6 December 2018: The World Resources Institute (WRI), Germanwatch, NewClimate Institute and Fundacion Avina (FA) have released a report that considers how multilateral development banks (MDBs) can better support alignment with the objectives of the Paris Agreement on climate change. Launched at the Katowice Climate Change Conference, the report calls for MDBs to transition from a ‘Climate Finance Paradigm’ towards a ‘Paris Alignment Paradigm’ in which the banks consider the relationship of their portfolios to global climate goals.

At the start of the 24th session of the Conference of the Parties (COP 24) to the UNFCCC, a group of MDBs announced that they will collaborate to develop a dedicated approach to focus on six core areas of alignment with the Paris Agreement. In a declaration, the MDBs announced their intention to develop methods and tools to operationalize this effort.

The WRI report titled, ‘Towards Paris Alignment: How the Multilateral Development Banks Can Better Support the Paris Agreement,’ highlights the critical role of MDBs in helping countries meet the goals of the Paris Agreement. The report reflects that, to date, MDBs have largely operated under a climate finance paradigm that focuses on defining, tracking and maximizing the amount of finance that MDBs provide and mobilize for climate change mitigation and adaptation. To achieve the Paris Agreement, the report argues that MDBs need to move beyond this approach to transition to a ‘Paris Alignment Paradigm’ in which MDBs continue to maximize climate finance but also bring their pipelines and portfolios in alignment with the Paris Agreement’s mitigation and adaptation goals.

On adaptation, the report recommends that MDBs move towards mainstreaming adaptation across all MDB operations, including planning for a world that is 3-4°C warmer than today. The report finds that a majority of MDBs have a six-step process in place to determine whether proposed activities will be exposed to climate hazards, such as droughts, flooding or storms. The report highlights a number of other efforts on adaptation, including internal guidance aimed at building internal staff capacity on adaptation and technical assistance to clients focused on increasing their awareness and knowledge of climate-related risks and their ability to identify and manage impacts. The report recommends, inter alia: integrating climate change into due diligence processes; incentivizing integration of climate risks through performance metrics and targets; helping pay for resilience assessments and investments in resilience to reinforce the idea that climate considerations are integral to MDB efforts; investing in identifying strategic short- and long-term adaptation opportunities; integrating climate resilience into monitoring and evaluation; and focusing on engaging with private actors in key adaptation sectors.

The EBRD, IDB and EIB are the only banks that publicly report portfolio-wide gross emissions from their lending activities.

On mitigation, the report calls for MDBs to embrace the need for net zero carbon dioxide (CO2) emissions by mid-century, arguing that banks need to quickly move to stop supporting energy sources that create CO2 emissions, such as fossil fuel generation and other high-carbon projects that could undermine climate goals. MDBs have a number of tools to support climate mitigation, although the report finds the use of these tools varies from bank to bank: for instance, some MDBs do not fund activities related to oil and gas development; others limit support for coal-fired power plants. Similarly, the European Investment Bank (EIB) is the only MDB that uses an emission standard for its electricity and heating investments. Further, each bank has slightly different policies for greenhouse gas (GHG) accounting: the European Bank for Reconstruction and Development (EBRD), the Inter-American Development Bank (IDB) and the EIB are the only banks that publicly report portfolio-wide gross emissions from their lending activities.

The report further recommends that MDBs help client countries implement and develop stronger nationally determined contributions (NDCs) and long-term strategies into development pathways. For instance, the report suggests that MDBs elevate the importance of NDCs and long-term climate goals in their flagship knowledge products, annual reports, high-level dialogues and communications and speeches by MDB senior management.

On transparency, the report recommends that MDBs embrace transparency on how they support the climate goals. The report reflects that the ‘Common Principles for Climate Change Mitigation and Adaptation Finance Tracking’ have helped catalyze climate ambition by inducing “climate finance related competition among the banks.” Still, the report identifies some weaknesses with climate finance tracking: the methodology is not explicitly aligned with the Paris Agreement and focuses on finance inputs, not impacts, making it difficult to identify the effect of investments on global emissions and climate resilience and what types of investments have the greatest impact. The report recommends that MDBs, inter alia: continue to improve reporting on climate finance to reflect the Paris Agreement temperature goal; report more systematically on impacts of climate finance, including data on gross emissions and emission reductions associated with mitigation finance per project and aggregated at a country or sector level; provide project-level data on mitigation and adaptation finance; agree to a uniform reporting methodology for all their investments; and start reporting in a way compatible with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. [Publication: Towards Paris Alignment: How the Multilateral Development Banks Can Better Support the Paris Agreement] [WRI Landing Page for Publication] [NewClimate Institute Landing Page for Publication] [NewClimate Institute Press Release]