E3G report analyses the world's six main development banks and finds many of their climate strategies wanting
The world's six major multilateral development banks have to date made only mixed progress towards aligning their operations with the Paris Agreement, despite each having pledged to shift financial flows in line with international climate goals.
That is the conclusion of a new analysis by think tank E3G, which argues the world's leading financial institutions need to develop a coherent approach to green investment and climate risk.
With the world expected to invest around $90tr in infrastructure over the next 15 years, investment decisions made now are likely to lock in either high or low carbon pathways for years to come. Consequently, institutions such as the World Bank and the European Investment Bank (EIB) are widely seen as having a crucial role in tilting investment flows away from high carbon assets in support of the goals of the Paris Agreement.
E3G argues that, as publicly funded institutions, development banks occupy a unique position as they can leverage public money to boost private capital, while also having a duty to ensure their investments are in the wider public interest and are not overly risky.
Only this week, for example, an initiative involving the Welsh Development Bank was announced that will make Wales the first country to ensure all its Help To Buy top-up loans are assessed against the energy efficiency of the property being purchased. It means first time buyers of more efficient homes in Wales will be able to borrow more money than those buying less efficient homes.
But while E3G's new analysis this week highlights positive progress on climate risk and green investment flows among the six major global banks, it also raises concerns that some institutions are failing to shift their strategies quickly enough and restrict financing for fossil fuel projects.
Multilateral development banks "have the potential to lead the world towards a sustainable transition" and several are making progress towards building a low carbon and resilient economy, E3G said. "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," the report added.
Based on 16 criteria covering governance, strategy, risk, operational management and transformational initiatives, the report assesses the progress of the six main development banks investing in global infrastructure: the African Development Bank (AfDB); Asian Development Bank (AsDB); the European Bank for Reconstruction & Development (EBRD); the EIB; the IADB; and World Bank Group (WBG).
The IADB scored the highest, followed closely by the EIB and the World Bank Group. However, the EBRD lagged furthest behind at the bottom of E3G's climate rankings, with the report urging it to "immediately rule out oil finance as well as putting in place a timeline for ruling out gas investments by 2020".
According to the banks' own estimates, they altogether committed more than $27bn in climate finance in 2016, yet some of the banks are still investing almost as much in fossil fuels as they are in energy-related climate finance, the report states.
Moreover, E3G found gaps in data availability and transparency across all the banks, with limited data on the ratio between green and brown energy finance.
As such, E3G called on all banks to not only shift their strategies away from financing fossil fuel projects, but to additionally begin tracking and self-reporting their own alignment with the Paris Agreement and take better account of the risk posed by climate change to their portfolios.
It also said the banks should "go beyond offering support on Paris goals and offer technical assistance on long-term pathways that align with the goal of achieving net zero greenhouse gas emissions".
In response the EBRD hit back at E3G's analysis, which it said was based on "outdated information" and was "conducted without inclusive engagement, which contradicts its intents".
E3G on the other hand strongly refuted claims it had not sought to engage with the EBRD. On the contrary it said it had emails showing it contacted the Bank on three separate occasions to gather inputs to its methodology, as well as to share an advanced copy of the report.
Nevertheless, the EBRD said it had mainstreamed climate mitigation and resilience into the Bank's business, having worked on a number of green finance initiatives for more than two decades. It also highlighted case studies included in EBRD's latest sustainability report which was published this week. Moreover, it pointed out that the EBRD was the first multilateral bank to sign up to recommendations from the Taskforce on Climate-related Financial Disclosures (TCFD) and was also currently updating a number of its policies covering transport, energy, and environmental issues.
"The EBRD believes that the methodological approach of the E3G analysis doesn't reflect the EBRD achievements and its leading role in mobilising climate finance and help creating the conditions for market based response to climate change," the EBRD said in a statement issued to BusinessGreen. "To say that we are behind on climate risk is plainly wrong."
Clearly, the importance of leveraging public investment in support of the low carbon transition is something all the major development banks now recognise, and the E3G report notes their progress in the years since the Paris Agreement was signed. Yet until their risks are fully accounted for and investments in high carbon industries are completely curtailed, development banks will continue to face pressure and scrutiny from climate campaigners.
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