ANKING ON REFORM ALIGNING DEVELOPMENT ANKS WITH THE PARIS 7 OECD (2018) OECD DAC External Development

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  • REPORT MAY 2018

    BANKING ON REFORM ALIGNING DEVELOPMENT BANKS WITH THE PARIS CLIMATE AGREEMENT

    HELENA WRIGHT, JAMES HAWKINS, DILEIMY OROZCO, NICK MABEY

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    Acknowledgements: We would like to thank all the experts who have contributed inputs and ideas including Jan Corfee-Morlot, Steve Herz, Kiri Hanks, Sam Fankhauser, Naeeda Crishna Morgado, Alan Searl, Alfred Helm, Alex Doukas, Julia Bingler, Peter Sweatman, Kate Geary, Laurence Connell, Anna Ostergren, Dom Molloy, Rob Moore, Steve Pye, Pedro Guertler, Matt Webb, Camilla Born, George Triggs and Robert Barbe, and staff from the Multilateral Development Banks. Photo credit: Flickr Shehal Joseph

    About E3G E3G is an independent climate change think tank operating to accelerate the

    global transition to a low carbon

    economy. E3G builds cross-sectoral coalitions to achieve carefully defined outcomes, chosen for their capacity to leverage change. E3G works closely with like-minded partners in government,

    politics, business, civil society, science, the media, public interest foundations and elsewhere. In 2016, E3G was ranked

    the number one environmental think tank in the UK. www.e3g.org

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    © E3G 2018

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  • 3 B A N K I N G O N R E F O R M

    CONTENTS About E3G ........................................................................................................................ 2

    Copyright ......................................................................................................................... 2

    EXECUTIVE SUMMARY ..................................................................................................... 4

    INTRODUCTION..............................................................................................................13

    CHAPTER 1 STANDALONE CLIMATE STRATEGY ............................................................. 16

    CHAPTER 2 INTEGRATION INTO SECTORAL STRATEGIES ............................................... 22

    CHAPTER 3 INTEGRATION OF CLIMATE INTO COUNTRY WORK .................................... 28

    CHAPTER 4 LEVEL OF TRANSPARENCY ........................................................................... 34

    CHAPTER 5 ENERGY EFFICIENCY STANDARDS AND INVESTMENTS ............................... 40

    CHAPTER 6 FORESTS AND AGRICULTURE ...................................................................... 49

    CHAPTER 7 FOSSIL FUEL POLICIES ................................................................................. 56

    CHAPTER 8 ENERGY ACCESS AND FUEL POVERTY ......................................................... 62

    CHAPTER 9 PORTFOLIO GREENHOUSE GAS ACCOUNTING AND REDUCTION ............... 69

    CHAPTER 10 CLIMATE RISK ............................................................................................ 76

    CHAPTER 11 SHADOW CARBON PRICING ...................................................................... 82

    CHAPTER 12 GREEN/BROWN ENERGY RATIO AND CLIMATE INVESTMENT .................. 87

    CHAPTER 13 TECHNICAL ASSISTANCE FOR IMPLEMENTING PARIS GOALS ................. 101

    CHAPTER 14 GREEN FINANCE ...................................................................................... 109

    CHAPTER 15 INNOVATIVE INSTRUMENTS ................................................................... 118

    CHAPTER 16 INSTITUTIONAL LEADERSHIP................................................................... 127

    CONCLUSIONS AND RANKING ..................................................................................... 131

    ANNEX .......................................................................................................................... 137

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    EXECUTIVE SUMMARY The Multilateral Development Banks (MDBs) have a crucial role in achieving the Paris Agreement and the Sustainable Development Goals (SDGs). The main six development banks have committed to align their financial flows with the UN’s Paris Agreement on climate change1. In this report, we assess their progress in this commitment.

    The world is expected to invest approximately US$90 trillion in infrastructure over the next 15 years. The investment choices over the next few years will start to lock-in a climate-smart and inclusive growth pathway or a high-carbon and unsustainable pathway for decades to come2. The multilateral development banks occupy a unique catalytic position in achieving the Paris goals - complementing governments limited resources and leveraging multiple times their investments from private capital. Moreover, MDBs assist client governments in planning and project preparation, and can play a role in providing economic advice on development pathways that last for decades. As publicly funded institutions, they have a duty to ensure their investments are in the wider public interest and that they are not financing harmful or risky activities. This report assesses the progress of the six main MDBs; the African Development Bank (AfDB), Asian Development Bank (AsDB), European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB), Inter-American Development Bank (IADB) and World Bank Group (WBG) in aligning their financial flows with the UN’s Paris Agreement on climate change. The assessment scores and ranks their progress across sixteen criteria within four different thematic areas: Governance, Strategy, Risk and Operational Management, and Transformational Initiatives3. MDB performance is rated on a scale ranging from ‘rogue’ to ‘transformational’. Analysis involved a combination of desk research, project-level data analysis and stakeholder consultations.

    1 IDFC-MDB Statement (2017) Together Major Development Finance Institutions Align Financial Flows with Paris Agreement

    2 New Climate Economy (2016). The Sustainable Infrastructure Imperative.

    3 These sub-categories of indicators were informed by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. See: www.fsb-tcfd.org

    https://www.afdb.org/en/news-and-events/one-planet-summit-joint-idfc-mdb-statement-together-major-development-finance-institutions-align-financial-flows-with-the-paris-agreement-17685/ https://newclimateeconomy.report/2016/ http://www.fsb-tcfd.org/

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    Key Findings and Recommendations The multilateral development banks have the potential to lead the world towards a sustainable transition. The final ranking shows that the Inter- American Development Bank is leading the way among the group in supporting the transition to a low-carbon and resilient economy. The European Investment Bank and World Bank Group also perform reasonably well. Nevertheless, none of these institutions has been shown to be transformational across the four different areas, demonstrating that these banks must do more to integrate climate change across their operations to help achieve the Paris Agreement goals. According to the MDBs own estimates, they committed more than US$27 billion in climate finance in 20164. However, some of the banks are still investing almost as much in fossil fuels as they do in energy- related climate finance. The revision of sectoral strategies over the next two years offers a key opportunity to align with the Paris Agreement.

    For all the MDBs, there were gaps in data availability and transparency5.

    MDBs should do more to share learning with one another on best

    practices and pool data to inform collective progress. Limited data was

    available on the green/brown energy finance ratio. It is therefore

    recommended the MDBs begin tracking and self-reporting on their

    alignment with the Paris Agreement.

    MDBs are also working in a range of ways to translate Paris pledges – known as nationally determined contributions (NDCs) - into investment plans. The research identified IADB’s NDC Invest6 initiative as a good example. Since country pledges under th