Toward Paris alignment: How the Multilateral Development Banks Can Better Support the Paris Agreement

The world’s climate goals can only be reached with enough financial support. Large-scale investments are needed in energy, transportation, and agricultural systems to ensure that countries can meet the needs of their populations without jeopardizing climate stability. And money must stop flowing to high-emission sectors and activities that exacerbate climate vulnerability, such as new apartment towers in flood-prone coastal zones.

Multilateral development banks (MDBs) can play a vital role in efforts to shift global finance toward a sustainable future. Each year, these institutions invest around $150 billion, mostly in developing and emerging economies. They also influence the financial decisions of others. By reducing risks associated with individual investments they steer public and private finance toward (or away from) activities that are vital to the transition to lowcarbon and climate-resilient economies. Through policy, technical, and research support they also help shape the rules that guide public and private investment decisions around the world.

This report answers the question: what does it mean to invest in a way that is aligned with the Paris climate goals? It describes the actions that multilateral development banks have already taken to support climate-compatible development, the challenges remaining, and the additional steps that they can take to catalyze more rapid change.

In recent years the international community has tracked how much money is flowing to activities specifically aimed at climate change mitigation or adaptation. This counting exercise aims to shed light on whether financial institutions are reaching funding targets, including the commitment to
raise $100 billion of climate finance per year by 2020.

This report recognizes the importance of climate finance but calls for the MDBs to go further, ensuring that their whole portfolios—not just the climate-finance portions—are supportive of the Paris goals and that MDB-financed projects do not undermine the Paris Agreement. After all, climate goals can only be reached if all finance – including the trillions invested around the world annually– shift from high-emitting and maladaptive investments to sustainable alternatives.

The lessons and recommendations in this report are pertinent for a broad array of actors who want global financial flows to support accelerated climate action. Finance ministers and other senior officials who oversee the MDBs can use the report to understand how to strengthen MDB action on climate change. MDB staff and management can use it to restructure their investment portfolios.

Citizens and civil society groups can use it as a basis for encouraging the MDBs to go farther, faster. The recent report of the Inter-Governmental Panel on Climate Change (IPCC) has made it clear that the world faces an all-hands on deck moment. This report shows how the MDBs can lead the way.