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 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 following six objectives:
- Increasing climate finance;
- Supporting country-led strategies;
- Mobilize the private sector;
- Promote adaptation and resilience;
- Support the energy transition and;
- Recognize 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.