The Paris Climate Agreement, signed at COP 21 in Paris, on December 12th, 2015 has strengthened the call to the financial community, in particular, to Development Finance Institutions (DFIs), regarding their contributions to climate action.
What progress for Public Development Banks Alignment with Paris Agreement since the FICS 2020 ?
On the occasion of the Finance in Common 2021 Satellite Event “On the way to FICS 2021 and COP26” held online on October 18th, 2021, IDFC members in association with the European Investement Bank (EIB), the CDC Group, the European Development Finance Institutions (EDFIs) and the Multilateral Development Banks (MDBs), gathered to assess the progresses made since the Public Development Banks joint declaration signed on November 2020 at Finance in Common 2020 on their commitment to align their financial power, representing 10% of global investments, with the Paris Agreement.
During this event the IDFC also published the “Green and Climate Finance Mapping 2021” key figures, i.e. the financing carried out in 2020 by IFDC members.
- More than US$1 trillion committed to green finance since 2015 – overcoming the initial commitment of reaching this threshold by 2025 – including US$185 billion in 2020
- Adaptation projects accounted for US$27.4 billion, up 42% from 2019 and x5 since 2016
- US$14 billion committed on biodiversity in 2020. Biodiversity finance is mentioned for the first time in the Green and Climate Finance Mapping.
IDFC published this year an operational framework developed by two independent think tanks, the New Climate Institute (NCI) and the Institute for Climate Economics (I4CE). This framework provides clear and practical guidance on how IDFC members – and the financial community at large – can reach a better alignment of their strategies, programs and operations with the requirements of the Paris Agreement.
Update of the 2015 “Common Principles for Climate Mitigation Finance Tracking” to a new version fit for 2021
Since 2015, Multilateral Development Banks (MDBs) and IDFC members are using jointly developed Common Principles for Climate Mitigation Finance Tracking for guiding their common understanding on what can be counted as mitigation finance. These principles have been updated in a new publication.
The revision of the Common Principles involves an enhanced ambition for reducing greenhouse gas emissions, taking into account new mitigation activities required to meet the goals of the Paris Agreement and excluding activities that, while reducing greenhouse gas emissions in the short term, may maintain highly emissive technologies for several more years, thereby undermining the long-term temperature goal.
The updated principles set more ambitious standards, requiring for instance transitional activities to “comply with high performance country- or sector-specific standards, benchmarks or thresholds for GHG emissions or emission-intensity that significantly exceed expected performance in a sector or activity”.
IDFC members in Latin America & Africa are fostering their alignment with the Paris Agreement Objectives
The CAF (Corporación Andina de Fomento) wants to become the green bank of Latin America
« From CAF we put forward an agenda to become the green bank of Latin America, which is based on aligning economic sectors to draw guidelines that redirect their planning framework towards social responsibility and environmental sustainability. Under this approach, together with allies like the members of the IDFC, we seek to generate a competitive financial offer as well as technical solutions that will allow Latin America to become a prominent player in global climate action »
Sergio Díaz-Granados, Executive President of CAF – Development Bank of Latin America
The DBSA has developed new frameworks to align with the Paris Agreement
- The Development Bank of Southern Africa(DBSA) developed its Climate Change Policy Framework to set specific targets for financial flows into mitigation and adaptation projects and programs with the view of enhancing alignment with the Paris Agreement.
- Recently, an Integrated Just Transition Investment Framework (which incorporated an Integrated Energy Sector Investment Strategy) was approved by the DBSA board. The Framework document aims to curb the rise in high carbon intensive investments, address transition risk, whilst simultaneously ensuring human rights, social equity and biodiversity needs were addressed. The criteria reinforce DBSA commitment to align with the Paris Agreement.
- For several years, DBSA has pursued a range of other policy frameworks to address sustainability issues. These initiatives are now being integrated into an Integrated Sustainable framework that would also define the Bank’s net zero pathway.
Alignment with the Paris Agreement : A key objective for IDFC
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 positioned 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 the Finance in Common Summit High Level Event “European and Global Leadership for Paris Alignment: Committed to Action” held on November 12, 2020, the IDFC, through the voice of its co-chair, Patrick Dlamini, CEO of the Development Bank of Southern Africa (DBSA), announced the Club’s new commitments to fight climate change.
At the Climate Action Summit in New York in 2019, IDFC also pledged to deploy more than US$ 1 billion in climate finance by 2025, an increasing portion of which will be allocated to adaptation.
At the Finance in Common Summit session, the IDFC co-chair, Patrick Dlamini, reiterated IDFC’s past commitments, and presented new measures. They include tools to operationalize alignment with the Paris Agreement, the consideration of social issues in the context of COVID 19 and the climate-biodiversity nexus. The Club also announced several milestones such as the creation of the IDFC Climate Facility launched during COP25, and the strategic partnership with the Green Climate Fund (GCF).
In December 2017, IDFC members have committed to align their financial flows with the objectives of the Paris Agreement by pursuing six goals:
- Increasing climate finance;
- Supporting country-led strategies;
- Mobilizing the private sector;
- Promoting adaptation and resilience;
- Supporting the energy transition and;
- Recognizing the need for internal transformation of financial institutions.
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.
In 2015, IDFC joined 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”
IDFC presented tools to operationalize alignment with the Paris Agreement – including through a strategic partnership with the Green Climate Fund and the creation of a climate facility launched during COP 25. We also reaffirmed the need to tackle climate change and biodiversity loss as intertwined challenges while simultaneously addressing social issues in the context of COVID-19.