[SHANGHAI] The Asian Infrastructure Investment Bank (AIIB) said on Wednesday it has set up a US$500 million fund, which will be used for corporate bonds to finance infrastructure-related investments, in a bid to boost private capital into the sector.

The China-backed multilateral lender said it hoped the fund would help develop infrastructure as an asset class, grow debt capital markets for infrastructure and promote investments with a focus on environmental, social and governance (ESG) issues in Asia.

"If only a small fraction of the trillions of dollars currently under management by institutional investors were allocated to infrastructure projects, there would be a catalysing impact on Emerging Asia's growth potential," AIIB's director general for investment operations Dong-Ik Lee said in a statement.

"By setting up this portfolio, we hope to develop a proof of concept that over time will mobilise other like-minded investors to join us in cultivating an ESG market in Asia."

Asia faces an estimated US$460 billion investment gap for infrastructure, according to estimates from the Asian Development Bank. Analysts say some governments have struggled to prepare infrastructure deals in a way that is "bankable" and attracts private sector investment.

The AIIB said its "Asia ESG Enhanced Credit Managed Portfolio" will comprise corporate bonds issued by infrastructure-related issuers, including quasi-sovereign bonds and green bonds where proceeds are directed to investment such as sustainable infrastructure.

It said it would initially deploy its own capital to build awareness for ESG investing, and would support other investors to set up similar platforms or participate in AIIB initiatives, with the goal of establishing a ESG market in the region. 

REUTERS