Multilateral development banks (MDBs) have committed to aligning their operations with the Paris Agreement. Doing so is not only an obligation flowing from Article 2.1c of the Paris Agreement, but also carries many advantages for the banks and their client countries: It will enable the fulfilment of the Banks’ broader development mandate and can support their client countries in meeting their national goals and in realizing development gains from leapfrogging to modern, zerocarbon technologies. It will also avoid a lock-in of high-carbon infrastructure and reduce exposure to climate-related financial risks due to stranded assets.
Aligning Investments with the Paris Agreement Temperature Goal: Challenges and opportunities for multilateral development banks proposes a definition of alignment with the Paris temperature goal, and reviews decision-making tools for assessing alignment and shifting portfolios used by seven major MDBs. It also proposes additional tools to assess Paris-alignment at project level for two particularly emissions-intensive sectors: energy supply and transport infrastructure.
The working paper also provides recommendations on how to align MDB operations with the Paris Agreement beyond direct investment financing, for example in financial intermediary lending and policy-based lending. It highlights the transparency needs to improve reporting on alignment of the overall portfolio and pipeline and disclosure of climate-related financial as well as finance-related climate risks.
The research aims at providing a better understanding of the current state of play and options for further action on aligning MDB investments with the Paris Agreement. Lessons can be derived not only for the MDBs but also for other development finance institutions and private financial institutions seeking to align their investments with the Paris temperature goal.