The world’s multilateral development banks (MDBs) are in a catalytic position as providers of climate finance. These banks often leverage multiple times their investments in private investment and support governments with economic planning. Development banks have also committed to aligning their financial flows with the Paris Climate Agreement.
Our new E3G report, launched last week at the Bonn UN Climate Change meetings, sought to explore this issue and assess how far the main development banks are aligned with Paris goals. The report covers sixteen different indicators, informed by the Taskforce on Climate-related Financial Disclosures. This article focuses on technical assistance to support Paris climate commitments, and greening the financial system.
Supporting Paris NDC pledges
NDCs – known as Nationally Determined Contributions – are the operating instruments of the Paris Agreement and are the country pledges through which the agreement is set to be implemented. But how are the world’s main development banks supporting the NDCs to be actioned?
According to our analysis, the Inter-American Development Bank (IADB) leads the way in its technical support for NDCs with NDC Invest. Designed to be a one-stop-shop for countries who wish to access support for Paris pledges, NDC Invest is a comprehensive assistance package, helping public and private sector stakeholders to develop investment plans, as well as supporting innovative business models and market development services.
The European Investment Bank (EIB), African Development Bank (AfDB) and Asian Development Bank (AsDB) have a range of initiatives to support countries’ with their climate change goals. The Asian Development Bank is working to launch a dedicated NDC support platform, while African Development Bank has launched the Africa NDC Hub with 10 partners. EIB has a technical support package including EFSI and now URBIS which aims to accelerate implementation of the Paris Agreement.
World Bank and the European Bank for Reconstruction and Development do not have a public website for their NDC support initiatives at present. Given these initiatives are demand-led, these institutions may not be providing enough information about their comprehensive support packages.
The World Bank, as a member of the NDC Partnership, has identified other trust funds housed by the World Bank that are relevant for NDCs. While this can be helpful with signposting, it is important to note that an initiative may not even have to be badged as ‘NDC’ support or even ‘climate finance’ in order to help implement Paris climate goals.
Each of the MDBs has integrated climate into their country work to some degree. For example, AfDB has issued guidelines, and World Bank is taking into account climate change in its Strategic Country Diagnostics. However, it remains to be seen how the guidelines will be implemented in practice. More research is needed on this, and Germanwatch, WRI and New Climate Institute are now starting some work looking at individual country strategies.
2050 planning and greening the financial system
It is clear the NDC pledges under the Paris Agreement are not ambitious enough for the earth’s climate system to stabilise. Collectively, the individual pledges committed under Paris only take us up to the year 2030 and leave the world at around 3°C degrees of global temperature rise.
At this level of ambition, the world is not likely to meet the Paris goals, and instead would face dramatic changes including potentially the loss of coral reefs and huge migration. Tipping points could destabilise the climate even further. Under a worse-case scenario, the World Bank itself has estimated that we could see over 140 million people becoming climate migrants by 2050, creating a looming human crisis.
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The research on MDBs also looked at whether development banks are offering support on deep decarbonisation and long-term planning up to 2050, including addressing climate impacts under long-term scenarios.
When we began our research only the IADB was offering such long-term support with its technical support for modelling on deep decarbonisation pathways. However, at a recent event organised by the Big Shift coalition – which is a coalition calling on the World Bank to shift its investments to clean energy – World Bank staff noted that the Bank has begun analytical work planning for 2050.
European Bank for Reconstruction and Development (EBRD) is also providing technical advice to Kazakhstan and Egypt in better understanding the fiscal implications of the green transition and stranded asset risks. Most MDBs are offering some kind of technical assistance on fossil fuel subsidy reform, although we argued EIB could do more on this.
Beyond the energy sector, MDBs can have a role in sustainable infrastructure and greening the financial system. We identified the World Bank’s CAPE initiative as an example – aiming to provide a capacity-building forum for finance ministries. The study also highlighted several innovative instruments to scale up private climate investment. Among these, the African Development Bank’s Facility for Energy Inclusion is expected to catalyze energy access for an estimated 3 million people.
Development banks have played a pioneering role in green bonds but can also support intermediaries, SMEs and local institutions in greening their investments. To show leadership the MDBs should aim to green their own investments at a faster pace by phasing out fossil fuel financing. Our research found many of the MDBs are still investing large sums in fossil fuels.
The infrastructure which the MDBs are financing now could still be around in 2050. For example, a gas transmission pipeline can have a useful life of 80 years, and such pipelines may become obsolete by mid-century. If we are going to get to net zero emissions in the second half of this century, MDBs may have to think longer term.