliance with our Know Your Counterparty and anti–money-laundering and financing of terrorism policies.

Improving How We Hire Talent

The pandemic was an opportunity to advance digitization in our recruitment methods. We partnered with LinkedIn to host a virtual recruitment roadshow with a pilot project focused on Turkish professionals. To increase efficiency and reduce bias in the selection process, we are working on intelligent automated screening tools to assist in screening applications for selected entry- and early career-level positions. We are also integrating pre-employment screening into the online recruitment platform.

The significance of partnerships in AIIB’s business model underlies the need to establish a new, dedicated unit for partnerships and regional cooperation under the Strategy and Policy Department. The unit’s mandate is to strengthen AIIB’s engagement with international fora and other development actors.

Multilateral Development Banks’ Joint COVID-19 Response

As part of the international response to the pandemic, we actively participated in the strengthened coordination efforts at all institutional levels. We participated in numerous discussions with the other multilateral development banks (MDBs), United Nations (UN) agencies and other stakeholders to ensure alignment of regional and country operational responses.

Joint Report on the Sustainable Development Goals

AIIB joined a group of 11 MDBs and the International Monetary Fund in launching the first-ever joint report on financing the Sustainable Development Goals (SDGs). The report was released at the end of 2020, when the COVID-19 pandemic threatened to reverse SDG progress. MDBs collectively mobilized a global response package of USD230 billion in 2020-2021, of which USD75 billion was directed to the world’s poorest economies in 2020.

Multilateral Cooperation Center for Development Finance

AIIB is the Administrator of the Multilateral Cooperation Center for Development Finance (MCDF) Finance Facility established on May 15, 2020 and the host of the MCDF Secretariat. MCDF is a multilateral initiative to increase high-quality infrastructure and connectivity investments in developing economies in compliance with the international financial institution standards applied by accredited implementing partners through information sharing, capacity building and project preparation. It intends to support the implementation of the G20 Quality Infrastructure Principles, the UN Agenda 2030, the Sustainable Development Goals and the Paris Agreement. AIIB is aligned with international goals and frameworks and shares the commitment to improving quality and standards in infrastructure projects.

Building Partnerships

AIIB is being accredited to become an implementing partner with the Global Infrastructure Facility and an observer organization with the UN Framework Convention on Climate Change.