The Paris Climate Agreement, signed at COP 21 in Paris, on 12 December 2015, has strengthened the call to the financial community, in particular, to Development Finance Institutions (DFIs), regarding their contributions to climate action.
There is a collective recognition that a paradigm shift in development models is necessary to align them with the objectives set by the Paris Agreement. Furthermore, the Agreement places the ‘ownership’ of these development models at country level: firstly, through the publication of Nationally Determined Contributions (NDCs); and secondly the development and publication by 2020 of long-term (2050) low greenhouse gas emission development strategies, to be implemented “in the context of sustainable development”.
The Agreement also includes strong expectations regarding finance and in turn the financial sector, with one of its core objectives being to “make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”. This objective builds on the main role public & private financial institutions can play to scale up and direct financing toward investments and assets that are necessary for transitioning to low-carbon, resilient economies globally, and achieve net zero carbon emissions in the second half of this century.
The Paris Agreement bears particular significance to development finance institutions, which are well placed to demonstrate the opportunities and returns of investments in sustainable development, and reduce the risks associated with them. Development banks – national, regional, international and multilateral – such as IDFC members and Multilateral Development Banks, already represent some of the largest providers of public finance for sustainable development. In accordance with their mandates, they can actively contribute to “mainstreaming” or “integrating” the sustainable development and climate agendas not only within the financial community, but also across all sectors, by scaling up and mobilizing finance and helping shape the policies and regulations needed for low-carbon, climate resilient development. Together, they can facilitate and accelerate the implementation of the Paris Agreement, continuously raising their ambitions.
In this context, the concept of ‘Aligning Finance’ with the Paris Agreement has emerged as the new frontier for increasing climate action ambition within the financial community. This concept means that the entire financing and investment portfolios, beyond the assets and projects that are directly beneficial for the climate and traditionally classified as climate finance, need to be made consistent with the Paris Agreement, including its long term goals.
At COP24, on December 2018, IDFC is also publishing a position paper on Aligning with the Paris Agreement.
At the first One Planet Summit in 2017, IDFC members committed to align with the Paris Agreement process, finance the trajectories and actions set by the countries and become a platform to mobilizing private finance towards climate and SDGs. IDFC took another step almost 1 year later, at COP24, by publishing a position paper on aligning with the Paris Agreement.
This paper confirms the rationale of aligning with the Paris Agreement for national development banks which mandate can be put at risk by increasing climate impacts. IDFC members have a special role to tackle climate building on their deep knowledge of the social and economic fabric of their country. They can provide useful policy feedback or advice to their constituencies and influence financial flows beyond their own operations. Their capacity to catalyze private investment is key for mobilizing investments for green infrastructure for example.
IDFC joins forces with the MDBs with the publication of “Lesson Learned : from three years of implementing the MDB-IDFC common principles for climate change adaptation finance tracking”
In 2015, as a voluntary joint initiative, the members of the Multilateral Development Banks (MDBs) Climate Finance Tracking Working Group and the IDFC Climate Finance Working Group agreed on a set of Common Principles for Climate Change Adaptation Finance Tracking.
Since then, these Common Principles have guided the preparation of adaptation-related interventions and the tracking and reporting of adaptation finance by MDBs and several IDFC members, including US$ 18.6 billion of adaptation finance that members of the MDB Climate Finance Group delivered during the period 2015-17, and US$ 20.5 billion of adaptation finance that IDFC members reported during the same period.
The experience of applying the Common Principles over the past three years has generated important lessons, not only on the tracking and reporting of adaptation finance but also of mainstreaming adaptation into investment operations. These may be of interest to a range of public and private organizations working on adaptation finance, climate finance and sustainable finance more broadly.
The entire financing and investment portfolios, beyond the assets and projects that are directly beneficial for the climate and traditionally classified as climate finance, need to be made consistent with the Paris Agreement, including its long term goals.