14 June 2018: Reports released May and early June 2018 show, among other developments, that: mitigation finance provided by multilateral development banks (MDBs) reached a new record in 2017; more and more countries and subnational jurisdictions implement carbon pricing mechanisms; and climate-related financial disclosures are increasingly popular with banks and businesses. MDBs and commercial banks have also announced changes in their financing policies to support a low-carbon transition in line with the Paris Agreement.

MDB Climate Financing Increased 28% in 2017

The 2017 ‘Joint Report on Multilateral Development Banks’ Climate Finance’ finds that the world’s six largest MDBs increased their climate financing in developing countries and emerging economies in 2017 by 28% compared to the previous year. The report estimates that climate finance increased from US$27.4 billion in 2016 to US$35.2 billion in 2017, a record high for MDB climate finance. Of the total amount, 79% (US$27.9 billion) was allocated to climate mitigation and 21% to financing for climate adaptation. The finance was mostly provided in the form of loans (81%), with financial instruments such as policy-based lending, grants, guarantees, equity and lines of credit making up the other 19%. The report highlights that the alongside the funds received from MDB sources, the same projects also mobilized an additional US$51.7 billion from other sources in 2017.

The report marks the seventh year of joint reporting on climate finance accounting by the African Development Bank (AfDB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Inter-American Development Bank Group (IADB) and the World Bank Group. [EIB Press Release]

Commercial Banks Revise Energy Policies to Increase Alignment with Low-carbon Transition

In energy infrastructure financing, two commercial banks have pledged steps towards aligning their energy lending policies with the Paris Agreement. HSBC has announced that it will no longer finance new offshore oil or gas projects in the Arctic or new greenfield oil sands projects. It has also announced that it will stop financing new coal-fired power plants globally, with the exception of Bangladesh, Indonesia and Viet Nam. In these countries, the bank may continue to do so until 2023 on a case-by-case basis where independent analysis confirms the country has no “reasonable alternative” to coal.

Royal Bank of Scotland (RBS) has gone a step further in its announcement to stop financing new coal fired power stations, new thermal coal mines, oil sands projects, and Arctic oil projects, worldwide without exception. The bank also announced that it will no longer provide finance to companies deriving more than 40% of their revenues from thermal coal or generating more than 40% of their electricity from coal. [HSBC Energy Policy] [RBS Press Release]

Financial Stability, Risk Reporting and Internalizing the Cost of Carbon

Internalizing the costs and opportunities related to climate change measures and impacts into financial decision making is increasingly being recognized as an important factor in maintaining financial stability. Indications of this trend could be seen in several reports and policy changes of MDBs. This issue was also highlighted at the G7 Charlevoix Summit, which took place on 8-9 June 2018, at which Leaders declared the importance of carbon pricing in the final G7 2018 Summit Communique. [G7 Charlevoix Summit Communique]

The World Bank has released a report assessing global trends in carbon pricing, finding that governments at national and subnational levels around the world are increasingly investigating carbon pricing initiatives as a means to reduce emissions while raising revenues. The report titled, ‘State and Trends of Carbon Pricing 2018,’ finds that so far 70 jurisdictions (45 national and 25 sub-national) have implemented, or are scheduled to implement, carbon pricing initiatives. The report outlines the rapidly growing incidence of carbon pricing measures globally and benefits governments are seeing. It finds that government revenues from carbon pricing increased 50% from 2016-2017, totaling US$33 billion. Sources of revenues include allowance auctions, direct payments to meet compliance obligations and carbon tax receipts. [World Bank Press Release] [Report Abstract] [State and Trends of Carbon Pricing 2018]

ADB has published its 2018 Sustainability Report, aiming to demonstrate how the bank’s operations, human resources, and facilities management are aligned with and contribute to the Sustainable Development Goals (SDGs). The report outlines that between 2015-2017, 58% of ADB’s project portfolio was directed to projects the bank describes as supporting environmental sustainability, totaling over US$28 billion. the publication notes that in 2016-2017, green bonds amounting to US$2.8 billion were issued towards channeling investor funds into low-carbon, climate-resilient development, and climate finance from ADB’s resource pool increased 64% from 2016, reaching US$4.8 billion in 2017. [ADB Press Release]

Following the announcement last month which saw the European Bank for Reconstruction and Development (EBRD) become the first MDB to support the Task Force for Climate-related Financial Disclosures (TCFD), EBRD and the Global Centre of Excellence on Climate Adaptation (GCECA) have published a report providing recommendations for companies to integrate climate impacts into their investment decisions. The report titled ‘Advancing TCFD Guidance on Physical Climate Risks and Opportunities’ makes several recommendations to firms, including: perform forward-looking risk assessments and disclose material exposure to climate hazards such as flood risk, water stress, extreme heat, storms, and sea level rise; investigate benefits from investing in resilience and opportunities to provide new products and services in response to market shifts; and use scenario analysis and incorporate long-term climate uncertainties into business planning and strategic decisions. [EBRD Press Release] [TCFD Website] [Advancing TCFD Guidance on Physical Climate Risks and Opportunities]

Solar Project Investments

As reported findings increasingly chronicle the growing share renewables are taking in global energy investments, recent project-related financing announcements include an ADB US$160 million renewable energy agreement for the first utility-scale solar PV plants in Indonesia, and US$125 million financing approved by the World Bank for a second solar power complex in Morocco. [Financial Times News Article] [Wall Street Journal News Article] [ADB Press Release] [World Bank Press Release]

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The SDG Knowledge Hub publishes monthly climate finance updates, which largely focus on multilateral financing and cover, inter alia, mitigation and adaptation project financing news and lessons, institutional events and news, and latest developments in carbon markets and pricing. Past climate finance updates can be found under the tags: Finance Update: Climate Change; and Finance Update: Sustainable Energy.