3 April 2015: Over two dozen development finance institutions are working on common sets of principles that each will use for tracking climate finance. The first set for tracking mitigation finance has been agreed and similar principles for tracking adaptation finance and the ability to leverage finance will follow later this year. Rachel Kyte, World Bank Group Vice President and Special Envoy for Climate Change, said that common methodologies will help “build trust that climate finance is flowing.”

While development finance institutions have been tracking climate finance for only a few years, their methods have differed, making it difficult to compare global public finance numbers and sometimes leading to double counting resources. Approximately four years ago, the multilateral development banks (MBDs) began jointly reporting on climate finance. They have been “fine-tuning their harmonized framework,” and reported nearly US$75 billion in climate finance from 2011 to 2013.

In addition, the International Development Finance Club (IDFC) developed a process for its 22 national, regional and international development finance institutions, which include the Japan International Cooperation Agency (JICA) and Germany’s KfW. In 2013, IDFC members reported US$87 billion in climate finance.

Over the past year, the MDBs and the IDFC have been working together to develop the principles, guidelines and definitions in the Common Principles for Climate Mitigation Finance Tracking that were agreed to at a Climate Finance Forum, held in Paris on 31 March 2015.

The principles themselves provide common definitions and guidelines for tracking climate finance, while implementation, reporting and quality control are left to each institution. Activities under the common mitigation principles must promote “efforts to reduce or limit greenhouse gas (GHG) emissions or enhance GHG sequestration.”

The guidelines provide a list of activities that can count as climate finance in the areas of: renewable energy; lower-carbon and efficient energy generation; energy efficiency; agriculture, forestry and land use; water and wastewater; transportation; low-carbon technologies; non-energy GHG reduction technologies, such as carbon capture and storage (CCS); and cross-cutting issues, such as support for developing carbon markets, and policies and regulations. Finance is counted when the project is approved and finance committed.

The principles also: outline guidance for disaggregating climate finance from other activities; and encourage banks to be conservative in their reporting when the data and how to disaggregate it is unclear.

The MDBs and the IFDC are also developing guidelines to track adaptation, which necessitates more context and analysis regarding how each project is connected to vulnerability, and discussing potential indicators that could streamline the process. The MDBs are also aiming to develop a framework for calculating leverage across different financial instruments. [World Bank Press Release] [Common Principles for Climate Finance Mitigation Tracking] [IDFC Website]